Kazakhstan: Visionary Energy Highway between East and West



INSIGHT


  • KAZAKHSTAN HAS ENORMOUS GROWTH POTENTIAL AS A LOGISTICS HUB. THE COUNTRY IS THE CENTRAL HUB BETWEEN THE EUROPEAN AND EAST ASIAN ECONOMIES. WITHIN ITS OWN BORDERS, KAZAKHSTAN HAS NUMEROUS ENERGY RESOURCES TO DRAW ON, INCLUDING COAL, URANIUM, OIL AND GAS.
  • RESOURCES ARE THE SOLID BACKBONE ON WHICH KAZAKHSTAN RESTS. ENERGY SUPPORTS THE COUNTRY’S GROWTH, AS WELL AS CONNECTIVITY TO OTHER PARTS OF THE EURASIAN CONTINENT.
  • THE HORSE AND THE GRASSY PLAINS WERE THE ESSENTIAL MEANS OF TRAVEL. THINGS ARE A LITTLE DIFFERENT TODAY. NOT EQUINE POWER, BUT HORSE POWER AND ENERGY RESOURCES ENABLE KAZAKHSTAN TO REACH THE DISTANT SHORES OF THE EURASIAN CONTINENT.


1. Kazakhstan has become a hub for international trade. Trade is served by pipelines, highways and train connections across the Eurasian continent.


Over the past decade, Kazakhstan has made huge investments in its infrastructure. This has helped to expand and connect to disparate logistical networks. Investment in Kazakhstan’s economy has seen the construction of new roads and rail lines. They span the Eurasian plain and enable trade from East Asia to Europe and back from Europe to East Asia. Although the Silk Road existed many centuries ago, Kazakhstan was not at the center of this vast trading area. The Silk Road did not follow the northern corridor, which established itself as the core of the new Silk Road between Europe and East Asia.

The actual Silk Road ran farther south, closely touching the land of Uzbekistan. As the caravans advanced westward, they passed through mountain corridors that connected the dusty landscape, rocky elevations and ever-changing grasslands interspersed with small bushes and wooded areas on mountain slopes. Streams and dry riverbeds crossed the way of the traveler. This is the path that connects Central Asia with Iran. At that time, trade was even more sporadic than we can imagine today. The Silk Road was more of a bus route and was frequently interrupted by trading posts. There were various stops along the way. Goods were traded at each stop. It is not even plausible or necessary that a significant portion of the traded goods made their way to Italy. Many goods never made it that far. And most of the trade took place in Asia.

Things eventually changed. The centuries progressed and the modern era approached. More goods were traded. Trade became a very different animal. Goods were transported by both land and sea, as land transport was often more dangerous. It also took modern navigation, charting, and sailing ships to counter the pirates that were an ever-present threat on the high seas. As safety improved, more and more goods were traded and moved across the oceans rather than over land.

The sea offers many advantages. The cost of transportation per mile traveled by muel, dromedary, camel or, more rarely, horse was much higher than by sea. Watering a horse and feeding it with grass was quite expensive. Transporting goods on land, where there were no well-built roads, was a laborious undertaking. 

Railroads made inroads. The railroads had a decisive impact on the fortunes of Central Asia. What was once the symbol of Western dynamism, the sailing ship, is now the train steaming across the Eurasian steps. The horse has regained the horsepower. This one technology has decisively shifted the fortunes of Central Asia. The train lends itself to this landscape. Through the new Silk Road, the train has become a symbol, connecting East and West. But technical progress would not have been possible without energy. 

While it is true that maritime trade is less expensive and more energy efficient than land transport, this depends very much on the goods being traded. It also depends on whether there are goods that can be traded back and forth. Trade is rarely unidirectional. In other words, it always takes two to dance. It matters a great deal what is traded in the other direction. This is an essential part of the business, and with that in mind, let’s move on to the next chapter.


2. Pacific trade is not enough: Why Central Asia fills a critical need in the global energy system.


The Pacific Ocean is a vast space. Trade takes place on a gigantic scale. But what goods are traded, back and forth? The main focus is still on technology exports . These goods are send from East Asia and from Southeast Asia to North America. While this is happening in North America, trade is booming on the new Silk Road. We see that the wagons are booked weeks in advance. And while air transports had to be cancelled due to the coronavirus, rail transport is becoming more attractive than air freight. It is becoming cheaper to send goods by rail than by air. This trend is taking place in inter-Eurasian trade.

Electric vehicle components, agricultural products such as milk powder, and many other items are shipped from Europe to East Asia. On the way back, technology and household goods are sent back to Europe. Although demand is higher on the route from East Asia to Europe, more and more European-made goods are being sent back to East Asia. This booming trade should further cement Kazakhstan’s position as a central hub for trade throughout Eurasia

How does that fit in with energy? Power grids can only be built if there is a demand. A demand for what? We consume energy to transport goods from one place to another. For that, you need gas stations, you need an electricity grid. At some point in the future, the trains running on the Silk Road will be electrified. The local population will also benefit from the infrastructure. After all, the infrastructure serves not only international traffic, but also the exchange of goods within the country.

The construction of these links will further reduce the cost of transporting goods. Over time, the volume of goods traded will lead to greater energy efficiency and put downward pressure on the price of energy. The Silk Road will put Kazakhstan at the center of this initiative and make it the energy bridge between Europe and East Asia.


3. Kazakhstan: An international hub that benefits from hydrocarbons.


In many respects, Kazakhstan is an energy exporter par excellence. But this will not last forever. An increasing share of energy resources, such as oil and gas, will be used by Kazakhstan’s industry. This will also reduce the need for energy exports as Kazakhstan has other opportunities. The Silk Road may well be the cornerstone for realizing Kazakhstan’s full potential.

Of even greater importance is Kazakhstan’s relationship with China. China has experienced an unprecedented economic boom. China had growing energy needs. Only part of the energy demand could be met with domestic hydrocarbon reserves. Most of the energy came from provinces far inland. Here, the geographical distances to the Chinese coast are very great and the logistical challenges formidable.

Russia and Kazakhstan exported oil and gas to China to meet China’s growing energy needs. Just recently, there was the outbreak of coronavirus in China, which affected the Chinese economy. The SARS virus did not affect the Chinese economy as much, perhaps because China was not as connected by railroads and airplanes at that time. Although China is still feeling the effects of the coronavirus, this is not likely to be a long-term problem for China. The Chinese economy is already regaining momentum. Kazakhstan will benefit from this in two ways. On the one hand, Kazakhstan will increase its energy exports to China, which will help to expand economic relations between the two countries. On the other, there will most likely be a renewed zeal to push forward the Silk Road initiative. Major projects are awaiting completion and new pipelines are being laid.


4. Conclusion


Geopolitics shifts about every hundred years. The main geopolitical framework of the 21st century is the integration of the Eurasian continent. More and more regions will connect and create an energy network of global dimensions. This process will accelerate in the course of the 21st century.

Kazakhstan, with its energy resources and location in the heart of the Eurasian landmass, will likely benefit from increasing trade and energy wealth. In its energy policy, Kazakhstan positions itself as a major energy exporter. At the same time, Kazakhstan maintains close relations with both Russia and China. 


Many thanks for the shared interest in the energy world!



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