BUSINESS & ECONOMICS
TURKMENISTAN: GAS BLAST IGNITES TURKMEN-RUSSIAN ROW

Posted April 10, 2009 © Eurasianet

In a row with important implications for European Union energy issues,
Turkmenistan has accused Russia’s energy behemoth of "egregious"
behavior by allegedly engineering a pipeline explosion that disrupted
exports from the Central Asian nation. Russian experts have attributed
the incident to Turkmen negligence and worn-out
infrastructure. Whatever the cause, the Caspian Basin’s key energy
relationship has hit a rocky patch.

The pipeline blast occurred April 9 on the Davletbat-Dariyalyk
pipeline, also known as the CAC-4, at a spot near the Turkmen-Uzbek
border. The ensuing blame game helps illustrate the difficult position
that Gazprom now finds itself in, as the global economic downtown has
shrunk Russia’s energy Goliath back down to size. [For background see
the Eurasia Insight archive]. Declining demand for natural gas is
ravaging the company’s bottom line. The newspaper Vedomosti, for
example, reported that the company’s production fell 24 percent in
March in comparison with the same period in 2008.

As it struggles to cope with its reversal of fortune concerning
demand, Gazprom is also facing pressure on the supply side, in
particular its 25-year export agreement with Turkmenistan. What was
not too long ago deemed as a lucrative deal, now poses a growing
burden on Gazprom. [For background see the Eurasia Insight archive].

On April 10, the Turkmen Foreign Ministry issued a blistering
statement that accused Gazprom of turning off the pipeline without
proper warning. It called such action a "unilateral and egregious
violation" of the export agreements under which Turkmenistan ships gas
to Russia. Ashgabat claimed it only had a few hours’ notice of
Gazprom’s intention to reduce gas flows, not enough time to make
proper adjustments. The resulting explosion was caused by the
excessive buildup of pressure in the pipeline. The Turkmen statement
insisted that any action to decrease export volume should have been
preceded by at least a week’s notice.

"This is first of all linked with the need to take related measures
for the preparation of gas wells and all elements of the gas
transportation infrastructure for changes in the technological regime
of work," the statement said. "Ignoring these conditions can result in
emergencies and stoppages in the whole pipeline system in the
overwhelming majority of instances."

Gazprom vehemently denied responsibility for the April 9, adding that
the pipeline would need only a few days of repairs. Meanwhile, the
official Russian news agency RIA Novosti quoted Anatoly Dmitrievskii,
director of the Institute of Oil & Gas Issues in Moscow, as saying
antiquated pipeline infrastructure, much of which dates to the 1960s
and 70s, was primarily to blame for the incident. He also hinted that
Turkmen negligence may have been a factor.

The spat has sparked speculation in the Russian media that the Kremlin
now has a "gas war" looming on its southern front. Relations between
Turkmenistan and Russia have deteriorated in recent weeks, and an
increasingly confident Ashgabat seems determined to diversify its
energy export potential. [For background see the Eurasia Insight
archive].

Hawkish commentators in the Russian press are pointing out that
Ashgabat is no stranger to "technical difficulties" when it is
convenient. Iranians shivered for months in early 2008 while
Turkmenistan supposedly labored to resolve transmission
issues. Supplies were resumed after Tehran agreed to increase the
price it paid for gas. [For background see the Eurasia Insight
archive].

Natalia Milchakova, an analyst with Otkritie Financial Corporation,
told the RosBusiness Consulting news website that the explosion was a
"political provocation" because Turkmenistan is either unwilling or
unable to pay for an upgrade to the 36-year-old pipeline. Michael
Korchemkin of the US-based energy consulting firm East European Gas
Analysis said Turkmenistan’s version of events was inconsistent and
that metal corrosion was the likely culprit. "Russia is not interested
in a deterioration of gas relations with Turkmenistan, I am sure," he
stressed.

Dmitry Abzalov, an analyst at the Russian Center for Political
Studies, suggested Turkmenistan has bigger ambitions than a mere
pipeline upgrade and may be seeking to bolster its clout when it comes
to fixing the price of gas in the second half of 2009.

The same glut of gas on European markets that has caused Gazprom’s gas
production to plummet is likely to have an effect on the price the
company is willing to pay for Turkmen supplies, explained
Abzalov. "Turkmenistan does not want to reduce prices because gas is
the main source of income. So, this move also aims to strengthen their
negotiating position when discussing the price of Turkmen [gas]," the
Gazeta.ru website quoted Abzalov as saying.

Financial Bridge analyst Dmitry Alexandrov told Gazeta.ru that
Ashgabat may be devising a Machiavellian scheme to support a
"multi-vectored" approach to energy exports. Alexandrov and others in
Moscow are wondering if Ashgabat is attempting to create a pretext in
order to make a concrete commitment to the US-backed Trans-Caspian
Pipeline. "The tone of the Turkmen MFA message says that the problem
has a political nature," Alexandrov said. "Unfortunately, the Turkmen
announcement is evidence that Russia is losing its position in Central
Asia."