Russia resumes gas imports from Turkmenistan By Vladimir Socor
On December 22 in Ashgabat, Russian President Dmitry Medvedev and his
counterpart in Turkmenistan, Gurbanguly Berdymukhamedov, witnessed the signing
of documents on bilateral gas trade and transportation. The documents mark the
end of Russia's punitive, nine-month halt of gas imports from Turkmenistan. The
halt inflicted severe losses on Turkmenistan's revenues.
However, Russia's monopsony is now lost thanks to the opening of
Turkmenistan-China and Turkmenistan-Iran pipelines in December. Russia is
returning in a diminished role to an intensifying contest for Turkmen gas.
Gazprom vice president, Aleksandr Medvedev, and Turkmengaz
chairman, Nury Muhammedov, signed the sale-and-purchase agreement in the
presence of the two heads of state. According to a subsequent announcement by
Gazprom spokesman, Sergey Kupryanov, deliveries would start on January 9,
rather than January 1.
Under the agreement, Turkmenistan would deliver "up to" 30 billion cubic meters
(bcm) annually to Russia from 2010 onward. However, the agreement does not
specify the delivery volume for 2010, let alone subsequent years. Nor does the
agreement envisage any timeframe for reaching the nominal 30 bcm target.
According to Russian business press reports, Gazprom's 2010 budget has
earmarked funds for purchasing only 10.5 bcm of Turkmen gas this year.
Gazprom's purchase price for Turkmen gas is not officially disclosed. The new
agreement pegs that price to the oil-products basket, potentially approximating
European netback prices for Russian-delivered gas. According to unofficial
reports, Gazprom's purchase price is anticipated to range from US$220 to $250
per one thousand cubic meters of Turkmen gas during 2010.
Medvedev claimed at the signing ceremony that this agreement is not a new one,
but merely updates the 2003 Russian-Turkmen agreement on the gas trade for the
period 2004-2028. Gazprom's official announcements follow the same line, and
the document itself is billed as "amendments and addenda to the basic contract"
of 2003. Such claims seek to maintain the illusion that Russia retains some
kind of priority claim on Turkmenistan's future gas production.
That 25-year agreement of intent - misrepresented as a "contract" by Gazprom to
discourage European involvement with Turkmenistan - had envisaged Turkmen gas
deliveries to Russia rising from some 40 bcm in 2004 to 90 bcm annually from
2010 onward. Russia, however, proved unable to implement that agreement,
thereby implicitly invalidating it. Gazprom imported some 45 bcm of Turkmen gas
per year on average, downscaled that to 42 bcm in the contract for 2009, and
stopped unilaterally the import of Turkmen gas in early April 2009 due to
falling demand in Russia and Europe. Consequently, Russia imported only 11.3
bcm of Turkmen gas in 2009, all of it until early April.
Furthermore, the arrangements for 2010 reduce Russia's intake of Turkmen gas to
a fraction of what it was, without stating an intention to revert to the former
volumes, let alone the former projections. Those projections at 90 bcm per year
far exceed pipeline capacities at Gazprom's disposal in Central Asia. For all
these reasons, Gazprom would have been in massive breach of its contract with
Turkmenistan, had the 2003 framework agreement been a "contract" as claimed.
Also on December 22, Medvedev and Berdymukhamedov witnessed the signing of a
document of intent on joint pipeline construction projects. One project, the
Caspian coastal pipeline, would run from western Turkmenistan's gas fields via
Kazakhstan to Russia. The other project, the East-West pipeline, would connect
eastern Turkmenistan's gas fields with western Turkmenistan. There are no
specifics about throughput capacities, companies involved, investment costs, or
ultimate export destinations for either project.
The Caspian coastal pipeline forms the subject of an earlier agreement of
intent and an inter-governmental agreement, each of them signed during 2007 by
Russia with Turkmenistan and Kazakhstan. Projected at 30 to 40 bcm annually,
that line was to increase dramatically the overall capacity of the Central
Asia-Center pipeline system, enabling Russia to maximize its intake of Turkmen
gas in the future (though well behind the schedule of the 2003 agreement of
intent). Russia has thus far been unable to move that project off the ground.
If built, the Caspian coastal pipeline could absorb the gas production of
international companies from the Caspian offshore and send that production to
Russia, instead of the planned trans-Caspian route to Azerbaijan and southern
corridor to Europe.
The East-West pipeline across Turkmenistan would carry gas from the country's
supergiant fields to the Caspian shore. Depending on who would finance and
build it, that line could plug either into the Caspian coastal pipeline bound
for Russia, or into a trans-Caspian pipeline bound for Europe. The Kremlin had
initiated the East-West pipeline project on its own terms and proposed it to
Berdymukhamedov. The Turkmen president, however, announced in April 2009 an
international tender for bids to construct that pipeline. Many bids are said to
have been registered since then.
Russia's continuing quest for Turkmen gas, and apparent readiness to pay
realistic prices for it, reflects Moscow's anticipation of shortfalls in
Russian gas production in the post-crisis recovery period. Those shortfalls
would affect Gazprom's capacity to meet export commitments, requiring a
substantial offset through imports from Turkmenistan.
In the short term, Russia is content with importing relatively small volumes of
Turkmen gas at 10 bcm this year, while leaving open the possibility of
importing "up to" 30 bcm if and when European demand rebounds. However, China
and even Iran are vying with Russia for the existing and future volumes of
Turkmen gas exports, while international companies such as the German RWE
proceed with development offshore.
Vladimir Socor is a senior fellow and long-time senior analyst with the
Jamestown Foundation. He was formerly a senior research analyst with Radio Free
Europe/Radio Liberty in Munich, and is a specialist in the non-Russian former
republics of the USSR, CIS affairs and ethnic conflicts.
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