Publication: Eurasia Daily Monitor Volume: 2 Issue: 30

With almost no public notice, Turkmenistan has virtually ceased deliveries of gas to Russia since January 1 due to disagreement over the price (Vremya novosti, February 9). Gazprom did not acknowledge the problem publicly until yesterday (February 10).

The company’s chairman, Alexei Miller, held talks that day with Turkmenistan President Saparmurat Niyazov in Ashgabat. The sides issued conflicting statements on pricing and deliveries. According to Gazprom, “both sides are satisfied with the results of their cooperation. The intention was expressed to continue strict observance of existing agreements.” The latter is a reference to the Russian-imposed pricing arrangements; but the stated intention to observe them is apparently Gazprom’s, not Turkmenistan’s. For its part, the Turkmen government announced that those arrangements “cannot be accepted. So far, no agreement has been reached on the price. The sides agreed to continue negotiations” (Interfax, Turkmen TV, February 10).

The relations are far from rupture, however. Niyazov and Miller discussed exploration by Gazprom of Turkmenistan’s offshore gas deposits in the Caspian Sea, as well as technological upgrading and enlargement of the capacity of the Central Asia-Center pipeline system (Turkmenistan-Uzbekistan-Kazakhstan-Russia), the only major outlet for gas out of Turkmenistan.

In late 2004 Niyazov had threatened to halt deliveries to both Russia and Ukraine, unless they agreed to raise the purchase price in 2005 from $44 to $58 per 1,000 cubic meters of gas at the Turkmen border. Turkmenistan closed the valves on the export pipeline at midnight December 31. Ukraine rushed to agree to Turkmenistan’s pricing terms by January 3. Russia, however, rejected Turkmenistan’s proposal, threatened legal action, and claimed success in causing Niyazov to resume the deliveries on January 10. That claim turned out to be premature, however. Ashgabat’s gas export data for January 2005 do not mention deliveries to Russia. Exports for the month totaled 3.6 billion cubic meters of gas, all of it to Ukraine and Iran (2.8 billion and 800 million cubic meters, respectively).

Turkmenistan’s argument to Russia for the price increase is identical to the case it presented to Ukraine. Gas prices on international markets have far outrun the price Russia paid to Turkmenistan. Furthermore, Russia and Ukraine each pay one-half of the price through bartered goods, mainly steel and other metallurgical products, the reference prices of which have also risen significantly, thus reducing the quantities delivered as well as raising the cost of gas extraction and transport where those products are used in Turkmenistan. The latter argues that Gazprom’s purchase price does not cover Turkmenistan’s gas production costs.

For its part, Gazprom cites the 25-year sale-and-purchase agreement that its fully owned subsidiary Gazeksport signed in 2003 with Turkmennebitgaz [Turkmenneftegaz]. Under that agreement, Turkmenistan delivered to Russia 4.5 billion cubic meters of gas in 2004, and is scheduled to deliver 6 to 7 billion cubic meters in 2005, 10 billion cubic meters in 2006, 60 to 70 billion cubic meters in 2007, and 70 to 80 billion cubic meters annually from 2009 onward. The 2003 agreement sets the price at $44 per 1,000 cubic meters of gas destined for Russia at the Turkmen border in the years 2004-2006. The price is to be renegotiated for 2007 and subsequent years. Based on this agreement, Gazprom refuses to renegotiate prices for 2005-2006.

In Ukraine’s case, however, deliveries of Turkmen gas are covered by annual contracts, allowing for renegotiation of prices at the expiry of each contract. Ukraine’s contract for 2005, signed on January 3 by Naftohaz Ukrayiny chief Yuriy Boyko with Niyazov in Ashgabat, for a whopping 36 billion cubic meters at $58 per 1,000 cubic meters, is being questioned by the Ukrainian government, on the grounds that Boyko had not been authorized to sign on those terms (Interfax, February 10; see EDM, January 6, 12).