CENTRAL ASIA GAS UPDATE

Gas output data for 2004, just released by the three Central Asian producer countries, illustrate the region’s underutilized potential as a supplier to the West, the absence of a Western strategy in this regard, and Russia’s unchecked tendency to monopolize the marketing of Central Asian gas to Europe.

Uzbekistan’s state concern Uzbekneftegaz reported a whopping 59.9 billion cubic meters of natural gas extracted in 2004, up by 4% over 2003. In addition, the country’s oilfields (whose output declined in 2004) yielded 2.5 million tons of gas condensate. Uzbekistan is not known to have developed a well-considered export strategy for its gas to a seemingly uninterested European Union. For its part, Russia proposes to include Uzbekistan’s gas in the overall pool of a Russian-led, price-setting cartel of “Eurasian” gas exporters. An agreement signed by Presidents Vladimir Putin and Islam Karimov in June 2004 awards exploration and development rights for a 35-year period to Russia’s Gazprom company.

Kazakhstan reported an output of 21.5 billion cubic meters of natural gas in 2004, spectacularly up by 46% over 2003. The output included 11.5 billion cubic meters of natural gas and 10.5 billion cubic meters of associated gas. Of these volumes, the lion’s share came from the Karachaganak gas field, developed by an Italian-led consortium of mainly Western companies, and from the Tengiz oil field, developed by TengizChevroil.

Absent an export strategy for Kazakhstan’s gas, Russia has preemptively secured the right of transit for the future output from the Imashev gas field, in Kazakhstan’s Atyrau region on the border with Russia’s Astrakhan oblast. With proven reserves of 130 billion cubic meters of natural gas and 21 million tons of gas condensate, Imashev ranks second only to Karachaganak among Kazakhstan’s known gas fields. On January 18 in Moscow, Presidents Vladimir Putin and Nursultan Nazarbayev signed a land border delimitation agreement, under which Kazakhstan cedes a border village, where part of the Imashev gas field is located, to Russia, in return for an unproductive piece of land elsewhere. Along with the cession, Kazakhstan further agrees to develop the field jointly with Russia, undoubtedly implying delivery of the product to Russia. This arrangement reproduces that signed by Nazarbayev with Boris Yeltsin in 1998 on sharing the Kurmangazy offshore oilfield, the output of which is committed to export via Russia.

Turkmenistan’s state concern Turkmengaz reported 49 billion cubic meters of natural gas extracted in 2004, which is below expectations and certainly far below the country’s potential. The figure clearly reflects underinvestment in extraction. The ongoing, modest investments focus on spotty improvements in Russia-bound pipelines and local processing, against a backdrop of overall Western disengagement from the country that holds the key to the European Union’s supply diversification strategy in the years ahead.

At the moment, certain sectors are being upgraded on the export pipeline that runs from the vast Dauletabat gas field in southern Turkmenistan to the country’s northern border, for export to Russia and further to Ukraine. At the northern border, the Deryalyk compressing station is being expanded to increase the volumes and speed of deliveries bound for Russia. An agreement signed in April 2003 commits Turkmenistan — at least on paper — to delivering almost its entire projected gas output to Russia from 2009 onward.

Gazprom intends to use those volumes partly to supply certain regions of Russia, partly to re-sell to Ukraine — which has no supply contract with Turkmenistan for those years, thus risking dependency on Russia — and partly to meet Gazprom’s own commitments to European Union countries. Russia intends to add Uzbek and Kazakh gas volumes to a Russian-marketed overall pool. Moscow is luring the three Central Asian countries with the prospect of windfall profits in Europe and the prize of defeating the EU’s supply diversification policy. The EU would end up buying Central Asian gas as “Russian gas,” at Russian-dictated commercial mark-ups, also enabling Moscow to accumulate currency reserves which to manipulate international currency markets.

(Interfax, January 11, 28, 29; Gundogar web site, January 13; Neytralnyi Turkmenistan, January 19; Turkmen Television, January 18, 26).