Publication: Eurasia Daily Monitor Volume: 4 Issue: 218

On November 23 in Ashgabat, Russian Prime Minister Viktor Zubkov and Gazprom president Alexei Miller held tense talks with Turkmen President Gurbanguly Berdimukhamedov on joint gas projects. The Russians goaded the Turkmens to open Caspian offshore blocks for Russian exploration and to start construction work on expanding the capacity of gas pipelines that run from Turkmenistan to Russia. In parallel, the Russians agreed to discuss raising the price they pay for Turkmen gas.

Moscow seems irritated by Ashgabat’s foot-dragging on implementation of the agreements of intent, signed by Presidents Vladimir Putin and Berdimukhamedov in May 2007. Those documents were supposed to preface the signature of binding intergovernmental agreements in September. However, this has not happened, mainly because Ashgabat is weighing its options and possible partners for gas field exploration and pipeline routes for export.

Gazprom and Lukoil are seeking exploration licenses offshore as well as onshore in Turkmenistan. The Russian government and Gazprom are pressing for the binding agreements to be signed and for the pipeline capacity-expansion schedule to be accelerated. Two pipeline reconstruction projects are at issue under the May 2007 agreements of intent.

The Caspian Coastal pipeline, a dilapidated Soviet-era gas line running from Turkmenistan via Kazakhstan to Russia west of the Urals, is to be rebuilt and supplemented with a parallel line. The reconstructed line’s capacity would increase to 20 billion cubic meters of Turkmen gas annually, up from 5 billion cubic meters at present.

The Central Asia-Center pipeline, running from Turkmenistan via Uzbekistan and Kazakhstan to Russia east of the Urals, is also worn out and slated for overhaul. Its capacity could increase to some 65 billion cubic meters of gas annually, up from an estimated 45 billion cubic meters today. This line is dedicated mostly to Turkmen gas, but also to relatively small volumes of gas from Kazakhstan and Uzbekistan.

Thus, Russia would absorb more than 80 billion cubic meters of Central Asian gas annually, mainly from Turkmenistan, if the two pipeline reconstruction projects are completed as envisaged. For its part, Ashgabat is holding up these transport agreements while negotiating a new gas pricing agreement with Russia for 2008.

During Zubkov and Miller’s visit to Ashgabat, Berdimukhamedov used flattery to deflect pressure: “We have always said that Russia is a great power, that we are strategic partners,” he declared at the joint news conference. Noncommittal with regard to the signing of intergovernmental agreements, Berdimukhamedov told the Russians that the European Commission and U.S. government deem the Russian price for Turkmen gas to be far below the actual market value. Accordingly, Ashgabat seeks a price increase of at least 30%, effective from January 2008.

The Russian visit followed in the wake of the Oil and Gas of Turkmenistan-2007 exhibition and conference, held in Ashgabat during the third week of November. The largest of its kind in the last decade, the event was meant to illustrate Turkmenistan’s growing interest in diversifying its energy partnerships in the wake of leadership change. Berdimukhamedov received European Union’s Energy Commissioner Andris Piebalgs, U.S. Energy Secretary Samuel Bodman, and other Western officials during that event.

Piebalgs and Bodman urged Turkmenistan to open its gas fields for exploration and extraction by Western companies and to join the project for a trans-Caspian pipeline. Both officials held out the prospect of market prices for Turkmen gas in Europe and the advantage for Turkmenistan in accessing European markets directly through a westbound pipeline. Berdimukhamedov seeks arrangements for Turkmen gas to be sold directly to European countries at the Turkmen border, rather than being sold to Russia for resale in Europe. Such arrangements, he was told, are optimal for Europeans as well and are feasible if Turkmenistan returns to the trans-Caspian pipeline project.

According to Berdimukhamedov, Turkmenistan can at least triple its gas output, from 70-80 billion cubic meters annually in 2007-2008 to 250 billion cubic meters annually by 2030, and intends to diversify the pipeline routes for export in multiple directions. Those figures are unverifiable for now, absent credible international audits of Turkmenistan’s reserves. But even at presently known levels, Turkmenistan’s export potential seems to exceed one-half of Gazprom’s annual exports to Europe.

During the Ashgabat conference, Turkmen chief negotiator Bairam Muradov had to fly unexpectedly to Moscow, scrapping prescheduled meetings with Bodman and other Western officials and corporate executives. Presumably, Moscow wanted to demonstrate its spolier’s potential generally and, specifically, to accelerate negotiations on an exploration license being sought by Lukoil for three Turkmen offshore blocks.

The EU counts on Azerbaijani gas to kick-start the planned Nabucco pipeline, but needs Turkmen gas to fill that pipeline’s late first phase and certainly its second phase through a trans-Caspian link. Hungary’s Economics and Transport Minister, Janos Koka, held follow-up talks in Ashgabat on November 23 as part of Koka’s regional tour for gas supplies to Nabucco.

Those plans are, in turn, contingent on Turkmen openness to Western upstream investment and on Western capacity to offset Russian pressure on Turkmenistan.

(Interfax, RBK, Turkmen TV Altyn Asyr, November 15-23)