TURKMENISTAN: MORE EMPTY TALK ABOUT THE RESUMPTION OF GAS EXPORTS TO RUSSIA?
Regis Gente

Eurasia Insight
ticles/eav100909d.shtml
10/09/09

Turkmenistan has proven a fickle energy-export partner for all foreign
companies trying to do business there. Yet, a Kremlin spokesperson’s
recent statement that Russia would resume natural gas imports as
soon as the end of October, confirms that hope springs eternal when
it comes to the question of Ashgabat and energy.

Turkmen gas exports to Russia stopped in April following a pipeline
explosion. [For background see the Eurasia Insight archive]. Since
then, the two sides have haggled about the export price. [For
background see the Eurasia Insight archive].

On October 7, Natalia Timakova, Russian President Dmitry Medvedev’s
press secretary, announced a political agreement had been reached
on the resumption of gas supplies. A Turkmen gas expert subsequently
confirmed Ashgabat’s desire to resume exports by the end of October.

There was only one thing missing from these expressions of optimism:
the Kremlin-controlled conglomerate Gazprom and the Turkmen government
still haven’t agreed on a price. As Timakova admitted, Gazprom is
still working to hammer out the "technical details."

The absence of a pricing agreement is causing many regional observers
to adopt a ‘we’ll-believe-it-when-we-see-it" attitude.

"I think that Natalia Timakova is too optimistic. Her statement
came because she wants to present her boss as an effective
politician. Problems between Gazprom and Turkmenistan have not yet
been resolved, and they will still be much to argue about the price
of Turkmen gas," said Igor Ivakhnenko, Caspian Editor of the RusEnergy
newsletter.

Although it would seem much work remains to be done to bridge
the pricing gap, both sides need the exports to resume, experts
believe. Perhaps the biggest obstacle to a pricing agreement remains
the mindset of Turkmen leaders. With energy exports playing such
a central role for government revenue, Ashgabat seems reluctant
to adapt its earnings expectations to the post-global financial
crisis environment. Gas prices on world markets have plummeted over
the past year. Turkmen officials, however, continue to hold out for
top-dollar. Meanwhile, Gazprom had been taking a financial beating on
a fixed-price agreement with Ashgabat, which obligated the Russian
firm to pay "European" prices for Turkmen energy. These days, the
Russian firm is in no mood to keep paying a premium price.

Gazprom’s preference now appears to be basing the purchase price on
a floating rate as determined by a fixed pricing formula. Ashgabat
appears to be holding out for a fixed price, however.

"For the Turkmen, it is not an easy task to base their income on a
formula for calculating the price. It requires specialists, highly
qualified, who follow every day very carefully the up and down of
the market. It’s very precise work, and I’m not sure that my country
has people with the skills," explained Annadurdy Khajiyev, a Turkmen
economist living in exile in Bulgaria.

In addition to the purchase price, recent statements made no
mention of export volume. Some experts believe that Russia is now
willing to import only up to 30 billion cubic meters (bcm) of gas
per year, whereas under the old agreement Gazprom was purchasing 90
bcm annually. If the two sides agree to search for a fixed purchase
price, Ivakhnenko believes Russia would want to pay between $180-$200
per thousand cubic meters (tcm), while Turkmenistan would seek
$250-$270/tcm. That’s a big difference to reconcile.

For now, officials in Moscow appear content to wait, if
necessary. Turkmen leader Gurbanguly Berdymukhamedov has hinted
that he is willing to export substantial amounts of gas via US-
and EU-controlled export routes. But some experts believe that
Berdymukhamedov is bluffing. [For background see the Eurasia Insight
archive].

"Moscow knows that in absence of any status for the Caspian Sea,
the Turkmen will not be able to sell their gas to the West via the
Caucasus [i.e. via the planned Nabucco pipeline network]," Khajiyev
said. "This question of the Caspian status is far from being solved."

Editor’s Note: Regis Gente is a freelance journalist, covering Caucasus
and Central Asia.