nCa News and Commentary
Turkmenistan has resumed the supplies of natural gas to Russia after a hiatus of three years. This was confirmed both by the oil and gas complex of Turkmenistan and the Russian giant Gazprom.
“Today, April 15, from 12 noon, deliveries of Turkmen natural gas to the Russian Federation resumed,” reported Nebit-we-Gaz, the official media outlet of the oil and gas sector of Turkmenistan on 15 April 2019, quoting the sources from the state concern Turkmengaz.
“Supplies are taking place,” Gazprom spokesman Sergei Kupriyanov told Reuters the same day.
The breaking news by Nebit-we-Gaz says, “Supplies were resumed under the current intergovernmental Agreement between Turkmenistan and the Russian Federation on cooperation in the gas sector until 2028, on the basis of which the parties are carrying out relevant work.”
No details about the volume or price were available immediately.
* * *
The visit of Alexey Miller, the chairman of the managing committee of Gazprom to Turkmenistan on 27 April 2019 was an indication that the sides were close to reaching the understanding on the resumption of gas supplies.
Turkmenistan has plenty of gas and the infrastructure exists to pump up to 90 bcm (billion cubic meters) of natural gas to Russia annually for onward disposal to the clients in Europe, Turkey, or CIS.
Therefore, it makes good business sense for Gazprom to restart the purchase of the Turkmen gas if there is demand at the other end of the pipeline system.
* * *
Is there a demand? — The short answer is, Yes.
For the detailed answer, let’s look at a story by the Financial Times, published on 3 December 2018. Here is the complete text of the story.
Europe to boost Russian gas imports by 25% says Gazprom
Europe will look to import 25 per cent more Russian pipeline gas as of 2020, Gazprom has said as it gears up for a record year.
The country’s pipeline gas export monopoly said requests from both existing and new buyers indicated European demand would jump by a quarter. Gazprom is expected to export record gas volumes this year and next, a senior company official said on Monday, reiterating predictions made in June.
Rising demand comes despite persisting criticism in the EU over the region’s dependence on Russian gas, and calls for a search for alternative gas sources.
“We are already receiving requests for additional export volumes starting 2020. The additional demand by our traditional as well as new buyers stands around 50 Bcm per year,” deputy chair of the company’s management committee Alexander Medvedev said on a conference call.
Meanwhile, Gazprom’s 2018 and 2019 exports to Europe and Turkey are expected to set the third annual record in a row and exceed 200 Bcm, which “is getting very close to the volume of our annual contracted volumes,” he said.
“Today, at the start of December, one can say with a high degree of certainty that the volume will exceed 200 Bcm [in 2018],” Mr Medvedev said, reiterating the company’s June forecast. “I believe more than 200 Bcm will be exported in 2019, too.”
The transition to the next level of yearly contractual volumes is important given the development of the company’s new gas transportation routes, he added.
The company is building two new gas pipelines to Europe — Nord Stream 2 across the Baltic Sea and TurkStream across the Black Sea — both expected to be launched at the end of 2019 to help reroute gas supplies to Europe and Turkey away from Ukrainian transit. Gazprom’s transit contract with Ukraine also expires at the end of next year.
Gazprom’s gas exports to Europe and Trukey, or what it calls the far abroad, rose by 6.7 per cent on the year to 185.4 Bcm in the first nine months of the year, according to the company’s data.
Last year, the company supplied 194.4 Bcm of gas to Europe and Turkey.
* * *
Essentially, the resumption of Turkmen gas supplies to Russia is a matter of supply and demand.
For the Turkmen side, it brings a traditional partner back to the portfolio and for the Gazprom side, it solves the question of finding 50 bcm of additional supplies that would be required to feed the demand in Europe in the near future.
However, as is the nature of world affairs, there would be other aspects, albeit in varying degrees of periphery.
The American penchant for sanctions is forcibly realigning the geopolitical tectonic plates. Once these plates fuse in their new positions, this would be the shape of the new world order.
The American establishment is putting together another round of sanctions on Russia, undoubtedly designed to prevent Russia from emerging as a top player in the global LNG market. The exact shape and extent of such sanctions, and whether they would serve their intended purpose, is a question that can only be answered at some point in the future.
What we know for now is that Russia is successfully consolidating its market share in Europe and Turkey and simultaneously searching for new markets. With its assorted deals in Central Asia, Russia has created a network of gas suppliers.
China is another victim of the confrontational mindset and zero-sum mentality of the United States. It is, therefore, understandable that Russia and China are coming closer together because of shared concerns.
There is also the fact that although the Trans-Caspian Pipeline is an attractive idea, its economic aspects demand deeper study, especially the calculation of a realistic timeframe for the payback period of this 3500-km pipeline.
What is happening in Afghanistan is also of relevance.
Several rounds of talks have taken place between the USA and the Taliban without the presence of the Afghan government on the table. In each round, the Taliban remain firm in their basic demands and increase pressure on the ground while the US team led by Zalmay Khalilzad makes brave noises but budges bit by bit.
Russia is not only watching the developments carefully but also trying to play a positive role in creating peace and stability in Afghanistan. Simultaneously, Russia is apparently trying to partner with Central Asia to avoid the emergence of any vacuum in Afghanistan.
The sanctions on Iran and the American pressure on the world to shun any dealings with Iran are creating their own vibes. Iran is looking toward its neighbours including Russia for support.
In the overall picture, the resumption of Turkmen gas supplies to Russia makes good sense in so many ways.
* * *
The Turkmen media has mentioned that the resumption of gas supplies has taken place under the terms of the Turkmenistan-Russia gas purchase that was signed in 2003 for a period of 25 years.
A press release of Gazprom, issued on 10 April 2003 gives some details of the agreement although it is not clear as to what provisions are still in force.
Here is the text of the Gazprom press release of 10 April 2003:
Gazprom has signed a long-term contract for the purchase of Turkmen gas
April 10, 2003, 15:56
Today in the Kremlin, Russian President Vladimir Putin and President of the Republic of Turkmenistan Saparmurat Niyazov signed a long-term agreement between Russia and Turkmenistan on cooperation in the gas industry for 25 years. The authorized organizations for the implementation of the Agreement are defined by Gazprom and the State Oil Company Turkmenneftegaz.
Under the Agreement, Gazexport LLC (a wholly owned subsidiary of Gazprom) and the Turkmenneftegaz State Trade Company entered into a long-term contract for the sale of Turkmen natural gas for the duration of the Agreement.
In accordance with the Agreement, the Turkmen side guarantees the supply of natural gas at the border of Turkmenistan. In turn, the Russian side guarantees the purchase, transportation and payment of Turkmen gas.
According to the contract, in 2004 Gazexport will purchase 5–6 billion cubic meters of gas from Turkmenneftegaz. In 2005, the volume will increase to 6-7 billion cubic meters, in 2006 – up to 10 billion cubic meters in 2007 – up to 60–70 billion cubic meters, in 2008 – up to 63–73 billion cubic meters of gas. Starting from 2009, the annual volume of Turkmen gas supplies to Russia will be from 70 to 80 billion cubic meters. From January 1, 2004, the purchase price will be $ 44 per 1 thousand cubic meters of gas.
Payment for Turkmen gas supplies in 2004–2006 will be made at the rate of 50% in cash and 50% in supplies of equipment for the development of the gas industry of Turkmenistan. The procedure for payment in subsequent years will be agreed by the parties in addition.
The agreement and contract will come into force on January 1, 2004, and will be valid until December 31, 2028.
“The documents signed today are a huge breakthrough in the gas sphere between Russia and Turkmenistan. Such full-scale agreements in the history of the two states have not yet been seen. For a quarter of a century, they determine the future cooperation of the two leading gas powers, ”said Alexey Miller, head of Gazprom.
* * *
Even though the Gazprom press release quoted above mentions that the price would be USD 44 per thousand cubic meters, in actual fact the price and some other provisions including the volumes came up for discussion at the end of each year throughout the active implementation of this agreement from 2003 to 2016.
For example, the price in 2005 was USD 65 per thousand cubic meters which was raised to USD 100 in 2006, and to USD 150 in 2007.
Also, during the main periods there was a middleman to handle the transportation of gas from the Turkmen border to the buyer, and the banking transactions and other management issues. At the time of the signing of the agreement, a special entity ‘RosUkrEnergo’ registered in Switzerland was created to serve as the middleman.
It is not clear whether a similar arrangement would be made this time. /// nCa, 16 April 2019