Streetwise Professor

Great News!  All is not well between Russia and Turkmenistan.  Although happy talk emanated from Moscow in the aftermath of  Turkmenistan President Gurbanguly Berdymukhammedov’s state visit to the Rusisian capital, developments in the weeks following the visit are definitely not to Putin’s and Medvedev’s liking:

Turkmenistan has delivered its clearest statement to date that it wants to see the development of a direct gas export pipeline system to carry thecountry’s gas to European markets.

A commentary on the official Turkmenistan.ru web site on Saturday  stressed the importance of “the shortest and most convenient routes” to new markets, but it did not directly say that Turkmenistan was looking for either a trans-Caspian gas pipeline to Azerbaijan or its onward connection to Europe via the Caucasus. Instead it spoke of the need for “diversification of energy supply and involvement of new countries and regions in the geography of energy routes.”

“The statement is a clear indication that the Turkmens are looking much more actively to Europe,” Dr Jennifer Coolidge, Executive Director of Caspian and Gulf Consultants, which specializes in analysis of Turkmen energy affairs,said.

The statement was unexpected because it came just a few days after Turkmenistan President Gurbanguly Berdymukhammedov visited Moscow for talks which Russia announced had paved the way for joint development of a new $1.2 billion East-West pipeline within Turkmenistan.

In an apparent reference to Russia’s halting of all gas exports to Europe via Ukraine on January 7, the statement said new routes were needed “to diversify supply of Turkmen natural gas and build the reliable and stable system to transit Turkmen energy to international markets.”

The foreign ministry commentary also indicated Turkmenistan’s unhappiness over price negotiations with Russia. The statement attacked the idea that international consortiums of gas producers should serve as “supranational  regulators of the price policy” — an apparent criticism of Russia’s work in promoting the Gas Exporting Countries Forum – and specifically attacked monopoly practices in gas trade whilst praising competition.

“The only true scheme to fix the natural gas prices is direct agreements between sellers and buyers,” the statement said.

Turkmenistan has a particular dispute with Russia in this regard, as Turkmen gas has been a staple of Ukraine’s gas supply for decades. But in recent years Turkmenistan has had to sell this gas to intermediary Russian  companies — first Itera, then EuralTransGas and currently RosUkrEnergo –only to see Russia then selling this Turkmen gas on to Ukraine at much higher prices.

Dr Coolidge considered that the sharp tone of the statement should be considered a declaration by Turkmenistan that it was not prepared to have its policies determined by Russia on either the issue of export routes or the price for Turkmen gas exports.

“Coming immediately after the Moscow visit, it is a clear indication of sending Turkmen gas to Europe directly and of securing greater independence on pricing.” she said.

She added that Turkmenistan remains concerned as to whether it will in fact receive the price for 2009 deliveries that it had negotiated with Russia  before the Ukraine dispute in January.

Turkmenistan has delivered its clearest statement to date that it wants to see the development of a direct gas export pipeline system to carry thecountry’s gas to European markets.

A commentary on the official Turkmenistan.ru web site on Saturday  stressed the importance of “the shortest and most convenient routes” to new markets, but it did not directly say that Turkmenistan was looking for either a trans-Caspian gas pipeline to Azerbaijan or its onward connection to Europe via the Caucasus. Instead it spoke of the need for “diversification of energy supply and involvement of new countries and regions in the geography of energy routes.”

“The statement is a clear indication that the Turkmens are looking much more actively to Europe,” Dr Jennifer Coolidge, Executive Director of Caspian and Gulf Consultants, which specializes in analysis of Turkmen energy affairs,said.

The statement was unexpected because it came just a few days after Turkmenistan President Gurbanguly Berdymukhammedov visited Moscow for talks which Russia announced had paved the way for joint development of a new $1.2 billion East-West pipeline within Turkmenistan.

In an apparent reference to Russia’s halting of all gas exports to Europe via Ukraine on January 7, the statement said new routes were needed “to diversify supply of Turkmen natural gas and build the reliable and stable system to transit Turkmen energy to international markets.”

The foreign ministry commentary also indicated Turkmenistan’s unhappiness over price negotiations with Russia. The statement attacked the idea that international consortiums of gas producers should serve as “supranational  regulators of the price policy” — an apparent criticism of Russia’s work in promoting the Gas Exporting Countries Forum – and specifically attacked monopoly practices in gas trade whilst praising competition.

“The only true scheme to fix the natural gas prices is direct agreements between sellers and buyers,” the statement said.    Turkmenistan has a particular dispute with Russia in this regard, as Turkmen gas has been a staple of Ukraine’s gas supply for decades. But in recent years Turkmenistan has had to sell this gas to intermediary Russian  companies — first Itera, then EuralTransGas and currently RosUkrEnergo –only to see Russia then selling this Turkmen gas on to Ukraine at much higher prices.

Dr Coolidge considered that the sharp tone of the statement should be considered a declaration by Turkmenistan that it was not prepared to have its policies determined by Russia on either the issue of export routes or the price for Turkmen gas exports.

“Coming immediately after the Moscow visit, it is a clear indication of sending Turkmen gas to Europe directly and of securing greater independence on      pricing.” she said.

She added that Turkmenistan remains concerned as to whether it will in fact receive the price for 2009 deliveries that it had negotiated with Russia      before the Ukraine dispute in January.

She said the consideration of new routes “fits into the discussions that the Turkmen authorities have been having with Austria’s OMV and Germany’s RWE on a Caspian Energy Corp.”

The Caspian Energy Corp.’s stated aim is to assess prospects for development of a trans-Caspian gas pipeline. This would then be able to hook into the existing South Caucasus Pipeline from Azerbaijan to Turkey, enabling it to connect up with the planned Eur7.9 billion ($10.6 billion) Nabucco pipeline project, in which both companies are also involved.

The EU-backed Nabucco pipeline is intended to carry Caspian gas on strictly commercial terms all the way to the Austrian hub at Baumgarten, with European Union officials specifically arguing that Nabucco should be seen as a way of attracting large volumes of gas — eventually as much as 60-120 Bcm/year — from Turkmenistan, as well as Azerbaijan, to Europe.

During Berdymukhammedov’s Moscow visit, an aide to Russian President Dimitry Medvedev said March 25 that the two presidents would sign during one of their future meetings an agreement on developing a major internal pipeline intended to connect the giant South Yoloten field with coastal producing  regions near the Caspian port of Turkmenbashi.

But on March 30, the Turkmen authorities announced that Berdymukhammedov had instructed the “Turkmengaz” state concern to announce an international tender for design and construction of the 30 million mt/year East-West gas  pipeline with a length of 800-1,000 km.

Such a pipeline would play a vital role in ensuring that any  trans-Caspian pipeline system to Europe would be able to access the giant South Yoloten field, which the UK’s Gaffney Cline declared last September contained a minimum of 4 trillion cubic meters of gas-in-place.

Russian accounts had said the aim of the east-west line was to provide a feeder for the planned Caspian Coastal pipeline, intended to run from the Turkmenbashi area to Russia.

The April 4 statement stressed the importance of a planned conference in Ashgabat over April 23-24 at which Turkmenistan hopes to gain further global support for its proposals to enhance “reliable and stable transit of energy to international markets under the aegis of the UN.” The conference is also expected to serve as a sounding board for companies seeking to take part in the East-West pipeline tender.

To summarize: Turkmenistan has taken a very brash, public, and outspoken position in direct opposition to virtually every Russian/Gazprom position on major gas policy issues, namely control of transportation, pricing, intermediaries, and a “Gas OPEC.”  Russia wants to control the transportation of gas, and ensure that Turkmen gas transits Russia on its way to European markets; Turkmenistan wants direct access to Europe.  Russia wants to control the marketing of gas, via shady intermediaries; Turkmenistan wants to deal with the consumers of its gas directly.  (Side note: another illustration of Russia’s/Gazprom’s peg-the-needle hypocrisy, given its constant demands to have direct access to downstream customers in Europe, and now in the US.)  Turkmenistan is worried that the Russians won’t pay what they’ve agreed.  Russia is seriously shopping the idea of a “supranational” cartel of gas exporters; Turkmenistan flatly opposes this idea so near and dear to Putin’s heart.

They must be fuming in the Kremlin and the White House on the Moskva, especially after

Medvedev said that Moscow and Ashgabat will soon sign new agreements on natural gas production and transportation, RIA Novosti reported. “We studied in detail cooperation in the fuel and energy sector, including progress in the implementation of very important accords, such as the intergovernmental agreement on the Caspian pipeline, and other projects,” Medvedev said after talks in Moscow with Berdymukhammedov.

. . . .

Russian presidential aide  Sergei Prikhodko  told journalists that Energy Minister  Sergei Shmatko  would soon head for Ashgabat to fine tune an agreement on the East-West gas pipeline, to link northeastern Turkmen deposits with the Caspian gas pipeline. He said the Russian and Turkmen leaders would soon meet again to sign the deal.

Given Turkmenistan’s defiance on every major issue, and its recent blunt statements regarding the pipeline explosion (arising from Russia refusing to accept contracted deliveries of gas, according to Turkmenistan), somehow I think that Medvedev can put his pen away.

This raises the question: What accounts for Turkmenistan’s sudden obstreperousness?  Things are so opaque in that part of the world, it’s very hard to say.  My guess is that Gazprom’s/Russia’s acute financial difficulties, and its desperation to get out of contracts to buy gas at high prices, have demonstrated clearly to the Turkmens that they cannot be dependent on Russia, as Russia will screw them at every turn. Moreover, they may sense that Russia/Gazprom are in a weak position right now due to the financial crisis, and so there is now a glittering opportunity to slip out of Moscow’s suffocating grip.  Maybe too the European move in Ukraine gave the Turkmens some indication that the game may be changing.  And, certainly, there must be all sorts of byzantine diplomatic maneuverings going on involving the US, the EU, and China, as well as Russia.

Whatever the reason, Ashgabat’s newfound spunk is very welcome.  I say again: let us hope that Foggy Bottom and Brussels will seize this opportunity, although, I share R’s doubts that they will.