Russia Struggles to Revive Energy Ties With Turkmenistan

Russian officials insist that the Turkmenistan-China gas pipeline project is not a matter of Moscow’s concern. However, Moscow has been struggling to sustain its earlier gas agreements with Ashgabat. The Turkmenistan-China gas pipeline project would not adversely affect Russia’s energy cooperation with China, including plans to build gas pipelines from Russia to China, Russian Prime Minister Vladimir Putin announced on December 3. “We know China’s gas demand … and do not think Turkmenistan-China gas pipeline could undermine” our plans, he said (Interfax, December 3).

However, also on December 3 Uzbekistan’s state-run energy company Uzbekneftegaz announced that it aimed to test the first stage of the Turkmenistan-China gas pipeline on December 15. The construction of Uzbekistan’s 530-kilometer section of the Turkmenistan-China gas pipeline started in July 2008. The project’s first stage is due on stream in January 2010. The second stage is expected to be completed by the end of 2011, thus raising the pipeline capacity up to 40 billion cubic meters (bcm) per year. The pipeline is estimated to cost $2.975 billion (ITAR-TASS, December 3).

Therefore, the project’s first stage is likely to take less than four years to build. In April 2006, late President Saparmurat Niyazov and Chinese President Hu Jintao signed a framework agreement on oil and gas cooperation in Beijing. China pledged to purchase 30 bcm of natural gas annually at the Turkmenistan border over 30 years to be supplied via the Turkmenistan-China gas pipeline. The pipeline project has moved ahead as Turkmenistan and Uzbekistan managed to solve their disagreements on how to share gas deposits near the border. Uzbekistan is an important transit nation for Turkmenistan because parts of the existing Central Asia-Center gas pipeline network, as well as the gas pipeline to China both pass through Uzbek territory. In October 2007 during President Islam Karimov’s visit to Ashgabat both leaders signed a bilateral treaty. They pledged to jointly explore and develop gas deposits on the right bank of Amu Darya River to fill the Turkmenistan-China gas pipeline (www.mfa.uz, October 22, 2007).

By contrast, Russian plans to build gas pipelines to China have been discussed for more than five years. In October 2004, Gazprom and China’s state-run CNPC clinched a partnership deal, including plans to supply natural gas. In March 2006, Gazprom and CNPC signed a memorandum on the delivery of Russian natural gas to China from 2011. Also in March 2006, in his previous capacity as Russian president, Putin promised to export up to 40 bcm of Russian gas to China via a planned 6,700-kilometer $10 billion Altai pipeline. Subsequently, in the past three years both sides struggled to turn an MOU into any kind of a viable and binding contract. Gazprom reportedly offered to supply gas at European prices, while CNPC insisted on significantly lower gas prices. On October 13, 2009, Gazprom and CNPC signed yet another framework agreement on gas supplies, including construction of a gas pipeline. Nonetheless, Russian plans to build gas pipelines to China still firmly remain at a stage of preliminary discussions (Interfax, ITAR-TASS, October 13).

Meanwhile, Moscow has been struggling to salvage its earlier gas agreements with Turkmenistan. After the April 9 explosion on Turkmenistan’s Davletbat-Daryalik pipeline, also known as the Central Asia-Center (CAC)-4, near the border with Uzbekistan, Gazprom cut imports of Turkmenistan’s gas. Initially, Ashgabat insisted that the blast was caused by Gazprom’s violation of its gas supply agreement and indicated that it planned to seek financial compensation. Subsequently, Turkmenistan toned down its accusations and no longer mentioned any compensation from Gazprom.

Less than two years ago, in March 2008, Russia agreed to raise the gas price for Turkmenistan, Kazakhstan and Uzbekistan up to European levels from 2009. As a result, Gazprom had to buy Turkmenistan’s gas well above the domestic cost. On June 1, Gazprom deputy CEO Valery Golubev urged Turkmenistan to either cut its export volumes to Russia, or scale down gas prices. He argued that Gazprom no longer needed Turkmenistan’s gas at European prices as European and Ukrainian gas consumption plunged (Interfax, June 2). Golubev also claimed that Ashgabat had no alternatives but to sell its gas to Gazprom. However, the Turkmenistan-China gas pipeline project came as an indication that Ashgabat managed to develop alternative gas export routes.

The rift between Moscow and Ashgabat came as a departure from Russian and Turkmenistan’s pledges to develop their “strategic” relationship. Since April this year, Russia and Turkmenistan have apparently refrained from mentioning the planned Pricaspiysky gas pipeline, designed to supply more Central Asian gas to Russia. Both sides also failed to sign an agreement on the “East-West” 600-kilometer link that is supposed to connect Eastern Turkmenistan with the Pricaspiysky pipeline at an estimated cost of $1.5 billion. Moscow has repeatedly dispatched top level missions to Ashgabat. Medvedev last traveled to Turkmenistan in September 2009. On November 26, Russia’s first deputy Prime Minister Viktor Zubkov traveled to Ashgabat for bilateral economic talks with President Gurbanguly Berdimuhamedov and other Turkmen officials (ITAR-TASS, November 27). In the wake of Medvedev’s and Zubkov’s trips to Ashgabat no agreements were announced. As both sides remained silent, the last round of bilateral talks was understood to produce very limited, if any, results.

On November 29, Russian President Dmitry Medvedev and his Turkmen counterpart Gurbanguly Berdimuhamedov met in his Zavidovo residence outside Moscow (Interfax, November 30). Officially, both leaders only discussed economic cooperation and “bilateral partnership.” Berdimuhamedov noted that bilateral trade reached $5.5 billion in January to October 2009, while the annual trade turnover amounted to $7 billion in 2008. Berdimuhamedov’s trip to Russia came as an unexpected development. Turkmenistan’s leader was believed to be seeking to discuss Gazprom’s plans to cut gas imports from Turkmenistan. However, after the talks no announcement was made on the bilateral gas pricing dispute.

The meeting came as the latest in a series of Russian efforts to repair ties with Turkmenistan. After the meeting, it was only announced that Medvedev is due to visit Turkmenistan in late December to attend the opening of a Russian school in the capital city of Ashgabat. But it remains far from certain whether both sides will manage to resolve their differences before the end of 2009.

Therefore, in March 2008 Moscow apparently made an expensive miscalculation by agreeing to raise gas price for Turkmenistan up to European levels. But the gas dispute between Russia and Turkmenistan benefited alternative gas export routes as it pushed Ashgabat to seek alternative energy alliances.