GAZPROM FIRMING UP ITS HOLD ON CENTRAL ASIAN GAS

Interviewed in the current issue of the journal Gazprom, the company’s Vice-Chairman Alexander Ryazanov announces the imminent creation of a Russian-Kazakh joint venture to process gas from Kazakhstan in Russia. Gazprom and Kazakhstan’s oil and gas state company, KazMunayGaz have agreed to supply gas from the giant oil and gas field Karachaganak, in western Kazakhstan, to the Gazprom-owned Orenburg gas-processing plant across the border in Russia.

Karachaganak is one of the world’s richest gas fields, with estimated reserves of 1.3 trillion cubic meters of natural gas, as well as 1.2 billion tons of gas condensate and oil. It is being developed by the Karachaganak Petroleum Operating consortium, which consists of Italy’s ENI state company and British Gas, with 32.5% interest each, the American company ChevronTexaco with 20%, and Russia’s Lukoil with 15%.

The Orenburg plant currently processes gas from Karachaganak at a rate of 6 billion cubic meters annually. The Gazprom-KazMunayGaz joint venture plans to supply 15 billion cubic meters of Karachaganak gas to Orenburg annually. They signed the joint venture’s memorandum of understanding in April 2005, are moving fast to sign the contract under advice from Deloitte & Touche, and plan to start production in January 2006 (Interfax, September 27).

In the same interview, Ryazanov announces Gazprom’s intention to bid for undersea exploration and development licenses on Turkmenistan’s Caspian continental shelf. According to him, Gazprom has purchased the investigative data on Turkmenistan’s offshore deposits from the British company that had performed the work. If true, this is a major coup that would give Gazprom a head start in the tenders that Turkmenistan will hold in 2006 for exploration and development licenses to its offshore gas fields.

While Turkmenistan’s offshore gas reserves are entirely unexplored, those onshore are incompletely explored, and the actual size of those explored and still recoverable is a matter of debate. At present, Ashgabat withholds from Gazprom and others the results of an international audit of the country’s onshore gas deposits. According to Ryazanov, Gazprom is reckoning with possible shortfalls in Turkmenistan’s gas deliveries to Russia. It has deliberately written “maximalist” volumes into the long-term supply agreement with Turkmenistan, expecting to lower those volumes in the annual sale-and-purchase contracts. (Interfax, September 27).

This procedure appears designed to preempt all of Turkmenistan’s available gas export volumes for Russia. Even without holding Ashgabat legally liable to deliver those “maximalist” volumes, it could prevent Turkmenistan from selling its gas to other countries unless and until it fully meets the commitments to Russia. This means a strategic gain for Russian policy and a financial windfall for Gazprom, which uses cheaply bought Turkmen gas within Russia while selling equivalent volumes of Russian gas at high prices to European Union countries.

Thus, in effect, a contractual monopoly is reinforcing the transit monopoly that Gazprom exercises through the “Central Asia-Center” pipeline from Turkmenistan via Uzbekistan and Kazakhstan to Russia. At the moment, Gazprom intends to overhaul that pipeline’s Uzbek section in order to pump 55 billion cubic meters of Turkmen gas annually (as well as Uzbek gas) to Russia.

Uzbekistan is now emerging as a major exporter of gas, and Russia as the monopoly importer, with a view to re-exporting the Uzbek gas at a profit. On September 26, President Islam Karimov received Gazprom chairman Alexei Miller in Tashkent. They discussed Gazprom’s interest in “privatizing” the export pipelines in Uzbekistan, including the “Central Asia-Center” and Bukhara-Urals branch lines.

Gazprom and Uzbekneftegaz state company executives signed a medium-term agreement for the period 2006-2010 on deliveries of Uzbek gas and transit of “other countries'” (that is, Turkmenistan) gas to Russia. Significantly, the Uzbek gas is to be marketed internationally by Gazprom “as part of Gazprom’s contracts” with third parties. Thus, the same arrangement as that for Turkmenistan is now being established with Uzbekistan, casting Russia as the monopolist intermediary and windfall winner, and Uzbekistan as loser for lack of alternative transit options.

Uzbekistan expects to deliver 8 billion cubic meters of gas to Russia in 2005 (3 billion above the plan for this year) and 10 billion cubic meters in 2006. These volumes are, however, only a fraction of Uzbekistan’s export potential. The country reported an output of 59 billion cubic meters in 2004, 4.1% up on the preceding year. Only a relatively small part of it is required for rational internal consumption, while the bulk should be available for export — i.e., for delivery to Russia. Gazprom is developing the gas fields on the Ust-Urt plateau while Lukoil is in charge of developing the Kandym fields. The output from these fields is pre-committed for export to Russia as well.

(Interfax, September 26, 27; Uzbek Radio first program, September 27)