RUSSIA STRUGGLES TO FINALIZE CASPIAN GAS PIPELINE DEAL WITH TURKMENISTAN

On October 26, Turkmenistan’s President Gurbanguly Berdimukhamedov and Gazprom deputy CEO Valery Golubev were reportedly in discussions about what the Turkmen presidential press service described as “issues of drafting inter-governmental agreements on the expansion of the existing gas transportation system in Central Asia and the construction of the gas pipeline along the Caspian shores.” Turkmenistan and Gazprom are equally interested in fully using the capacities of both gas transportation routes, the press service said.

Both sides reportedly reiterated their commitments to earlier agreements and stated that cooperation between Turkmenistan and Gazprom would remain mutually beneficial. Golubev said there would be no delays on behalf of Gazprom (Interfax, Itar-Tass, Turkmenistan.ru, October 26-27).

Concurrently with the meeting in Ashgabat, the Kremlin indicated its growing attention to energy ties with Turkmenistan. On October 27, Russian President Vladimir Putin sent a message of congratulations to Berdimukhamedov on the occasion of Turkmenistan’s Independence Day. The message suggested “implementation of mutually beneficial economic and infrastructure projects, including the energy industry” (Interfax, October 27).

The leaders of Russia, Turkmenistan, and Kazakhstan announced a tentative agreement on May 12 to build a new pipeline and upgrade the existing line along the Caspian coast (see EDM, May 16-18). In a joint declaration, they ordered their governments to draft and sign by September 1, 2007, an agreement on building the Caspian gas pipeline. The declaration said that construction of the joint project should start in the second half of 2008.

The existing Caspian gas pipeline funneled some 400 million cubic meters of gas in 2006. The new construction would raise the Caspian gas pipeline’s capacity up to 10 billion cubic meters (bcm) per year by 2009 and up to 30 bcm per year in the next 5-7 years, according to the Russian estimates.

However, after the September 1 deadline passed with no agreement, Moscow dispatched a top-level mission in an apparent bid to expedite the process. On October 3 Deputy Prime Minister Sergei Naryshkin met Berdimukhamedov in Ashgabat in order to emphasize what he tactfully described as “the importance of the implementation of agreements on developing the gas transportation system.”

At the meeting, Naryshkin voiced hopes that the intergovernmental agreements would be drafted “soon.” However, in response the Turkmen president only hailed Russia as the country’s leading trading partner, thus apparently refraining from any clear commitments. Naryshkin also suggested an expert-level meeting in Ashgabat in mid-October on the issue (Itar-Tass, October 3). However, no reports on such a meeting have emerged so far.

On October 5 Russia’s Industry and Energy Minister Viktor Khristenko pledged to finalize the agreements on the Central Asian gas pipelines in “the nearest future.” Yet despite Russian official pledges, by late October the agreements were yet to be finalized. Russia, Turkmenistan, and Kazakhstan have been understood to disagree on a number of economic issues, notably gas transit tariffs through Russian territory.

At the second Caspian summit, held in the Iranian capital Tehran on October 16, some disagreements resurfaced among the members of the trilateral gas pipeline agreement. As Kazakh President Nursultan Nazarbayev advocated freedom of transit in the Caspian, including pipelines, Putin insisted that all major energy projects should be approved by a consensus among all littoral states. That would give all littoral countries a veto on any sub-sea pipeline project.

Moscow has consistently opposed a U.S.-backed project to construct an underwater pipeline in the Caspian Sea, which would bypass Russia by linking Central Asian gas fields directly to the West. Presumably fearing being cut out of lucrative gas transit deals, Moscow warily noted the perceived Western lobbying in favor of the sub-sea Caspian pipelines.

In recent months Turkmenistan and Kazakhstan have been targeted by coordinated and escalated pressures from the United States, European Union, and Great Britain in favor of the sub-sea Trans-Caspian gas pipeline, the state-run RIA-Novosti news agency commented on October 19, adding that, since earlier this year, nearly 20 U.S. delegations have traveled to Turkmenistan. Maneuverings by potential gas consumers allow Russian neighbors to use the issue of alternative pipelines to prop-up their bargaining position in discussions on gas prices, the agency commented.

In the meantime, Ashgabat has other arguments to boost its bargaining position. On October 25, Berdimukhamedov announced that construction of a Turkmenistan-China gas pipeline would be an important factor in regional stability and development. He said bilateral cooperation, including energy, would top the agenda during Chinese Prime Minister Wen Jiabao’s upcoming visit to Turkmenistan (Xinhua, October 26).

Wen is due to visit Turkmenistan, Uzbekistan, Russia, and Belarus November 2-6. He is also scheduled to attend the sixth annual meeting of the Shanghai Cooperation Organization prime ministers in Tashkent.

Turkmenistan and China signed a framework agreement on oil and gas cooperation in Beijing on April 3, 2006. According to the deal, China pledged to purchase 30 bcm of natural gas annually at the Turkmenistan border over 30 years, starting from the date the Turkmenistan-China gas pipeline is commissioned in 2009. In July 2007, the China National Petroleum Corporation (CNPC) signed a similar production-sharing contract.

Since early this year, Berdimukhamedov has repeatedly made it clear that Turkmenistan would still follow a long-term policy of diversification of its energy exports, simultaneously considering plans for several major gas pipelines, including Turkmenistan-Iran, Turkmenistan-China, Turkmenistan-Afghanistan-Pakistan-India, as well as the Trans-Caspian sub-sea pipeline. Therefore, Russia and Gazprom still face a challenging task to convince Turkmenistan to export the bulk of its gas riches through Russian territory.