MOSCOW’S STRATEGY ON TURKMEN GAS IS STRATEGY TOWARD EUROPE

On November 15-18, Ashgabat hosted concurrently two international oil and gas exhibitions and conferences: a bilateral event on “Turkmenistan-Russia Oil and Gas Partnership Prospects,” and an international one on “Oil and Gas of Turkmenistan 2004.” The two events illustrated Russia’s head start over Western consumer countries in securing preemptive access to Turkmenistan’s gas reserves.

As the world’s largest producer and exporter of gas, Russia seeks control of Turkmenistan’s gas mainly as an instrument of its policy and strategy vis-a-vis the European Union. By establishing itself as the sole supplier of Turkmen gas to European countries, Russia aims to increase its economic and political leverage on the EU in the years ahead. Turkmen annual gas exports look set to rise by the end of this decade to the level of magnitude of Gazprom’s annual exports. Gazprom plans to handle those Turkmen deliveries (and smaller volumes of Kazakh and Uzbek gas to be routed to Russia), thus potentially doubling the volume of gas reaching Europe from Russia, and maximizing the EU’s dependence on Russia for energy supplies.

Turkmenistan’s annual gas output is planned at 70 billion cubic meters for 2004, projected to rise to 90 billion cubic meters by 2007 (matching the Soviet-era peak annual output) and to 135 billion cubic meters by the end of the decade. Almost the entire volume should be available for export (a small part of it in liquefied form). If the output projections are borne out, Turkmenistan’s gas exports should almost match Gazprom’s: the Russian company currently delivers some 130 billion cubic meters annually to European countries.

Under Russian-Turkmen long-term agreements signed in 2003, Gazprom is buying 4.5 billion cubic meters of Turkmen gas in 2004 and will increase that volume to at least 70 billion cubic meters per year from 2008 through 2028. Pricing arrangements have only been signed for 2004-2007. Russia will pay $44 per 1,000 cubic meters of Turkmen gas, with half the price to be paid in cash and half in the form of Russian-made goods — mainly steel products, industrial machinery, and chemicals. Both the cash portion and the barter portion are highly disadvantageous to Turkmenistan, reflecting its almost total dependence on the Russian export route.

In addition to Gazprom’s purchases, its offshoot RosUkrEnergoprom (a joint venture among subsidiaries of Gazprom and of Austria’s Raiffeisen Bank) will purchase and transport through Gazprom’s pipelines 44 billion cubic meters of Turkmen gas to Ukraine in 2005. The volume is set to grow to 60 billion cubic meters annually from 2007 onwards, with Ukraine financing most of the pipeline expansion costs. This agreement substantially strengthens Russia’s near-monopoly on the transit of Turkmen gas. In Russian official parlance, these overall arrangements constitute the “single export channel” for Central Asian gas, and “Central Asian gas forms a major component of Gazprom’s overall resource base.”

Exploration and estimates of Turkmenistan’s gas reserves are far from complete. At the Ashgabat conference, Gazprom’s Vice-President Alexander Ryazanov underscored the need for full and reliable estimates of Turkmenistan’s recoverable reserves, so as to prepare long-term export projections and investment decisions for expansion of pipelines. Existing estimates concern the onshore reserves. Offshore ones are currently being explored by Russia’s Zarit consortium, formed by Zarubezhneft and Itera, at three Caspian offshore sites.

As Ryazanov indicated, Gazprom will in the short term use [cheaply bought] Turkmen gas mostly for Russia’s internal consumption, thereby enabling Russia to increase its own gas exports at high prices to European markets. Within a few years, price deregulation on Russian gas, along with growing Turkmen gas exports and rising European demand, will make it highly advantageous for Gazprom to simply resell Turkmen gas to Europe.

(Interfax, Turkmen Government web site, November 15-18).