The New York Times
April 7, 2006 Friday
Late Edition – Final

Armenia to Get a Discount On Russian Natural Gas

By ANDREW E. KRAMER

In a settlement of the latest natural gas dispute in the former
Soviet Union, Armenia will receive natural gas supplies from Russia
at prices well below European averages until 2009. In exchange, it
will surrender a small but crucial section of gas pipeline to Russia.

Armenia will pay $110 for each 1,000 cubic meters of gas, about half
the European average but twice what the country pays now, the Russian
monopoly Gazprom said in a statement on Thursday.

Gazprom in turn will buy a 24-mile section of pipe connecting Armenia
to Iran, which other than Russia is the only plausible source of
energy supplies in the region. Also under the deal Gazprom, through a
joint venture, was granted a concession to build a larger second
pipeline along this route.

In financial terms, the deal is considered small by the usual
standards of the huge Gazprom, but it could have strategic importance
as the company seeks to maintain its dominance in Eurasian natural
gas trading. The gas sales are expected to bring some $187 million
annually.

The pipeline route from Iran through Armenia that Gazprom now
controls with its 24-mile section has been discussed by energy
analysts as a possible export corridor for Iranian gas to Europe.

”Gazprom is strengthening its competitive advantages in the
republics,” Roman G. Elagin, an oil and gas analyst at Renaissance
Capital, a brokerage firm in Moscow brokerage, said.

Armenia, he said, effectively bargained away its future prospects for
energy sources in return for cheaper prices now. ”Gazprom is the
only supplier of gas to Armenia,” he said. ”Armenia could try to
diversify its supply. But with control of this pipeline, Gazprom now
controls the competitors’ supply.”

A spokesman for the Armenian Embassy in Moscow declined to comment on
Thursday.

With the deal, Gazprom, the world’s largest producer of natural gas,
is operating at the intersection of corporate interest and
geopolitics, as it has in demanding price increases from other former
Soviet republics.

Armenia has been a traditional ally of Russia in the Caucasus. Moscow
was seen as favoring Armenia during its war with neighboring
Azerbaijan in the late 1980’s and early 90’s over the independence of
the ethnic Armenian enclave of Nagorno-Karabakh. The war ended in a
cease-fire but no peace agreement; the lingering animosity prevents
Armenia from receiving energy exports of Azerbaijan, an oil-producing
country.

With February’s talks on Nagorno-Karabakh unavailing and diplomatic
efforts in fits and starts, Russia’s support is considered crucial
for Armenia.

That leaves Iran, with the world’s second-largest natural gas
reserves after Russia, as a source of energy for Armenia in addition
to the Russians.

A Gazprom spokesman declined to explain why the company had
negotiated to purchase the pipe section leading from Iran. Gazprom’s
stated policy is to control gas pipelines for the distribution of its
own products. The spokesman, though, said that Gazprom did not intend
to block possible Iranian gas exports.

”Why would we buy a pipe and turn it off?” the spokesman said.

Still, Gazprom’s attempts to control the export pipes of potential
competitors have precedent in earlier deals.

In Ukraine, Belarus and Georgia, Gazprom has leveraged gas prices in
attempts to buy pipelines for its own gas, with partial success only
in Belarus. To the east, in Turkmenistan, Uzbekistan and Kazakhstan,
Gazprom has gained operational control of the main Central
Asia-Center pipeline, and it controls lines crossing Russia, thus
holding blocking power over these potential competitors for exports
to Europe.

From: Emil Lazarian | Ararat NewsPress