Publication: Eurasia Daily Monitor Volume: 3 Issue: 138

On the sidelines of the G-8 summit, Kazakh President Nursultan Nazarbayev and Russian President Vladimir Putin signed a declaration on long-term cooperation in processing Karachaganak gas at Gazprom’s Orenburg plant. Both sides pledged to jointly develop the Karachaganak gas field and set up a joint gas-processing venture at Russia’s Orenburg plant to process no less than 15 billion cubic meters (bcm) per year of Karachaganak gas for subsequent supplies to domestic consumers and export markets.

Putin and Nazarbayev ordered their cabinets to draft and sign a formal joint venture agreement later in 2006. “Today, we have made a modest but noticeable contribution to energy security in terms of supplies to international markets,” Putin commented. “Via Russia’s gas transportation system, we are part of a serious alliance,” said Nazarbayev (RIA-Novosti, July 17).

The Karachaganak gas field, located in the Urals region of Kazakhstan, is less than 100 miles away from the Orenburg plant. Gazprom now reportedly imports 8 bcm/year of Karachaganak gas for the Orenburg plant. However, the members of the Karachaganak Petroleum Operating (KPO) international consortium have been understandably uneasy with the low prices offered by Gazprom. KPO hopes to raise gas output up to 25 bcm/year by 2012.

After the Sochi summit on May 20, Putin said the two countries had achieved progress in energy cooperation, including “joint production, processing, refining, and marketing of Kazakh gas” (see EDM, May 22). Subsequently, in early July Gazprom’s board approved a plan to launch the Karachaganak gas joint venture on a parity basis, aiming at increasing gas supplies from Karachaganak to the Orenburg gas processing plant up to 15 bcm a year.

In contrast, Turkmenistan, Central Asia’s major gas producer, and Russia failed to clinch a deal on gas supply prices at a meeting on June 29 between Turkmen President Saparmurat Niyazov and Gazprom CEO Alexei Miller (see EDM, July 5).

Turkmenistan confirmed it would supply Gazprom with 30 bcm of natural gas in 2006 at the previously agreed price of $65 per 1,000 cubic meters (tcm, or 35,300 cubic feet), Gazprom said. Turkmenistan offered Gazprom extra supplies in 2006 at $100/tcm and suggested this price be maintained for 2007, but the Russian gas giant declined the offer, according to Gazprom. Turkmenistan said later it could cut off supplies of natural gas to Russia if a new gas deal with a new price of $100/tcm was not signed by September.

Although Gazprom came up with a carefully worded statement when the Turkmen deal collapsed, Ashgabat opted to raise the stakes and moved to undermine Russian pledges of being a reliable energy supplier, on the eve of the G-8 summit.

On July 3, the Turkmen government lashed out at “double-faced scheming” as an attempt to deceive the Western leaders at the G-8 summit in St. Petersburg. On the eve of the summit, “Russia was desperately trying to give a facelift” to its battered image, the statement said. If Russia was honest about presenting itself as a reliable energy provider to Europe, now was the time to prove it, the statement said.

The Turkmen government said “the hypocrisy of Russian policymakers” undermined Europe’s energy security. The statement also said that “the real face of Russia under Putin” was clarified by the fact that Russia charged its European customers some $250/tcm, but described the Turkmen request for about 40% of that price as a threat to energy security.

Turkmenistan was particularly upset by the Russian gas agreement with Kazakhstan on significantly better terms. Gazprom agreed to import Kazakh gas in the second half of 2006 at $140/tcm, but started “chattering like agitated monkeys” when Turkmenistan asked for about 70% of that price, according to the Turkmen statement.

Russia has so far refrained from responding to the Turkmen verbal assault. However, Ashgabat’s strong statement came as a clear departure from promises made by Niyazov at a meeting in the Kremlin on January 24, to support “Russian efforts to stabilize regional and European gas supplies.”

In the meantime, Kazakhstan seemingly opted not to alienate Turkmenistan, and Kazakh Foreign Minister Tokayev met with Turkmen Ambassador to Kazakhstan Muhammet Abalakov, officially to discuss the development of bilateral trade and economic cooperation (Kazinform, July 14).