Publication: Eurasia Daily Monitor Volume: 2 Issue: 8

On January 10, Turkmenistan resumed deliveries of natural gas to Russia after a ten-day suspension. The Turkmennebit [Turkmenneftegaz] company had closed the valves on the Russia-bound export pipeline at midnight on December 31-January 1 ostensibly for “repair and maintenance work,” following several public demands by Ashgabat to Moscow to increase the price of gas from $44 to $60 per 1,000 cubic meters of Turkmen gas at the country’s border. At the same time, President Saparmurat Niyazov signaled that he was prepared to come down to $58 per 1,000 cubic meters. He and Turkmenneftegaz officials cited the worldwide rise of oil and gas prices as the basis for Ashgabat’s demand.

However, Gazprom referred to the bilateral agreement signed in 2003 and covering the years 2004-2006, which had set the price at $44 per 1,000 cubic meters of Turkmen gas for this three-year period. Under that agreement, Turkmenistan is to supply 6 billion to 7 billion cubic meters of gas to Russia in 2005. The price is only to be renegotiated for 2007 and the following years, during which period Turkmenistan is committed to increase its annual gas deliveries to Russia tenfold over the 2005 level. Citing the 2003 contract, Gazprom threatened court action against Turkmenistan unless the latter resumes deliveries immediately. As a face-saving, though patently meaningless gesture to Niyazov, Gazprom announced that it had agreed to continue at this time the discussion on raising the price beginning in 2007.

Ukraine had on January 3 accepted Niyazov’s demand to raise the price from $44 to $58, because deliveries to Ukraine are covered by annual contracts, allowing for renegotiation of prices on the expiry of each contract. Thus, deliveries to Ukraine resumed on that date at the higher price. However, with Turkmenistan’s supply commitments to Russia rising dramatically after 2006, it is far from clear what volumes of Turkmen gas remain available to Ukraine, unless Russia will simply resell those or equivalent volumes to Ukraine at a commercial markup, and with considerable scope for exercising political leverage as well.

When Niyazov had threatened and then briefly halted deliveries to Ukraine, Gazprom hastened to announce that it could not step in to offset the shortfall to Ukraine because all of Gazprom’s available volumes were committed to European consumer countries. Gazprom’s announcement failed to mention that its purchases of Turkmen gas enable it to meet a growing portion of those commitments. By the same token, any prolonged suspension of Turkmen gas deliveries to Russia could have jeopardized supplies to consumer countries. This situation illustrates some of the risks involved in relying on Russia to transit and market Turkmen gas to third countries, as opposed to securing those countries’ direct access to Turkmen gas.

The gas supply to Azerbaijan was also directly threatened. On January 1, Gazprom’s fully owned subsidiary Gazeksport halted deliveries to Azerbaijan on the grounds that Turkmenistan had suspended its deliveries to Russia. When Turkmenistan reopened the valves to Russia, Gazeksport was able to resume the supply to Azerbaijan on January 11. Gazeksport has contracted to deliver 4.5 billion cubic meters of gas to Azerbaijan at a price of $60 per 1,000 cubic meters in 2005.

Azerbaijan depends on Russian-supplied gas for electrical power generation, which enables the country to use its own, relatively modest output of gas for residential heating. When Gazeksport halted the gas flow, Azerbaijan’s State Oil Company warned that it would have to respond by halting the oil flow into the Baku-Novorossiysk pipeline, in order to refine that oil in Azerbaijan and obtain fuel oil for electric power generation in place of gas. Thus, with Russia as the intermediary for Turkmen gas, a problem between Turkmenistan and Russia caused a disruptive chain reaction far down the supply stream. The planned trans-Caspian pipeline for Turkmen gas would have guaranteed safe supplies to Azerbaijan and further downstream, but Russian pressures and Niyazov’s prevarications thwarted that project.

Even Kazakhstan, at the upstream end, signaled unhappiness with Gazprom’s intermediary role in marketing Central Asian-produced gas, under Russian President Vladimir Putin’s concept of a Russian-led “OPEC for gas.” Kazakhstan’s Energy and Natural Resources Ministry declared, “Russia should share the [gas] markets that it controls.”

The ripple effects, stemming from Russia’s monopoly on the transit of Turkmen gas, illustrate the need to again actively consider the trans-Caspian pipeline project for Turkmen and other Central Asian gas.

(Turkmen government website, AN, Interfax, Gazeta.ru, January 10, 11; see EDM, January 5).