Ashgabat can face challenges in gas transportation

/By AzerNews/

By Aynur Karimova

Russian energy giant Gazprom’s refusal to purchase Turkmen natural gas may push Turkmenistan into a complicated situation.

Gazprom Export cited current trends on the global gas markets, as well as "a number of financial and economic issues" as reasons for the decision, Turkmengaz State Concern reported on January 4.

Bruce Pannier, an expert on Central Asia, and the Senior Correspondent at Radio Free Europe/Radio Liberty, believes that the biggest problem Turkmenistan faces from Russia stopping imports of Turkmen gas is that it leaves Turkmenistan with just the two customers – China and Iran.

Turkmenistan is still exporting some gas to Iran, somewhere between 6 to 8 billion cubic meters annually, so Ashgabat can count on some revenue from those sales. However, following the easing of relations with world powers and removal of international sanctions imposed on Tehran over its nuclear energy program, Iran will likely not be a customer of Turkmen blue fuel for much longer.

Turkmenistan is also exporting a large amount of gas to China, and the figures vary between 30-45 bcm. However, the problem with sales to China is that some part of the gas Turkmenistan is exporting is counted as repaying multi-billion dollar Chinese loans to develop Turkmen gas fields and build the pipelines connecting Turkmenistan to China.

"China and Turkmenistan have never made public the deals they have reached, so it is difficult to know how much gas China is taking as repayment or even how much China is paying for the gas, though there were some reports a few years ago that suggested the price was just under $200 per 1,000 cubic meters," Pannier noted.

Gas sphere was one of the strategic areas of partnership between Turkmenistan and Russia until recently. Turkmenistan transports its gas to Russia via the Central Asia-Center gas pipeline that was constructed during the Soviet period and monopolized by Russia’s Gazprom Company.

Turkmenistan, which has the fourth largest proven gas reserves in the world and produces about 70-80 billion cubic meters of gas a year, is actively implementing an energy strategy aimed at increasing exports of the blue fuel and diversifying its supply routes to the largest global markets, where the demand for energy resources is growing.

"However, it appears that soon Turkmenistan will only be exporting gas to China. That leaves Turkmenistan in a bad position to negotiate the price of its gas since China could simply refuse and then no one would be buying Turkmen gas," Pannier added.

Taking these challenges into account, Turkmengaz has already expressed its willingness to negotiate with Gazprom Export a wide range of issues related to the economic ties between the two companies.

Russia's decision has political motive

The expert believes that there is a political motive in Russia’s decision to suspend purchases of Turkmen gas and increase purchases of gas from Uzbekistan.

"Russian-Turkmen relations are not good. Up to now, Moscow has not been able to find a political mean to put pressure on Turkmenistan, but halting gas imports, even the relatively meager amount Turkmenistan was sending, hurts Turkmenistan in a very public way," he said.

So far, Russia has purchased natural gas only from three countries of the Central Asian region - Turkmenistan, Uzbekistan and Kazakhstan. Supplies from Turkmenistan are regulated by the intergovernmental agreement of 2003, which envisages the cooperation until 2028. The document envisages the supply of up to 80 billion cubic meters of gas per year to Russia via the Central Asia - Center and East - West pipelines.

Despite the contracted annual volumes of 70-80 billion cubic meters, firstly, the volumes were decreased to 10-11 billion cubic meters per year throughout five years. The annual volumes dropped by 2.5 times in 2015 and stood at 4 billion cubic meters.

Last year, Turkmenistan’s Ministry of Oil and Gas Industry and Mineral Resources reportedly said that Gazprom Export LLC (100-percent subsidiary of Gazprom) doesn’t pay the remaining money for the actually delivered Turkmen natural gas, without explaining the reason.

Gazprom said in early 2015 that it will purchase only 4 billion cubic meters of gas from Turkmenistan and was going to challenge the terms of the contract in the Stockholm arbitration.

Later, the world media reported citing the sources close to Gazprom that the company has filed a lawsuit in Stockholm Court against Turkmengaz demanding to revise the prices in the gas supply contract.

The gas monopoly attributed reduction in gas purchases to the fact that demand for Russian gas in Europe and in Ukraine had shrunk, said Forbes.

Due to declining gas export prices in Europe, linked to the constantly falling oil prices, the previously set price for Turkmen gas at $240 per 1,000 cubic meters appeared unsatisfactory to the Russian side.

Having failed to negotiate lower prices, Gazprom unilaterally shifted to payments at European export breakeven price in January, said Forbes.

“Gas payments in the first five months of this year have been carried out by Gazprom under this scheme.”

Little chances for huge gas projects

Commenting on possibility of acceleration of energy projects envisaging export of Turkmen gas to various countries, the expert said that despite the fact that the Turkmen government wants very much to diversify gas export routes and is pushing both Turkmenistan-Afghanistan-Pakistan-India and the Trans-Caspian pipeline projects, there is little chance either of those projects will even be close to being completed.

"TAPI is routed through Afghanistan and the Baluchistan region in southern Pakistan, two areas facing huge security problems. Russia, at least, and probably Iran will oppose construction of the TCP on the grounds that the legal status of the Caspian Sea is not yet decided and there could be dire environmental consequences from the pipeline. Recent Russian Navy activity in the Caspian Sea guarantees no one could build the pipeline without Moscow allowing it," he noted.

Therefore, the choice does not depend on Turkmenistan, but on many factors outside Turkmenistan’s control.

"My guess is that neither TAPI nor TCP will be built and operational within the next decade and it probably will be much longer than that, if ever," the expert stated.

Gazprom to increase supplies from Uzbekistan

Meanwhile, Gazprom has announced that it will increase the purchase of Uzbek gas. This information was confirmed by Alexei Miller, the Head of the company.

"We highly appreciate the results of the negotiations reached with our Uzbek friends. Uzbekistan is our reliable partner in the gas sector, and we will continue to further develop our mutually beneficial cooperation. And, quite naturally, the volume of purchases of Uzbek gas will increase this year," he told journalists on January 4, Russian media reported.

Pannier believes that Uzbek gas can easily replace Turkmen gas.

"Gazprom now says it will import at least 3.1 bcm of gas from Uzbekistan in 2016. Uzbekistan only exported some 1 bcm to Russia last year. Just a few years ago Uzbekistan was exporting several times that amount of gas to Russia," he said.

Since January 1, 2016, Gazprom has increased the volume of purchases of natural gas from Uzbekistan. The agreements were reached at the end of December 2015. However, no concrete figures were revealed.

"It is worth mentioning that Gazprom is developing gas fields in western Uzbekistan and the Uzbek gas that Gazprom buys will probably be gas from Uzbek fields Gazprom is developing," Pannier stated.

"Uzbekistan probably should not become accustomed to selling gas to Russia for long. If world prices remain low I think Russia, Gazprom, will stop buying any gas from Central Asia soon," he concluded.