STUNG BY CHENEY’S COMMENTS, MOSCOW PLAYS ENERGY CARD

Following U.S. Vice President Dick Cheney’s visit to Kazakhstan May 5-6, Russian officials and executives moved to intensify Moscow’s energy maneuverings in Central Eurasia.

While Cheney was in Astana, Russian First Deputy Prime Minister Dmitry Medvedev traveled to Uzbekistan for talks with President Islam Karimov. After the meeting, Medvedev told journalists that he had discussed a number of energy issues with Karimov, including natural gas supplies from Uzbekistan and gas transit from Turkmenistan (Interfax, May 6).

Unlike Kazakhstan’s balanced policies, Uzbekistan is drifting closer and closer to Moscow. On May 9, Karimov told journalists in Tashkent that Uzbekistan’s alliance with Russia “guaranteed peace and stability in the region” (Interfax, May 9).

Officially, the Kremlin brushed aside Cheney’s stern remarks as “incomprehensible” and “full of subjective evaluation,” according to Kremlin deputy spokesman Dmitry Peskov. Moscow also dismissed accusations of energy blackmail. “The U.S. Vice President should have been informed that in the past 40 years both the former Soviet Union and Russia never breached any oil and gas export contract,” Russian Foreign Minister Sergei Lavrov noted (Interfax, May 5; see EDM May, 5, 8).

In his May 4 speech in Vilnius, Cheney accused Russia of energy blackmail. “No legitimate interest is served when oil and gas become tools of intimidation or blackmail, either by supply manipulation or attempts to monopolize transportation,” he said. “Attempts to monopolize transportation” apparently referred to Russia’s moves to sustain control over oil and gas supplies from Central Asia.

Media reports on the U.S.-Kazakh talks reflected Moscow’s wariness over the meetings and consistently cited Cheney’s statement in Astana on May 5: “We consider Russia not an enemy, but a regional ally (Interfax-Kazakhstan, May 5). Russian observers also discussed the apparent contrast between Cheney’s criticism of Russia and U.S. tolerance towards Kazakhstan. Departing from his strong criticism of Russia in Vilnius, according to Kommersant, Cheney refrained from reprimanding Kazakh authorities over their democratic record. Cheney was preoccupied with a more important issue, namely plans for sub-sea Caspian pipelines to circumvent Russia (Kommersant, May 6).

Some Russian analysts implicitly accused Cheney of embracing a double standard. Fyodor Lukyanov, editor of the Russia in Global Politics magazine, told Ekho Moskvy radio on May 4 that Kazakhstan’s democratic record was far from perfect, but garnered no criticism from Cheney. Energy-rich countries such as Kazakhstan and Azerbaijan were “undoubtedly” more convenient partners for the United States than Russia, he argued (Ekho Moskvy, May 4).

Unlike Washington’s difficult relations with Uzbekistan and Turkmenistan, the White House sees Kazakhstan as a stable and predictable partner in Central Asia, Nezavisimaya Gazeta daily commented. However, Washington can hardly feel any joy over Kazakhstan’s growing energy cooperation with China, following the launch of the Atasu-Alashankou pipeline (Nezavisimaya gazeta, May 5).

In early April, President Vladimir Putin and his Kazakh counterpart, Nursultan Nazarbayev, announced a major agreement on the transit of Caspian crude from Kazakh oil fields through Russia to Europe. Russia and Kazakhstan agreed to more than double crude oil deliveries via the Baku-Novorossiysk pipeline owned by the Caspian Pipeline Consortium (CPC): from the current 28 million a year up to 67 million metric tons eventually. Furthermore, Nazarbayev indicated that Kazakhstan was about to rely mainly on Russia in its crude oil export strategy.

Kazakhstan remains interested in the Baku-Tbilisi-Ceyhan pipeline, as well as other projects potentially detrimental to Moscow’s interests. Kazakhstan is ready to open up its territory for the transit of Turkmen natural gas to China and to discuss a pipeline across the Caspian seabed, according to Foreign Minister Kasymzhomart Tokayev (RIA-Novosti, April 21). Moscow has long resisted attempts to circumvent its pipeline network.

Gazprom is also moving to sustain Russian control over Kazakh gas. Last month, Gazprom deputy head Alexander Ryazanov announced that the company’s board would decide on the Karachaganak gas joint venture with Kazakhstan on May 18. The joint venture would process up to 15 billion cubic meters (bcm) a year at Gazprom’s Orenburg plant (Interfax, April 20), up from the 8 bcm/year Gazprom currently imports from Karachaganak. However, the members of the Karachaganak Petroleum Operating (KPO) international consortium have been uneasy with the low prices offered by Gazprom and may consider a deal with China.

Kazakhstan’s national oil and gas company, KazMunayGaz, and the China National Petroleum Company have pledged to jointly draft a feasibility study for a 30 bcm/year gas pipeline from Kazakhstan to China. The first phase of the pipeline, with an annual capacity of 10 bcm, could be ready by 2009.

Currently Kazakh and Central Asian gas is exported to Russia only. In 2005, Kazakhstan produced 26.2 bcm gas or 28% more than in 2004. Therefore, Astana is considering selling China more gas than Kazakhstan currently produces.

In the meantime, the Russian gas giant rushed ahead its own China-bound pipeline project. Russia and China have completed a preliminary feasibility study of the Altai gas pipeline, Gazprom deputy CEO Alexander Ananenkov announced. Construction of the 3,000-kilometer pipeline is to start in 2008 (Interfax, May 6).

Last March, Russian President Vladimir Putin traveled to Beijing and pledged to raise oil and gas exports to China. “Exports of Russian gas to China will come from both Eastern and Western Siberia,” up to 30-40 billion cubic meters (bcm) of gas a year from each region, Putin said on March 21, adding that exports from Western Siberia would be easier and faster to start. He also said major gas exports to China would require construction of a new pipeline. The $10 billion Altai pipeline is tentatively due to be commissioned in 2011.

The gas pipeline plan is seen as a political ploy designed to send a message to Western consumers that if they do not like Russia’s sales terms, China does. Last month, Gazprom said that the European Union needed to clarify its goals. If the EU was concerned about its increasing reliance on Gazprom, then it should figure out just how much gas it wants to buy from Russia, spokesman Sergei Kupriyanov said. “The rest we can sell to North America and China.”

Meanwhile, Turkmenistan revealed a competing project to sell its natural gas to China. Last April, Turkmenistan pledged to supply China 30 bcm of gas annually over 30 years, starting from 2009. Turkmen authorities made little secret of their plans to offer gas at lower prices than those suggested by Gazprom.

Subsequently, Ryazanov traveled to Ashgabat and suggested buying 50 bcm of Turkmen natural gas per annum in the next three years. The talks were due to continued in the second half of April, but no follow-up has ensued so far. However, Medvedev’s trip to Uzbekistan came as a noteworthy development, as Turkmenistan is unable to export gas to China without Uzbek transit.

Regional multilateral bodies have also become involved in the pipeline game. The Shanghai Cooperation Organization (SCO) and the Eurasian Economic Community (EEC) signed a memorandum of understanding in Beijing on May 8, pledging to boost energy ties. Zhang Deguang, SCO secretary-general said the two organizations aimed at upgrading of oil and natural gas pipelines. The SCO and EEC would also cooperate in improving a regional transport system to facilitate trade between Asia and Europe (Xinhua, May 8).