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KAZAKHSTAN’S GROWING GAS EXPORTS TO GO RUSSIA’S WAY
Publication: Eurasia Daily Monitor Volume: 4 Issue: 97
By:
The rival energy summits, just held by pro-Western countries in Krakow and Russia-led countries in Astana and Turkmenbashi (see EDM, May 14-16), illustrated Kazakhstan’s accelerated drift into Russian-controlled, Eurasia-wide energy transport systems. This drift risks turning Kazakhstan into a component of Russia’s strategy to gain leverage over Europe by monopolizing Caspian energy supplies — the political objective of Russia’s energy strategy in Central Asia. Ironically, Kazakhstan’s oil and gas is extracted by Western companies before heading for Russia.
Evidently under Kremlin pressure, Kazakh President Nursultan Nazarbayev not only turned down Poland’s invitation to the Krakow summit, but also downgraded Kazakhstan’s participation even further by sending only a deputy minister there, instead of the energy minister as he had promised.
Demonstratively, the Kremlin timed the two-phased energy summit in Central Asia to coincide with the Krakow summit, reducing the latter to insignificance. By contrast, the meeting of Presidents Vladimir Putin and Nursultan Nazarbayev in Astana resulted in specific decisions to direct Kazakhstan’s growing oil and gas output to Russia, thus threatening the prospects of trans-Caspian westbound exports. The decisions made in Astana concern not only the existing production in Kazakhstan but also the additional production volumes due on stream in the next several years, thus extending Russia’s quasi-monopolization of energy export routes out of Kazakhstan.
Kazakhstan is committed to supplying 8 billion cubic meters annually to Gazprom’s processing plant at Orenburg in Russia. In Astana, the two presidents agreed to turn that plant into a Gazprom-operated joint venture, which will process growing volumes of gas from Kazakhstan for delivery to Europe through Russia.
The processed gas shall be priced at $145 per 1,000 cubic meters, and then sold in Europe at Gazprom-determined “market” prices averaging $250 and over. In this case, however, windfall profits from the price differential will accrue not only to Russia but also to Kazakhstan, proportionate to its share in the processing plant. The Kazakh side hopes for a price of $160 per 1,000 cubic meters, contingent on boosting the volume of deliveries from Kazakhstan to Orenburg.
Last year, the sides were negotiating about doubling to 16 billion cubic meters the annual gas deliveries to Orenburg, for processing and re-export through Russia. The reported gist of the Putin-Nazarbayev discussions in Astana confirms this intention. The source of existing and projected deliveries is Kazakhstan’s super-giant oil and gas field Karachaganak, under development by the Karachaganak Petroleum Operating (KCO) consortium. The stakeholders are Italy’s ENI (as project operator) and British Gas, with 32.5% each, ChevronTexaco with 20%, and Russia’s Lukoil with 15%.
Apart from supplying the Orenburg refinery, Kazakhstan is yielding to Russia by promising to join the gas transport system from Central Asia to Russia. The two-phased summit in Astana and Turkmenbashi confirmed the plan to modernize and expand the capacity of the Central Asia-Russia gas transport system with its two main components: the trunk line along the Caspian coast, Turkmenistan-Kazakhstan-Russia; and the other, larger trunk line, detouring from Turkmenistan to Uzbekistan and continuing again via Kazakhstan to Russia.
Russia already handles 100% of Kazakhstan’s small but rapidly developing exports of gas. Kazakhstan expects to boost marketable gas production from 27 billion cubic meters in 2006 to 45 billion cubic meters in 2010 and 60 billion cubic meters by 2015. A large share of it will be available for export. Absent a westbound trans-Caspian option, the new production will be directed to Russia through overland pipelines, just as the existing production.
The two gas deals just announced — on deliveries to Orenburg and expansion of transit pipelines to Russia — make business sense for Kazakhstan in narrow and non-strategic ways. It will receive some crumbs from Gazprom’s export price differentials on Orenburg-processed gas. And it will obtain revenue from the transit of Turkmen and Uzbek gas via Kazakhstan en route to Russia. But Kazakhstan will be unable to become a gas exporter in its own right, directly to Europe, where it could enjoy better prices than those offered by Gazprom as intermediary for Kazakhstan’s gas exports. Under these deals, and absent a westbound trans-Caspian option, Kazakhstan will remain totally dependent on Russia for the export of gas from the country, on top of its 90% dependence on Russian transit routes for oil.
At this time, almost certainly under Kremlin pressure, Kazakhstan seems to be suddenly distancing itself from the Western-backed gas pipeline project to supply Europe via the Caspian Sea, South Caucasus, and Turkey. Nazarbayev and Energy and Mineral Resources Minister Baktykozha Izmukhambetov invoked Kazakhstan’s “strategic partnership” with Russia during recent discussions on this subject with visiting Azerbaijani and U.S. officials, and again with the visiting Polish President Lech Kaczynski, when Nazarbayev declined to participate in the Krakow summit
The Kazakhs are not ruling out joining a trans-Caspian pipeline, but are publicly deferring to Russian arguments regarding the Caspian Sea’s legal status and seem to be conceding a Russian right of veto on the project. They also suggest overcoming Russian objections by including Russia in the project — as Nazarbayev also suggests regarding the Odessa-Brody-Poland oil pipeline project. Inclusion of Russia would, however, negate these projects’ raison d’etre as alternatives to Russian transit monopolies (see EDM, March 2, April 5).
Ultimately, Kazakhstan’s attitude to the trans-Caspian project will depend on U.S. and European political support to Kazakhstan and Turkmenistan in the face of Russian pressures as well as on clearly attractive Western commercial offers to Kazakhstan and Turkmenistan. Absent such support and such options, Central Asia will be integrated into Russia’s energy strategy, which in turn is geared to Russia’s political strategies in Europe.
(Interfax, Khabar, May 10-16)