Putin’s Eurasian Opec For Gas Beginning To Emerge

Publication: Eurasia Daily Monitor Volume: 1 Issue: 33

Statements released on June 16-17 on behalf of Gazprom Chairman Aleksey Miller and Deputy Chairman Aleksandr Ryazanov suggest that Russia’s program to monopolize the transit of Turkmen gas to Europe is proceeding on track, with apparently unreserved cooperation from Turkmenistan President Saparmurat Niazov.

Turkmenistan’s gas export potential rivals that of Russia. Sending that gas to Europe through Gazprom pipelines via Russia would achieve President Vladimir Putin’s stated goal of creating a “Eurasian OPEC for gas,” enabling Russia to control the bulk of gas supplies to Europe far into the future.

Miller discussed with Niazov in Ashgabat, and Ryazanov outlined at a Moscow news conference, the early steps taken toward implementation of agreements signed in April 2003 in Moscow. Gazprom plans to bring the transit pipeline’s annual throughput capacity to 40 billion cubic meters in 2004, jumping to 50 billion in 2005, in compliance with the Moscow agreements. Under those agreements, Russia would annually purchase Turkmen gas starting at 5 billion cubic meters in 2004, surging to 60 billion cubic meters in 2007, and 70 billion cubic meters thereafter over a 25-year period. Gazprom would act as the operating company for the transport of Turkmen gas to European markets.

A separate set of agreements between Turkmenistan and Ukraine envisage Turkmen gas deliveries on the order of some 36 billion cubic meters annually to Ukraine through Gazprom pipelines. Niazov now proposes construction of a gas export pipeline that would run from northern Turkmenistan via Kazakhstan, around the northern bend of the Caspian Sea into Russia, with the gas finally reaching Ukraine. Under the proposal, Turkmenistan, as exporter, would finance the construction on its territory; importers of the gas, Gazprom and Naftohaz Ukrainy, would finance construction of the other stretches. To Niazov, this route has the advantage of bypassing Uzbekistan, through which country Gazprom’s trunk pipeline runs.

On June 7, Niazov inaugurated a gas-dehydration and purification installation at Deryalyk, a giant compressor station and key junction on the transit pipeline in northern Turkmenistan near the Uzbek border. The installation, with a processing capacity of 75 billion cubic meters annually, improves gas quality by bringing the humidity level (dew point) to minus 10 degrees centigrade, surpassing the European quality standard of minus eight degrees. A German-Belgian-Swiss consortium built the installation in only 15 months. Additional installation, and compressor capacity should enable Gazprom to annually import some 100 billion cubic meters of Turkmen gas beginning in 2007 via Deryalyk.

Compared to these figures, Turkmenistan’s 2003 gas export to Iran was only 6.5 billion cubic meters, and was stagnant at this level for several prior years, with scant prospects for growth. The U.S.-supported project for a westbound trans-Caspian pipeline, to carry Turkmen gas along the Baku-Tbilisi-Ceyhan corridor via Turkey to Europe, foundered in 2001 on Niazov’s private dealings with Russia and Iran. The next U.S.-supported project, for a trans-Afghan gas pipeline from Turkmenistan to Pakistan and India — a plan valued in Washington as a major nation-building tool for Afghanistan in the post-Taliban era — shattered in 2002-2003 due to the security situation in Afghanistan, as well as on Indian political objections to deliveries via Pakistan.

The European Union, as main prospective consumer of Turkmen gas, seems content to allow Russia to monopolize its transit to Europe. As a cumulative result of these policy failures, Russia remains the sole transit route. By 2007, Turkmenistan would pump at least 100 billion cubic meters of gas annually into Gazprom’s pipeline network. This aggregate figure is almost of the same magnitude as Gazprom’s aggregate deliveries to Europe, which are in the range of 120 billion cubic meters annually. In practice, Turkmen gas added to Gazprom’s gas would almost double the volume reaching Europe from Russia, thus defeating the European Union’s goal of supply diversification.

Gazprom will probably pump some Turkmen gas directly to Europe, while retaining a portion for Russia’s internal needs, thus releasing corresponding volumes of Russian-produced gas for export to Europe. Under either option, Moscow stands to earn a windfall by buying cheap Turkmen gas at the border, and reselling it — or Russian-produced equivalent volumes — at market prices in Europe. Moreover, Gazprom would attain a uniquely strong position in influencing price levels in Europe. By adding Turkmenistan’s gas to its own, in a single pool under its physical and commercial control, Russia stands to gain an unprecedented type of political leverage in Europe. The U.S. and European answer should be to promote the only export route that addresses western economic and security interests, as well as those of western partner countries in the region: a trans-Caspian gas pipeline via the South Caucasus and Turkey to Europe. (Turkmenistan.ru, June 16, 17; Interfax, June 7, 8; Altyn Asyr, June 10).