IHS Global Insight Perspective | |
Significance | In a reflection of the changing dynamics of the Eurasian gas corridor, Russia—which only recently was eager to buy up as much Turkmen gas supplies as it could in order that Gazprom could meet its export commitments and domestic supply commitments—has essentially dismissed a request by Turkmenistan to buy more of its gas. |
Implications | Russian deputy prime minister Igor Sechin said that state-run Gazprom has no plans to buy more than the 10–12 bcm of Turkmen gas that it committed to purchase this year, down sharply from the more than 40 bcm/y that the Russian gas giant purchased from the Central Asian state before a pipeline explosion in April 2009 and a subsequent pricing dispute that led to a nine-month halt in supplies. |
Outlook | Turkmenistan's former leverage over Gazprom, which allowed the country to sharply increase its export price for gas supplies in the 2005–08 period, has disappeared, returning it to an all-too-familiar, weakened position as regards selling gas to Russia. |
The Tables Have Turned
For Turkmenistan, the days of bossing around "Mother Russia" ended abruptly in April 2009. Up until then, the former Soviet Central Asian republic enjoyed a relatively good run of fortune, dating back to 2005, when it realised the extent of its leverage over Gazprom and began to wield this power in pushing the Russian gas firm to pay more for gas supplies. From a price of US$42 per 1,000 cm previously, the price that Gazprom paid for its Turkmen gas imports rose sharply through 2008, to more than US$200 per 1,000 cm, as the Russian gas giant sought Turkmen gas to help it meet its domestic gas supply requirements and its export obligations. Turkmenistan, together with Kazakhstan and Uzbekistan, even convinced Gazprom to pay a "European equivalent" price for gas supplies from the start of 2009.
Since that time, however, just as quickly as it came, the Central Asian state's leverage over the Russian gas firm has disappeared. With the global economic downturn, weaker European gas demand, and the decline in Gazprom's oil-indexed gas prices for its European consumers, the geostrategic winds shifted, and since that dubious April 2009 explosion on the Central Asia-Centre (CAC) pipeline—an incident that Turkmenistan blamed squarely on Gazprom for failing to give proper warning that the company was sharply reducing its offtakes—Turkmenistan has found itself in a much weakened position.
Certainly, Turkmenistan held out for the remainder of 2009, refusing to restart gas export to Gazprom even after the CAC pipeline was repaired, but then Gazprom was in no hurry to pay bloated prices for gas it did not need. The Central Asian state also secured some important victories in commissioning new infrastructure to allow it to diversify its export partners, but even new exports to China and additional supplies Iran cannot—at least in the short term—make up for the full 40–45 bcm/y that Turkmenistan was supplying to Russia prior to 2009. Turkmenistan and Gazprom did finally hammer out a new agreement at the end of 2009 to resume supplies in 2010, but at a much reduced level of around 10–12 bcm (see "Related Articles").
"Co-Operation" on Russia's Terms
Against this backdrop, Russian president Dmitry Medvedev travelled to Turkmenistan on Friday (22 October) to meet with his Turkmen counterpart, Gurbanguly Berdymukhammedov. Meeting in the resort city of Turkmenbashi on the Turkmen Caspian Sea coast, Berdymukhammedov and Medvedev discussed the state of bilateral co-operation in the energy sector. Reflecting the new reality of the gas sector relationship—which looks quite similar to the pre-2005 days when Gazprom had the upper hand—Berdymukhammedov virtually pleaded for Gazprom to increase its purchases of Turkmen gas: "Russia is our long-term partner, and so, based on existing bilateral agreements, we are ready to boost natural gas exports to Russia," he said.
The Turkmen president's conciliatory tone was dramatically different from his angry rhetoric following the April 2009 pipeline explosion. Now, as then, however, the Russian response was more muted, bordering on indifference. Medvedev gave Berdymukhammedov no assurances that Gazprom would buy additional gas volumes from Turkmenistan, surely disappointing the Turkmen leader. Igor Sechin, Russia's deputy prime minister and chief energy policymaker, who was travelling with Medvedev, further dashed Turkmen hopes by saying that Gazprom "has confirmed its obligations under the Turkmen contract", which obliges the Russian gas firm to import just 10–12 bcm.
At the same time, however, Sechin said that co-operation with Turkmenistan is still possible in other spheres, noting the Pre-Caspian gas pipeline project, which has largely stalled since an agreement on it was signed in 2007, and, intriguingly, suggesting that Gazprom could play a part in the project to build a gas pipeline from Turkmenistan to Pakistan and India. Turkmenistan has recently pushed forward with its Turkmenistan-Afghanistan-Pakistan-India (TAPI) vision in an attempt to build momentum for the project, at least in part as a way to continue to diversify its gas export options and reduce its reliance on Gazprom as both a buyer and transit partner for Turkmen gas.
Sechin further suggested that the project to explore Block 21 in the Turkmen sector of the Caspian Sea could get a boost if Rosneft, the state-run Russian oil firm for which he is chairman, were to join in. Turkmenistan signed a deal with Russia's Itera and Zarubezhneft for Block 21 in November 2009, which has reserves estimated at 200 million tonnes of oil and 100 bcm of gas, but Sechin noted that the timetable needed to bring the project into production could be shortened by a couple of years if Rosneft were to participate.
Outlook and Implications
Sechin's comments hint at a Russian desire for a quid pro quo arrangement, perhaps that Gazprom would be willing to buy more Turkmen gas if the Central Asian state goes along with some of Russia's ''requests" on the bilateral energy co-operation front. In the past, these requests were tantamount to demands for Turkmenistan, but as the country at least has several alternative options to monetise its gas output now, Berdymukhammedov is not entirely beholden to Gazprom and the whims of Russian policymakers.
On the other hand, neither does Berdymukhammedov have a strong hand to play vis-à-vis Gazprom, as Turkmenistan did for several years before the economic downturn. Sechin's effective rejection of the Turkmen request/offer for Russia to buy more gas leaves Berdymukhammedov with several unappealing options, two of which Turkmenistan has tried before: reduce its asking price and sell for a discount (a strategy that may still fail to entice Gazprom), keep significant volumes of gas shut in (essentially accepting the status quo, a situation in which Turkmenistan is not fully reaping the benefits of its gas reserves), or continue to press ahead with diversification plans, aiming to sell gas to additional alternative markets.
The third option is perhaps the best for Berdymukhammedov, which helps explain the emphasis on TAPI recently, but given Turkmenistan's reluctance to upset Russia, the Central Asian state has been decidedly lukewarm in its support of a trans-Caspian pipeline, even as Berdymukhammedov has talked of supplying Turkmen gas to Europe. Turkmenistan thus is stuck in a bind in which it needs to pursue other export options to reduce its reliance on Russia, yet remains fearful that it might jeopardise its relationship with Russia in pushing this diversification strategy.
Related Articles
- Turkmenistan - Russia: 18 October 2010: New Pipeline Link Boosts Turkmenistan's Gas Export Capacity to Russia
- Russia - Turkmenistan-Europe: 4 October 2010: Turkmen President Eyes Continued Gas Sector Co-Operation with Russia But Eyes Exports to Europe
- Kazakhstan - Central Asia: 23 September 2010: Pipeline Ruptures in Kazakhstan Force Partial Halt in Turkmen Gas Exports to Russia
- Turkmenistan - Afghanistan - Pakistan - India: 2 September 2010: Is the TAPI Pipeline Any More Viable Now Than It Was in 2002?
- Turkmenistan - Russia: 12 January 2010: Turkmenistan, Gazprom Confirm Restart of Gas Supplies
- Turkmenistan: 23 December 2009: Turkmenistan, Russia Agree to Resume Gas Supplies in 2010, Ending Impasse
- Turkmenistan: 25 November 2009: Start-Up of Turkmenistan-China Gas Pipeline Nears; Gazprom Reportedly to Cut Medium-Term Imports
- Turkmenistan: 23 November 2009: Itera, Zarubezhneft Sign Deal to Co-Operate in Block 21 Development Offshore Turkmenistan
- Turkmenistan: 13 April 2009: Turkmenistan Accuses Gazprom of Irresponsible Actions in Triggering Gas Pipeline Explosion
- Turkmenistan: 10 April 2009: Pipeline Blast in Turkmenistan Halts Gas Supplies to Russia