TURKMENISTAN LOOKS EASTWARD
Aleksandr Shustov

en.fondsk.ru
22.12.2009
Eurasia

The launch of a new gas pipe on December 14 to connect Turkmenistan
and China became one of the key moments in a geopolitical game aimed
to win new routes of exporting Central Asian oil and gas resources.

The launching ceremony for the gas pipe took place at the Samandep
field in Turkmenistan and was attended by Presidents Gurbanguly
Berdimuhamedov, Islam Karimov (Uzbekistan) and Nursultan Nazarbayev
(Kazakhstan). The new gas pipe will be the first route to deliver
the Turkmen gas (up to 40 bln cubic meters per year) to external
markets bypassing Russia. Until recently Russia has purchased the
lion’s share of Turkmen gas but now it plans to buy four times less.

The new pipe is expected to supply to China 150 million cubic meters of
gas, but it will reach full capacity by 2012. It will pump gas mainly
from the gas fields located on the left bank of the Amu Darya River,
while the lacking amounts of gas will be taken from the Bagtyyarlyk
gas-rich territory on contract basis. The pipeline is about 7 km long,
with 184,5 km being on the Turkmen soil, and 490 km, 1300 km and 4500
km in Uzbekistan, Kazakhstan and China respectively.

Uzbekistan and Kazakhstan, thanks to their geographical location,
have become important transit countries in the project. And since the
deal was reached for 30 years, countries of Central Asia and China
are now guaranteed with developed gas transit infrastructure.

Notably, the Kazakh leg of the pipeline was launched before the
whole pipeline was commissioned. On December 12 Chinese President
Hu Jintao and his Kazakh counterpart Nursultan Nazarbayev attended
a solemn ceremony of the Kazakhstan-China gas pipe. According to
Kazakh sources, it will not only supply the Turkmen gas to China
but will also improve gas supplies in the Zhambyl, South-Kazakh
and Alma-Ata regions. In August 2007 KazMunaiGazom and the Chinese
National Petroleum Corporation (CNPC) signed a $6.7 bln deal to build
the Kazakh leg of the pipeline. The opening of this section stressed
Kazakhstan`s key role as a transit country.

The launch of the Turkmenistan-China gas pipeline took place amid a
gas row between Russia and Turkmenistan caused by an incident at the
Central Asia-Center gas pipe this April- which yet has not settled
because of the price for the Turkmen gas. Under the contract, it should
be $375 per 1,000 cubic meters (to meet a European level). But amid a
drop in demand and gas prices in Europe, Gazprom found it non-lucrative
to purchase gas at such low tariffs and thus had to ask Turkmenistan
to lower prices as well. In response Ashkhabad demanded that Moscow
observed all terms of the contract, and thus the conflict broke
out. Neither President Medvedev nor Berdymuhamedov managed to settle
the differences during their meetings in Moscow and Askhabad in autumn.

On November 24, the Vedomosti reported citing ‘resources in
Gazprom’ that in 2010-2012 Russia plans to buy four times less
gas from Turkmenistan. The newspaper provided the figures: in the
aforementioned period of time Gazprom will reduce the amounts twice:
from 66,1bln cubic meters in 2008 to 34 bln cubic meters in 2009-2011
ad 37.9 bln in 2012. Thus Turkmenistan will be able to sell no more
than 10.5 bln cubic meters of gas per year, which is four times less
than in 2007-2008. At the same time, Russia is going to buy more gas
from Uzbekistan- 14,5bln cubic meters by 2012. Thus, Uzbekistan will
outrun Turkmenistan that used to supply 80% of all Central Asian gas
to Russia.

Gazprom plans that in 2010 the price of the Turkmen gas will be the
lowest in the Caspian basin. A purchasing price for the Turkmen gas is
expected at $222 per 1000 cubic meters, and $230 and $244,5 for the
Kazakh and the Azeri gas. Gas from Uzbekistan will be the cheapest-
$220. Experts think this price will suit Turkmenistan because-allowing
for the transit-it will be about $300. But for Gazprom it is still
unprofitable to buy gas from Turkmenistan, and the only reason why
Russia has to do it is its intention not to leave gas which could be
used in alternative gas pipes, and first of all in the Nabucco project.

Turkmenistan plans to compensate losses in cooperation with Russia
with the help from Iran and China. Apart from the Chinese pipeline,
the republic plans to increase by three times exports to Iran through
boosting transit capacity of the existing Iranian gas route up to
14 bln cubic meters per year, and also by launching another gas
pipeline in December. In 2010 it is expected to supply to Iran 6 bln
cubic meters of gas, and the amounts might be twice as big in the
following years. In case Gazprom buys less gas from Turkmenistan,
Iran will become the second outlet (after China) for the Turkmen gas.

Regarding price policy, the Chinese gas pipeline will hardly replace
cooperation with Russia. Though Ashkhabad and Beijing have not yet
agreed on the final export price, some reports say it may be $100-130
per 1,000 cubic meters on the Turkmen-Uzbek border, which is at least
twice less than that offered by Gazprom. Obviously, as a monopolist
among the buyers, China may become for Turkmenistan as inconvenient
partner as once Gazprom was. In addition, three years are left until
the gas pipe reaches its full capacity in 2012, and during this period
of time the Turkmen budget will suffer serious losses.

The launch of the Chinese gas pipe may affect the implementation
of other projects competing in Turkmenistan- the Caspian gas
pipe and Nabucco. If Gazprom cuts purchase of the Turkmen gas,
the construction of the Caspian pipe will be unnecessary. Besides,
the Central Asia-Center gas pipeline, which has been used to deliver
gas from Turkmenistan, will remain underloaded. However, the West is
optimistic about Nabucco. Consortium members think a conflict between
Azerbaijan and Turkmenistan over oil and gas fields in the Caspian
basin will be over which will allow to receive at least 10 bln cubic
meters of gas from Turkmenistan via the planned trans-Caspian pipe.

When Russia’s positions on the Central Asian energy market are
weakening, and Turkmenistan is running the risk of losing an outlet,
both sides are in search for a compromise. This is what the forthcoming
visit of President Medvedev to Ashkhabad in late December is all
about. The talks will definitely determine the future of Russia-Turkmen
energy cooperation.