Publication: Monitor Volume: 7 Issue: 3

On January 1, Turkmenistan halted deliveries of natural gas to Russia, the largest customer for Turkmen gas. President Saparmurat Niazov took this step after the Russian government, the Gazprom company and the latter’s affiliate Itera had refused to raise the purchase price above the extortionate one they had imposed in the year just past.

The Russian side purchased 20 billion cubic meters of Turkmen gas from January to September 2000 and another 10 billion cubic meters from October through December. It paid US$36 per thousand cubic meters under the first contract and US$38 under the second. In both cases, Russia paid 40 percent of the cost in cash and 60 percent through barter–that is, through mostly substandard goods and services.

During successive rounds of negotiations on a supply contract for 2001, Turkmenistan asked for US$41 and came down to US$40 per thousand cubic meters in the final negotiating round last month. It even accepted the continuation of the payments structure of 40/60 for cash and barter, after having asked for a 50/50 formula. The Russian side, however, refused to raise the price above the US$38 it had paid in the fourth quarter of 2000. According to Ashgabat, that price barely allows Turkmenistan to break even on the deal. But even a price of US$40 would almost certainly have failed to keep pace with the current international fuel price dynamics. The negotiations had envisaged deliveries of 30 billion cubic meters of Turkmen gas to Russia, including 10 billion destined for Western Europe.

Moscow’s strategy involves three steps: first, buying Turkmen gas below market prices through Gazprom’s trading subsidiary Itera; second, transiting the Turkmen gas through Gazprom’s pipeline system via Russia; and, third, reselling that gas to international customers as “Russian” gas at market prices–thus, at a hefty profit. Moscow is well placed to force that system on Ashgabat as long as the only major export pipeline out of Turkmenistan runs through Russia.

The leading French, German and Italian gas importing companies seem inclined to accept Moscow’s predatory strategy vis-a-vis Ashgabat. Those and other European Union countries are now seeking to diversify and increase their gas imports through long-term agreements with Russia. Russia’s gas output and export, however, are stagnating and are even projected to decline in the absence of capital investments to develop new fields in Russia. Moscow seems to have devised one solution to that problem at the expense of Turkmenistan.

Should it go forward, this solution may boomerang against European countries by strengthening Moscow’s position as the seller of both Russian and Turkmen gas to points west. In would, in effect, amalgamate Russia’s gas resources with the immense and barely tapped ones of Turkmenistan into a single pool under Moscow’s control. Such an amalgamation would encourage monopolization rather than market competition; and it would run counter to the European Union countries’ goal of diversifying their gas supply sources.

Turkmenistan accepted Moscow’s pricing terms in 2000 out of desperation to resume gas exports. At present, the country again badly needs a quick signing of supply agreements with Russia for 2001. Moscow, for its part, seems confident enough to hold out for maximum advantage to itself on the strength of geopolitics, not of market forces.

Niazov has mainly himself to blame as long as that predicament continues. He has personally put on hold the highly promising Trans-Caspian Pipeline Project (TCPP) for the export of Turkmen gas via Azerbaijan and Georgia to Turkey and, potentially, into the Balkans and Danubian Europe. That American-backed project is also strongly favored by the designated transit and customer countries, of which Turkey ranks as the world’s fastest-growing national market for gas. Niazov, however, advanced unreasonable financial preconditions which froze the negotiations with the TCPP consortium of the Bechtel, General Electric and Shell companies.

In pressing for short-term gains ahead of the project’s start, Niazov seemed to ignore TCPP’s long-term advantages over the Russian solution. Those advantages include: market prices, full cash payments, politically friendly customer countries, a Western modernizing presence in Turkmenistan, and–above all–an end to Moscow’s stranglehold on Turkmen gas exports.

The TCPP project is on hold, not withdrawn and not yet doomed. But unless activated immediately, it is likely to be preempted by the rival Blue Stream project to bring Russian gas to Turkey. That transit pipeline is about to be laid by Gazprom’s Italian state-controlled partner ENI from Russia to Turkey across the seabed of the Black Sea. Meanwhile, Turkey’s Botas company is already laying the overland stretch of that pipeline on Turkish territory. Blue Stream and TCPP are considered mutually exclusive because they target the same market with a comparable offer of 16 billion cubic meters annually in the first stage and 30 to 32 billion in the follow-up stage. International financing will go to whichever project advances faster and secures supply contracts with Turkey.

The Turkish government is, on the whole, exceptionally well disposed to Turkmenistan and is discreetly trying to nudge Niazov toward the American-supported TCPP. But Turkey suffers from a massive deficit of gas and needs immediate relief. Meanwhile, Blue Stream enjoys a significant head start over TCPP; and Ankara is also seriously considering Iranian gas imports through an existing pipeline in eastern Turkey to Erzurum. Iran, like Russia, is a competitor to Turkmenistan for gas. Also like Russia, it sits athwart the possible overland routes for the export of Turkmen gas. Across the Caspian Sea, Azerbaijan with its massive Shah-Deniz offshore gas field operated by British Petroleum Amoco also targets the Turkish market.

The proposed trans-Caspian pipeline consequently represents the sole viable option for Turkmenistan as well as being ideal for Turkey, for Georgia, and even for Azerbaijan. The latter country has demonstrated last year that it can agree with Turkmenistan to mutual satisfaction on sharing TCPP’s projected throughput capacity on the South Caucasus stretch. But the TCPP option will rapidly recede in the absence of an immediate go-ahead decision by Niazov (Turkmen State Press Service, Neytralny Turkmenistan, Zaman (Ankara), Dow Jones Newswires, December 27-January 2; Eastern Economist Daily, January 3; see the Monitor, October 5, 23, December 14, 2000).

The Monitor is a publication of the Jamestown Foundation. It is researched and written under the direction of senior analysts Jonas Bernstein, Vladimir Socor, Stephen Foye, and analysts Ilya Malyakin, Oleg Varfolomeyev and Ilias Bogatyrev. If you have any questions regarding the content of the Monitor, please contact the foundation. If you would like information on subscribing to the Monitor, or have any comments, suggestions or questions, please contact us by e-mail at, by fax at 301-562-8021, or by postal mail at The Jamestown Foundation, 4516 43rd Street NW, Washington DC 20016. Unauthorized reproduction or redistribution of the Monitor is strictly prohibited by law. Copyright (c) 1983-2002 The Jamestown Foundation Site Maintenance by Johnny Flash Productions