Gas Pressure Equalizes in Turkmenistan-Russia Talks

nCa News and Commentary

Ashgabat, 25 November 2007 (nCa) --- Turkmenistan and Russia discussed a broad range of issues in the day-long official visit of the Russian Prime Minister, Victor Zubkov, to Ashgabat on 23 November 2007. At least one important topic was left untouched when President Berdymuhamedov and Prime Minister Zubkov spoke to the media Friday afternoon.

The visit of the Russian PM, with his heavyweight delegation, can be described as a tie-rod between what RussiaTurkmenistan have accomplished together since the start of this year and what they hope to get done before the end of the year. and

Before touching the subject on which both sides remained silent in their media appearance, let’s see the results of the talks:

• Turkmenistan told Russia that it was ready to proceed with the construction of the Caspian Coastal Pipeline ahead of the schedule. According to earlier plans, the pipe construction was to start in the second half of 2008 but Berdymuhamedov told the Russian PM that Turkmenistan was in a position to start the work in the first half of the next year. Definite agreement on the pipeline is likely to be signed in December 2007. Russian companies will play an important part in the construction of the pipeline.
  

• Ashgabat will host Turkmen-Russia economic forum on 3-4 December 2007. About 30 Russian companies have already submitted their proposals for establishing joint ventures in Turkmenistan. The proposed projects could cover the areas of gas processing, hotel construction, office buildings and other facilities. Some big Russian companies such as KamAz, Silovye Mashiny, Gazprom, Lukoil, Transneft, UES and MTS are planning to expand their presence in Turkmenistan. Some 88 companies with Russian capital are operating in Turkmenistan and 114 projects and contracts have been jointly with Russian companies. Turkmen president said that forthcoming joint economic forum would be one of the most important events in bilateral cooperation.
  

• Turkmenistan and Russia are supposed to sign a raft of documents before the end of this year. These would include agreements on trade and economic cooperation, on promotion and mutual protection of investments, on ferry and railway communications and on scientific-technical cooperation.
  

• Bilateral trade turnover between Russia and Turkmenistan during the first ten months of this year was nearly US $ 4 billion. This compares positively with last year’s trade turnover of US $ 3.370 billion.
  

• Turkmenistan showed again that the development of alternate sources of energy had become a priority item on its agenda. Turkmenistan and Russia would cooperate in research and development of wind and solar energy technologies.
  

• The agreement for reconstruction and expansion of Central Asia-Centre Pipeline is almost ready for signing. Russia, Kazakhstan, Uzbekistan and Turkmenistan would sign the agreement in December. The plans envisage expansion of throughput capacity to 230 million cubic meters per day.
  

• The number of scholarships for Turkmen students to Russian institutions of higher learning would be increased to 150.
  

• There was general talk of military-technical cooperation but no details were given.
  

• Berdymuhamedov said, “We have always said Russia is a great superpower, that we are strategic partners."
  

• Turkmenistan will open its trade representation centre in Moscow.
  

• Russian auto giant KamAz has translated Ruhnama into Tatar language.

The topic that Berdymuhamedov and Zubkov skirted around when talking to the media was: At what price would Russia buy Turkmen gas in 2008?

The partial answer came when Gazprom CEO Alexi Miller told some journalists that Russia expects the gas price to go up by 30% from US $ 100 per thousand cubic meters to US $ 130.

Miller’s statement shows what Russia hopes to pay, not what Turkmenistan desires to charge.

A Russian delegation is expected to return to Ashgabat within the next few days to resume price talks.

nCa Commentary

Gas price is a subject that tests the negotiation skills of all sides at the end of every year. At present TurkmenistanRussia annually under a three-year contract that would expire in December 2009. is supplying 50 billion cubic meters (bcm) of natural gas to

According to the terms of the contract, signed in October 2006, the price would be negotiated every year and the contract can be extended with mutual consent. Talks for extension or termination of the contract would begin in the second half of 2008.

The negotiations for revision of prices started in July this year but Russia has been dragging its feet in the hope of getting some political traction with Ukraine, the main consumer of Turkmen gas.

Earlier news stories hinted that Turkmenistan was asking Russia to start paying US $ 150 per thousand cubic meters starting January 2008. This is a very reasonable price considering the fact that Kazakhstan is already charging US $ 160 for its gas.

Moreover, one must remember that Gazprom recently issued notice to its European buyers that average gas prices would be around US $ 265 in 2008 and US $ 354 in 2009.

Gazprom has also warned that it would gradually increase the gas price for Ukraine until it levels out with the European buyers in 2011.

Considering the fact that Ukraine doesn’t have a proper government in place, it is difficult to see if there would be anyone in Kiev with sufficient authority to negotiate gas prices with Gazprom. If the Turkmen gas price rises by at least 30%, and the effect is transferred proportionally to Ukraine, the net impact to the Ukrainian economy could be to the tune of US $ 1.3 billion in 2008. Some Ukrainian officials have assured that the economy was strong enough to absorb the shock.

The price tussle is likely to streamline from 2009 onward when Turkmenistan-China pipeline comes into operation. Whatever Turkmenistan demands for its gas would depend on what price China is paying. For northern buyers, there would certainly be a coefficient added to the China price because China is investing in everything from development of fields, to extraction and pumping of gas whereas other buyers are using the facilities financed by Turkmenistan.

Speaking of prices, there have been speculations that the Caspian Coastal Pipeline agreement that was to be signed in September this year, was delayed because of price disputes between Russia and Turkmenistan.

This may be partly true because Turkmenistan brings up price question early in the pipeline negotiations. However, the real reason seems that Alexi Miller, the brain behind the present gas policy of Russia, was down for three months with serious health problems.

The Caspian Coastal Pipeline – alternately called Caspian Pipeline or Pre-Kaspiskiy Pipeline – is a halfway solution to anyone’s problems.

Its planners – Turkmenistan, Kazakhstan and Russia – would finance the segments that pass through their territories from their own sources.

The CCP (Caspian Coastal Pipeline) would certainly bring additional revenues to Turkmenistan and Kazakhstan but the main beneficiary would be Russia because it would get the extra volumes to keep up with its export commitments to Europe while it does some fresh digging to recoup its sagging production capacity.

Contrary to what some media outlets assert, CCP is not a threat to Trans-Caspian/Nabucco or any other project. We shall return to this topic in another commentary later.