Tuesday, April 15, 2008
Central Asia Unwilling to Be Left Out
// of Russia’s natural gas policy
Apr. 15, 2008 Kommersant by Natalia Grib, Oleg Gavrish, Vladimir Soloviev - The European Union has reached its first success in negotiations with Central Asia states on natural gas supplies. Turkmenistan agreed to reserve 10 billion cubic meters of gas for the EU since 2009. That gas had been already promised to Russia and China. Even if Europe manages to obtain it, transporting it to the EU will be extremely difficult. However, Europe regards it as a significant achievement, and is going to reach same agreements with Uzbekistan and Kazakhstan, so as to reduce the energy dependence on Russia. Late last week, EU representatives held a number of meetings with the authorities of Central Asia states in Ashgabat. After the talks, EU External Relations/European Neighborhood Policy Commissioner Benita Ferrero-Waldner said in her interview to the Financial Times that there now are first specific agreements on Central Asian gas supplies to Europe. “Turkmenistan’s leader assured us that 10 billion cubic meters of gas annually will be reserved for the EU in 2009. Moreover, there are opportunities for the EU to take part in the tenders for developing new deposits,” said Ferrero-Waldner. In total, the EU imports 300 billion cubic meters of gas annually. So, Turkmenistan will secure just a little over 3 percent of it. However, Ferrero-Waldner underlined that it is “an important first step towards finding alternative gas suppliers” which will help reduce Europe’s energy dependence on Russia. “Turkmenistan is ready for a most broad and close dialogue with the EU on equal and mutually profitable basis,” Turkmenistan.ru news agency quoted President Berdymuhammed as saying. However, the way to transport gas to Europe has not been found yet. Russia declines providing transit. “All transport capacities of Central Asian countries were contracted for the gas purchased by us until 2010. We do not know what Ferrero-Waldner means by reserving 10 billion cubic meters for 2009 in Turkmenistan,” said Gazprom’s spokesman Sergei Kupriyanov. Ferrero-Waldner said there are three possible ways for transporting Turkmen gas to Europe. First, to build a submarine pipeline between Turkmenistan and Azerbaijan along the Caspian seabed. Second, to build a surface pipeline to Azerbaijan. Third, to liquefy gas and carry it by sea in tankers. There are no acting gas pipelines between Turkmenistan and Azerbaijan. Yet, if European energy companies manage to contract small LNG tankers (there is a number of small gas-liquefying factories in Turkmenistan) and to transport it to the Caspian Sea’s other coast, then the small amount can be further transported through the Baku-Tbilisi-Erzurum pipeline with the capacity of 8 billion cubic meters annually. In part, the pipeline is filled with gas sold by Azerbaijan to Greece. However, there is a number of difficulties around this pipeline built in 2005. Initially, the plan was to fill it with Azerbaijani gas by 50 percent, and Turkmen gas by the other 50 percent. However, already at the draft stage, a conflict arose between the parties, settled only in 2006. Turkmenistan and Azerbaijan now declare themselves ready to discuss the project. If the EU-Turkmenistan agreement is fixated by long-term contracts, the country may become one of the resource bases for the future Nabucco gas pipeline from Turkey to Europe. Mikhail Korchemkin, director of the East European Gas Analysis agency, believes that Nabucco plus a submarine gas pipeline between Turkmenistan and Azerbaijan (200 kilometers long and worth $900 million) will be much more economically profitable for Turkmenistan than participating in the Pre-Caspian Gas Pipeline project (with Gazprom). In the first case, European companies undertake all expenditures. In the second case, each country made commitment to build the pipeline on its territory. The expert believes it is pointless to build a large LNG factory by the Caspian Sea, because the pipeline is much more cost-effective at short distances. Russia, Kazakhstan, and Turkmenistan signed the agreement on building the Pre-Caspian gas pipeline in December 2007. It is to be laid along the Caspian shore from Turkmenistan via Kazakhstan to Russia. By 2012, its capacity is to make up 20 billion cubic meters of natural gas. Nabucco is Europe’s alternative to Russia’s South Stream. It will lead from Turkey to Bulgaria and further on to Romania. Germany’s RWE, Austria’s OMV, Hungary’s MOL, Romania’s Transgaz, Bulgaria’s Bulgargaz, and Turkey’s Botas take part in the project. The capacity is 30 billion cubic meters of natural gas annually. Supplying gas via Iran might become one more alternative. The pipeline in that direction has a capacity of 14 billion cubic meters, but only 8 billion of it are extracted. Moreover, the supplies were stopped this year due to Iran’s disagreement to raise the price from $75 to $140 for 1,000 cubic meters. However, the pipeline is not a transit one, and gas supplies to Turkey are possible only on the basis of swap. However, the total amount of gas in Turkmenistan poses difficulty as well. In 2007, the country sold to Gazprom nearly 40 billion cubic meters, consumed around 10 billion cubic meters, and supplied to Iran almost as much. The extraction plan for this year is 80 billion cubic meters, but Turkmenistan has never ever extracted over 65 billion cubic meters annually so far. Meanwhile, according to a framework agreement with China, Turkmenistan is to sell 30 billion cubic meters annually to China beginning from 2009. Gazprom hopes to increase the amount of its contracts. The Russian monopoly has a contract with Turkmenistan for 60 billion cubic meters annually. Sources say off-the-record that gas for the EU will be withdrawn from Chinese contracts. A source in Turkmengaz explained that the idea of an agreement with the EU appeared after the fruitless negotiations with China. “The agreement with them has not been signed so far. China is trying to dictate the price to us, because it is a monopolistic buyer just like Russia. We wanted to sell gas to Beijing for $195 for 1,000 cubic meters. However, while Russia agrees to smooth price growth, China refuses altogether to pay more than $100 for 1,000 cubic meters. So, if we sign an agreement with the EU, we will make China see that we already have international prices,” said the source. The EU regards preliminary agreements with Turkmenistan as a significant victory, and plans to expand it to other Central Asian states. Ferrero-Waldner said she is going to visit Tashkent soon to carry out energy negotiations there. The EU has been discussing the projects for building a trans-Caspian gas pipeline from Uzbekistan and Kazakhstan for a few years running. Gazprom believes these actions of the EU have already made Central Asian gas more expensive for Ukraine, from $130 per 1,000 cubic meters in 2007 to $179.5 in 2008, and the prognosis for 2009 is up to $240. Maxim Shein of BrokerKreditServis estimated the average gas price for European consumers under long-term contracts at $360 for 1,000 cubic meters by the year-end, and Gazprom spoke of $354.
Apr. 15, 2008 Kommersant by Natalia Grib, Oleg Gavrish, Vladimir Soloviev - The European Union has reached its first success in negotiations with Central Asia states on natural gas supplies. Turkmenistan agreed to reserve 10 billion cubic meters of gas for the EU since 2009. That gas had been already promised to Russia and China. Even if Europe manages to obtain it, transporting it to the EU will be extremely difficult. However, Europe regards it as a significant achievement, and is going to reach same agreements with Uzbekistan and Kazakhstan, so as to reduce the energy dependence on Russia. Late last week, EU representatives held a number of meetings with the authorities of Central Asia states in Ashgabat. After the talks, EU External Relations/European Neighborhood Policy Commissioner Benita Ferrero-Waldner said in her interview to the Financial Times that there now are first specific agreements on Central Asian gas supplies to Europe. “Turkmenistan’s leader assured us that 10 billion cubic meters of gas annually will be reserved for the EU in 2009. Moreover, there are opportunities for the EU to take part in the tenders for developing new deposits,” said Ferrero-Waldner. In total, the EU imports 300 billion cubic meters of gas annually. So, Turkmenistan will secure just a little over 3 percent of it. However, Ferrero-Waldner underlined that it is “an important first step towards finding alternative gas suppliers” which will help reduce Europe’s energy dependence on Russia. “Turkmenistan is ready for a most broad and close dialogue with the EU on equal and mutually profitable basis,” Turkmenistan.ru news agency quoted President Berdymuhammed as saying. However, the way to transport gas to Europe has not been found yet. Russia declines providing transit. “All transport capacities of Central Asian countries were contracted for the gas purchased by us until 2010. We do not know what Ferrero-Waldner means by reserving 10 billion cubic meters for 2009 in Turkmenistan,” said Gazprom’s spokesman Sergei Kupriyanov. Ferrero-Waldner said there are three possible ways for transporting Turkmen gas to Europe. First, to build a submarine pipeline between Turkmenistan and Azerbaijan along the Caspian seabed. Second, to build a surface pipeline to Azerbaijan. Third, to liquefy gas and carry it by sea in tankers. There are no acting gas pipelines between Turkmenistan and Azerbaijan. Yet, if European energy companies manage to contract small LNG tankers (there is a number of small gas-liquefying factories in Turkmenistan) and to transport it to the Caspian Sea’s other coast, then the small amount can be further transported through the Baku-Tbilisi-Erzurum pipeline with the capacity of 8 billion cubic meters annually. In part, the pipeline is filled with gas sold by Azerbaijan to Greece. However, there is a number of difficulties around this pipeline built in 2005. Initially, the plan was to fill it with Azerbaijani gas by 50 percent, and Turkmen gas by the other 50 percent. However, already at the draft stage, a conflict arose between the parties, settled only in 2006. Turkmenistan and Azerbaijan now declare themselves ready to discuss the project. If the EU-Turkmenistan agreement is fixated by long-term contracts, the country may become one of the resource bases for the future Nabucco gas pipeline from Turkey to Europe. Mikhail Korchemkin, director of the East European Gas Analysis agency, believes that Nabucco plus a submarine gas pipeline between Turkmenistan and Azerbaijan (200 kilometers long and worth $900 million) will be much more economically profitable for Turkmenistan than participating in the Pre-Caspian Gas Pipeline project (with Gazprom). In the first case, European companies undertake all expenditures. In the second case, each country made commitment to build the pipeline on its territory. The expert believes it is pointless to build a large LNG factory by the Caspian Sea, because the pipeline is much more cost-effective at short distances. Russia, Kazakhstan, and Turkmenistan signed the agreement on building the Pre-Caspian gas pipeline in December 2007. It is to be laid along the Caspian shore from Turkmenistan via Kazakhstan to Russia. By 2012, its capacity is to make up 20 billion cubic meters of natural gas. Nabucco is Europe’s alternative to Russia’s South Stream. It will lead from Turkey to Bulgaria and further on to Romania. Germany’s RWE, Austria’s OMV, Hungary’s MOL, Romania’s Transgaz, Bulgaria’s Bulgargaz, and Turkey’s Botas take part in the project. The capacity is 30 billion cubic meters of natural gas annually. Supplying gas via Iran might become one more alternative. The pipeline in that direction has a capacity of 14 billion cubic meters, but only 8 billion of it are extracted. Moreover, the supplies were stopped this year due to Iran’s disagreement to raise the price from $75 to $140 for 1,000 cubic meters. However, the pipeline is not a transit one, and gas supplies to Turkey are possible only on the basis of swap. However, the total amount of gas in Turkmenistan poses difficulty as well. In 2007, the country sold to Gazprom nearly 40 billion cubic meters, consumed around 10 billion cubic meters, and supplied to Iran almost as much. The extraction plan for this year is 80 billion cubic meters, but Turkmenistan has never ever extracted over 65 billion cubic meters annually so far. Meanwhile, according to a framework agreement with China, Turkmenistan is to sell 30 billion cubic meters annually to China beginning from 2009. Gazprom hopes to increase the amount of its contracts. The Russian monopoly has a contract with Turkmenistan for 60 billion cubic meters annually. Sources say off-the-record that gas for the EU will be withdrawn from Chinese contracts. A source in Turkmengaz explained that the idea of an agreement with the EU appeared after the fruitless negotiations with China. “The agreement with them has not been signed so far. China is trying to dictate the price to us, because it is a monopolistic buyer just like Russia. We wanted to sell gas to Beijing for $195 for 1,000 cubic meters. However, while Russia agrees to smooth price growth, China refuses altogether to pay more than $100 for 1,000 cubic meters. So, if we sign an agreement with the EU, we will make China see that we already have international prices,” said the source. The EU regards preliminary agreements with Turkmenistan as a significant victory, and plans to expand it to other Central Asian states. Ferrero-Waldner said she is going to visit Tashkent soon to carry out energy negotiations there. The EU has been discussing the projects for building a trans-Caspian gas pipeline from Uzbekistan and Kazakhstan for a few years running. Gazprom believes these actions of the EU have already made Central Asian gas more expensive for Ukraine, from $130 per 1,000 cubic meters in 2007 to $179.5 in 2008, and the prognosis for 2009 is up to $240. Maxim Shein of BrokerKreditServis estimated the average gas price for European consumers under long-term contracts at $360 for 1,000 cubic meters by the year-end, and Gazprom spoke of $354.
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