Eurasian Energy Briefs

By Roman Kupchinsky

Germany appears to be on the path to greater diversification of it natural gas suppliers.

On July 15, RWE signed an agreement with Turkmenistan which outlines conditions for the development of gas deposits in a section of Turkmenistan’s part of the Caspian shelf. According to the Warsaw-based Center for Eastern Studies, the agreement improved Germany’s chances of becoming the leading player in the export of Turkmen gas to the West as part of the Nabucco pipeline consortium.

Since the start of the still unresolved gas conflict with Russia in April 2009, “Ashgabat has been increasingly courageous in seeking closer co-operation with the West – for example, it has openly declared support for the projected Nabucco gas pipeline. Signing an agreement with Germany’s RWE while the gas conflict with Russia is ongoing is a way for Turkmenistan to strengthen its position in the gas negotiations with Gazprom concerning the terms on which the exports of Turkmen gas could be resumed.”

The European Commission along with international financial institutions agreed to extend Naftohaz Ukraine, the state-owned oil and gas monopoly, $1.7 billion in credits. Participating will be the European Bank for Reconstruction and Development ($750 million), the European Investment Bank ($450 million) and the World Bank $500 million).

The Commission had demanded a restructuring of the Ukrainian gas sector before extending any credits and apparently the Ukrainian government’s decision to raise domestic gas prices in September-October this year satisfied the banks.

Kommersant wrote that the Ukrainian government had asked for $4.2 billion, but this was rejected. Moreover, Naftohaz will only receive $300 in 2009, a sum which will hardly make a dent in improving the monopoly’s dire financial problems.

Exxon and Gazprom seem to be on a collision course. The Russian government is now demanding that Exxon divert gas from the Sakhalin-1 project to Russian domestic consumption in the Khabarovsk region and is mounting pressure on the U.S. company to drop plans to export gas to China.
“Given that nearly all the gas from the Sakhalin-2 project has already been sold under long-term contracts and other Sakhalin projects are not expected to start production in the medium term, the gas from Sakhalin-1 can be the only source for domestic supplies until at least 2015,” said Vladimir Kozlov, head of Gazprom’s Sakhalin office.

This is not an unexpected development. Western and Russian analysts have been predicting for years that Russia would use gas from Sakhalin island for domestic needs.

Speaking at the annual oil and gas conference in the island’s capital of Yuzhno-Sakhalinsk, Vladimir Kozlov, the head of Gazprom’s Sakhalin office, said the growing demand for gas in Russia’s four far eastern regions would reach 13 billion cubic meters by 2010 and further grow to 16 bcm and 19 bcm by 2015 and 2020, respectively.

This development will most likely strain Russian-Chinese relations and further scare Western investors from entering the Russian gas market.