Streetwise Professor

April 10, 2009

So Close to Russia, So Far From God: A Reprise

Filed under: Commodities,Economics,Energy,Politics,Russia — The Professor @ 12:30 pm

Turkmenistan’s foreign ministry issued an exceedingly blunt statement blaming Gazprom for an explosion in a Turkmen gas pipeline.  The explosion allegedly followed an unexpected curtailment of Russian imports of Turkmen gas:

Turkmenistan, however, in a burst of undiplomatic language, blamed Russia for the pipeline disruption, saying Russia’s gas export monopoly Gazprom (GAZP.MM) had “irresponsibly” cut imports of gas and caused the accident.

The undiplomatic diplomatic response:

Turkmenistan’s foreign ministry said in a statement Gazprom cut gas imports on April 8 without warning its government in the capital of Ashgabat.

“Such actions by Gazprom Export are ill considered and irresponsible because it created a real threat to peoples’ lives and health and can lead to unpredictable ecological consequences,” the ministry said.

“Such an approach (low gas imports) is a unilateral, rude violation of the terms of the take-or-pay gas supply contract,” the ministry said in an unusually harsh statement. Gazprom is a state controlled firm and Turkmenistan has repeatedly called Moscow one of its most important strategic partners.

Now, let’s take our minds back to the dark, distant past; like, say, March, 2009.  Can anybody remember the bleating from Putin and Gazprom about how unacceptable it was for Ukraine and Europe to take unilateral actions in gas transportation without consulting with, or considering the interests of, the supplier of the gas?  I knew you could.  If Ashgabat is to be even partly believed, Russian took unilateral action  that caused a serious accident  without consulting the supplier of gas.  Kremlin/White House whinges about respecting their rights/interests would be less nauseating if they kept their hypocrisy somewhat in check, rather than giving it full, neurotic, narcissistic play at every opportunity.   (I acknowledge that anything coming from the Ex-Sov space needs to be taken with a dose of skepticism, but since Gazprom/Putin are among the world’s most brazen liars, Turkmenistan wins my vote on the relative credibility scale here.)  

So why would the Russians cut imports of Turkmen gas?  One hypothesis is that it is payback for Turkmenistan’s audacity in issuing an international tender for a new gas export pipeline–a pipeline that Gazprom had assumed it would build:

Russia began a “gas war” with Turkmenistan after the Central Asian nation called an international tender last week to build a pipeline, hurting relations as  OAO Gazprom  expected the contract, Kommersant said.

The tender for the East-West link from the biggest gas field in the Commonwealth of Independent States came as a surprise for Russia, the Moscow-based newspaper said.

Turkmenistan accused Gazprom of causing an explosion on a pipeline to Russia via Uzbekistan yesterday by reducing supply “sharply.” The country had exported 70 million to 80 million cubic meters of gas a day via the link before the blast cut shipments completely, Kommersant said.

I have another hypothesis.  Gazprom is sucking wind, and badly.  To mix medical metaphors, it is hemorrhaging cash, and those problems will only get worse in the coming quarters as the lagged adjustment in gas export prices will drastically cut the price Gazprom gets for its sales to Europe, and as volumes decline as well due to seasonal factors and the severe economic downturn in Europe.  

And here’s the major point.  The company also outsmarted itself by buying large quantities of Turkmen gas at  fixed prices that seemed like a good idea at the time, but which retrospectively turned out to be far above the current market price, and likely prices going forward.  (It’s a bitch being long flat price and short floating price in a bearish environment.  But schadenfreude is so sweet when Gazprom is involved!)  Note the Turkmenistan foreign ministry statement explicitly mentions “take-or-pay” contracts–this means that Gazprom was contractually obligated to take the full volume at the above market price, even if it had no market for the gas.  

So, one reasonable hypothesis is that a cash-strapped Gazprom probably tried to get Turkmenistan to give it a break on the take-or-pay obligations; Turkmenistan told Gazprom to pound sand; and Gazprom/Russia decided to welsh on the contract, unilaterally cutting its acceptance of deliveries.  Any pique over the Turkmenistan’s temerity at acting as an independent nation rather than a satrapy of Gazprom/Russia just provided another motive for Gazprom to stiff/punish the Turkmen.

Keep this episode in mind the next time Gazprom/Putin/Medvedev/Russia mention anything having the remotest connection with commercial morality or professionalism.  

The best thing about this is that it suggests that Turkmenistan is actually showing backbone and standing up–in a very public, in-your-face sort of way–to Gazprom and Russia.  There is an opportunity here.  I just wonder if anybody in DC (Foggy Bottom in particular) or Brussels is smart enough to take advantage of it.

The second best thing is that it provides evidence that Gazprom is under intense financial pressure.  And if Gazprom is under intense financial pressure, so are Putin and the rest of the coterie of parasitic capos that feast off it.

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  1. Hey, R–I thought you were a cock-eyed optimist! 😉 What gives? (Other than a grasp of reality;-)

    The ProfessorComment by The Professor — April 10, 2009 @ 3:50 pm

  2. Thought that would tickle you.


    Yes, the Turkmens are being very unreasonable. Explosions happen, no? Those emotional Central Asians. . . .

    Re hands over ears, I wonder how long before Merkel leaps to Gazprom’s defense. Or Berlusconi. Or both.

    And Gazprom is coming to your California shores to spread its love, courtesy of Royal Dutch Shell (I was going to use a nasty adjective in front of RDS, but I’ll leave it to the imagination):

    The ProfessorComment by The Professor — April 10, 2009 @ 5:02 pm

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