Publication: Eurasia Daily Monitor Volume: 3 Issue: 113

Russia is now Turkmenistan’s top foreign trade partner thanks to sizable purchases of Turkmen natural gas in the first three months of 2006. Russia imported Turkmen goods worth $754 million (or 58% of all Turkmen exports), followed by Iran ($152 million or 12%), and Turkey ($150 million or 11.5%), according to Turkmenistan’s official statistics.

Overall, in the first quarter Turkmen exports reached $1.3 billion or up 3.7% year-on-year. Natural gas amounts to 61.5% of Turkmen exports, and oil products another 17%. Turkmenistan ran a healthy $429 million trade surplus in the first quarter of 2006, according to Turkmenistan’s official statistics.

In 2005 Turkmenistan’s top foreign trade partner was Ukraine, mainly due to purchases of some 75% of Turkmen gas exports. Last year Russia imported a mere 7.5% of Turkmen gas. In contrast, Turkmenistan plans to export 30 bcm (or more than half of its exports) to Russia this year, as well as 8 bcm to Iran, at $65 per 1,000 cubic meters (tcm, or 35,300 cubic feet).

From January to May, Turkmenistan pumped 28.8 billion cubic meters (bcm) of gas or up 1% year-on-year, while exports were down 1% at 19.9 bcm, according to Turkmenistan’s official statistics. Official statistics of both Russia and Turkmenistan do not disclose the amounts of Turkmen gas sold to Russia in the first quarter. However, Gazprom is understood to have snagged no less than a half of Turkmenistan’s 18 bcm of Q1 output and the bulk of the 12 bcm exported in the first quarter.

Economic ties between Russia and Turkmenistan have been subject to a fluctuating path of development. In 2001-2002, trade between Russia and Turkmenistan amounted to $175-180 million, in 2003-2005 it was reportedly up to some $250-300 million.

Volumes of trade between Russia and Turkmenistan appear directly linked to bilateral gas dealings. Notably, in 2000 trade between Russia and Turkmenistan amounted to $603 million because Turkmenistan sold 30 bcm of natural gas to Russia.

Russia has been keen to boost energy cooperation with Turkmenistan. At a meeting with Russian President Vladimir Putin in Moscow in January 2006, Turkmenistan’s President Saparmurat Niyazov pledged to cooperate with Russia in gas-transit projects.

However, Russia and Turkmenistan appear to disagree over gas prices. In January 2006 the Russian media reported that Turkmenistan planned to raise the price for its gas deliveries to Gazprom to $85/tcm at the Turkmenistan border from July on, up from the $65/tcm level agreed to for the first half of this year.

In April 2003 Russia and Turkmenistan signed a framework agreement on gas cooperation and a 25-year contract on gas supplies to Russia. In the deal Niyazov pledged to supply up to 100 bcm of gas to Russia from 2010 onward or a total of 2 trillion cubic meters in 25 years.

In December 2004, Turkmenistan halted gas supplies to Russia and Ukraine.. Ashgabat reportedly demanded $60/tcm, but Russia’s Gazprom declined to increase the price. In April 2005, Russia and Turkmenistan clinched a deal to end the price dispute. It was agreed that Gazprom would make all payments in cash at $44/tcm instead of the earlier barter arrangements.

In October 2005 Turkmenistan reportedly requested an increase in the price of natural gas supplied to Russia. On December 30, 2005, Gazprom agreed to buy 30 bcm from Turkmenistan at $65/tcm this year, including 15 bcm in the first quarter. Gazprom was understood to want to fill the pipelines from Turkmenistan to capacity and to prevent Turkmenistan from supplying gas to Ukraine under a separate deal — at least for the first quarter.

During the Ukraine cutoff in January 2006, all Turkmen supplies were reportedly diverted to Russia. Subsequently, Turkmenistan was understood to limit its gas supplies to Ukraine, accusing Kyiv of late or incomplete payments.

The Turkmen factor has becoming increasingly important in the strained relationship between Russia and Ukraine. Under the complex January 2006 agreement between Russia and Ukraine, 41 bcm of gas is to come to Ukraine from Turkmenistan via Gazprom’s pipelines, and up to 15 bcm from Kazakhstan and Uzbekistan. Under Gazprom’s January 4 contract with the Swiss-registered RosUkrEnergo, the trader is to sell gas to Ukraine at an average price of $95/tcm.

In the meantime, Turkmenistan has been seeking alternative export markets for its abundant gas resources. Last April Turkmen President Niyazov and Chinese President Hu Jintao signed a framework agreement on oil and gas cooperation. China pledged to purchase 30 bcm of natural gas annually over 30 years, starting from 2009. When a Turkmen government delegation visited Beijing in late 2005, an $80/tcm price for Turkmen gas was reportedly discussed.

Turkmenistan’s gas deal with China was seen as Ashgabat’s attempt to diversify its gas exports, cut dependence on Russia, and improve its negotiating position in talks with Gazprom over gas prices. Meanwhile, this year Turkmenistan appears to hardly have any other viable option but to sell the bulk of its gas to Gazprom.

(Turkmenistan’s official statistics from the National Institute of State Statistics and Information, Russian official foreign trade statistics from the Federal Customs Service as reported by RIA-Novosti and