Gas agreements die with Turkmenbashi

Dec 22, 2006 01:00 AM

The death of President of Turkmenistan Saparmurat Niyazov has put both Russia and the West in an inconvenient situation. His death has started a fierce battle for power in the country and, more importantly, a new phase in the battle among Russia, China, the European Union and other interested parties for Turkmen gas.
Turkmenbashi's death also places agreement reached between Gazprom and Ashgabat in jeopardy.

Since Niyazov's death, sincere condolences have been pouring into the Turkmen capital from all sides. The United States, EU, China, Russia and former Soviet states have all expressed their sympathy. Turkmenistan, which has been in long, self-imposed isolation from the rest of the world, is an important presence on the international market for natural gas.
The EU, US, Russia, Ukraine, China and Iran had all been in a desperate scramble to gain the goodwill of Niyazov, all closing their eyes to the openly authoritarian nature of his regime. Turkmenbashi died practically at the height of his glory, at the moment when he was most in sought after and loved throughout the world. That turns the struggle for power in Turkmenistan into an event of world significance, and makes the circumstances of his death appear suspicious.

The worldwide battle for Turkmenistan began in earnest this year. Until then, Ashgabat sold its gas in insignificant quantities and almost for nothing. In 1997, stopped exporting gas completely, pouring water or cement into the wells, in order to drive the price up.
After that, intermediaries took over sales of Turkmen natural gas. First it was Itera, which paid just $ 10 per 1,000 cm of Central Asian gas, since it was so easily produced. At the beginning of this decade, Itera began to raise its purchase prices in Central Asia, but unwillingly and by miniscule increments of $ 5-10 per 1,000 cm. In 2003, the Hungarian Eural Trans Gas became the intermediary in sales to Ukraine. In 2004, a Gazprom subsidiary, the Swiss RosUkrEnergo, inherited the contract with a price of $ 40.

Turkmenbashi's day in the sun came thanks to Moscow. Last winter's gas war between Russia and Ukraine inspired thoughts of higher gas prices in Turkmenbashi's mind and frightened Europe into diversifying its energy sources. The EU even developed a proposal for the Nabucco gas pipeline to lead from Central Asia through Turkey to Austria. Russia, however, did everything in its power to preserve its monopoly on gas supplies to Europe and prevent Turkmen gas from reaching it directly.
Gazprom set itself the goal of buying up all the natural gas in Central Asia. In order to increase the volume of its purchases from 7 bn to 30 bn cm per year, Gazprom raised the price for the first half year from $ 40 to $ 65 per 1,000 cm and, in order to squeeze Ukraine off the market and take full control over the export of Turkmen gas, the Russian monopoly paid $ 4.2 bn for a contract that had cost $ 1.68 bn a year earlier.

In September, Gazprom head Alexey Miller and Niyazov signed an agreement for the purchase of 12 bn cm of gas in 2006 by Gazprom Export and 50 bn cm per year between 2007 and 2009. That deal set Gazprom back $ 16.2 bn. The expected price had been $ 10.5 bn. That was the first contact with a supplier in which Gazprom agreed to high prices. After that, Uzbekistan and Kazakhstan also raised their prices from $ 44-50 to $ 100 per 1,000 cm.
And Moscow was rewarded. Niyazov declared as he signed the agreement with Gazprom, “We will guarantee gas to Russia in the first place. Don't think that Turkmenistan wants to take its gas anywhere. We are not ready to consider a Transcaspian gas pipeline.”
As a sign of friendship, Niyazov suggested that Gazprom develop the Iolotanskoe deposit, one of the biggest in the country, which could cover gas exports until 2030.

The EU continued negotiations with Turkmenistan. On December 18, newly appointed EU special representative for Central Asia Pierre Morel visited Ashgabat. Official Turkmen media reported that the EU and Turkmenistan had reached an agreement on cooperation. The specifics of the agreement will probably never be known now, for the meeting with Morel was practically Niyazov's last public appearance.
Gazprom's recent triumph over the EU seems Pyrrhic after Niyazov's death. He succeeded in realizing his plan of raising gas prices to over $ 100 per 1,000 cm. Now no one will ever pay less than that again. But the political guarantees of loyalty to Russia and refusal to participate in pipeline projects or export gas to the EU died with Turkmenbashi. His promise of a pro-Russian policy with no direct supplies of gas to Europe was never put in writing. Now nothing is stopping the Europeans from entering into new negotiations with the new Turkmen authorities on a resource base for the Nabucco pipeline that will bypass Russia.

Moreover, under its contracts, Gazprom can control the regions resource base only until 2010. For reasons unknown, Gazprom did not sign the long-term contract through 2030 with Turkmenistan that Niyazov had spoken of. It is known though that the EU will experience a severe shortage of energy resources by 2015. It will convert to 60-80 % imported gas and oil by then. Thus a real grab for Turkmen gas is ahead and Niyazov's promises to Miller will have no meaning in it.
Turkmenbashi's successors have a wide selection before them. The late president was known for his love of holding parallel negotiations with different parties for the same gas. Last year, besides Gazprom, he signed an agreement with China, promising it 30 bn cm of gas per year beginning in 2009. He had also developed an interest in a southbound pipeline, through Afghanistan and Pakistan or Iran.

The first project was of great interest to the US.
Thus, a lot depends on whom the president's successor decides to make friends with and who will support him on his path to power.

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