Russia, Kazakhstan, Turkmenistan Agree on Caspian Gas Pipe - 2007

The following did not get much mainstream news coverage in the US. Nevertheless, this development from Moscow was a major geopolitical and economic victory for the Russian Federation; and a very serious setback for Europe, the United States and certain west-leaning regional nations. This historic turn of event will undoubtedly have serious long-term global repercussions as Moscow continues to monopolize the energy production and distribution of the region in question.



Russia, Kazakhstan, Turkmenistan Agree on Caspian Gas Pipe


Russia, Kazakhstan and Turkmenistan agreed to build a gas pipeline along the Caspian coast and will sign the deal by September 1, a joint declaration of the three presidents said Saturday. The pipeline will run from Turkmenistan along the Caspian coast of Kazakhstan and on to Russia, the sole re-exporter of the Turkmen gas. It is a rival project to a U.S.-sponsored Trans-Caspian pipeline across the Caspian Sea to carry Turkmen gas to southern Europe bypassing Russia. Following their summit meeting in Turkmenistan, Vladimir Putin, Nursultan Nazarbayev and Gurbanguly Berdymukhammedov instructed their governments to start the construction of the pipeline from the second half of 2008. Putin also said the restoration of Soviet-era Central Asia-Center pipelines going to Russia via Uzbekistan and Kazakhstan would make it possible to increase transportation by at least 12 billion cubic meters by 2012. Russia's energy minister, Viktor Khristenko, said the 1974 pipeline system was capable of transporting more than 90 billion cu m a year after repair. "Two declarations that were signed today basically outline the future development of the largest infrastructure projects in the entire Central Asia," he said.

Alexei Miller, the chief executive of Russian energy giant Gazprom [RTS: GAZP], said the Caspian pipeline project and the Soviet pipeline system, once restored, would help raise supplies of Turkmen gas to 80 billion cu m a year within the Russia-Turkmenistan contract until 2028. In September, Russia and Turkmenistan agreed on terms of Turkmen gas supplies for 2007-2009 at a price of $100 per 1,000 cu m and set the volume at 50 billion cu m a year. In 2006, Russia imported via Kazakhstan 39 billion cu m of gas from Turkmenistan, 9 billion from Uzbekistan, and 7.5 billion from Kazakhstan proper. In 2007, Central Asian supplies to Russia are expected to be 55.7 billion. Despite the agreement on the Caspian pipeline, Turkmenistan's president said that the Trans-Caspian project bypassing Russia remained on the agenda, thereby rejecting the Russian energy minister's contrary assurances. "The whole world is looking for ways to diversify gas supplies," Gurbanguly Berdymukhammedov said. Putin's Central Asian tour of Kazakhstan and Turkmenistan coincided with an energy summit in Poland May 11-13 aimed at reducing energy dependence on Russia. Kazakhstan's Nazarbayev, its key participant, pulled out from the forum also being attended by Azerbaijan, Georgia, Ukraine and Lithuania.

Turkmenistan gas production

The Russian leader signaled his country's readiness to invest in the development of Turkmenistan's gas field on the Caspian shelf. "Russia is ready to invest in gas production as well as in the pipeline system," Putin told reporters. "Our energy companies have already agreed on such investment." Russia's industry and energy minister, Viktor Khristenko, said Russian companies would develop the gas field under a production-sharing agreement (PSA), a format envisaging substantial privileges to foreign investors. "The best option is a production-sharing agreement," Khristenko said. "This is the position of the owners of the field." He also said Kazakh companies would fit well into the PSA.


Russia's Comeback to Central Asia is Not Just Pipe Dream

When Vladimir Putin became president seven years ago, he made a blitz tour of post-Soviet Central Asia. One of the problems he inherited from Boris Yeltsin was lack of proper relations with the former "fraternal" Central Asian republics, which had become members of the Commonwealth of Independent States (CIS). The niche voluntarily vacated by Russia did not remain empty for a long time. Central Asian republics were showered with cooperation proposals from all kinds of investors - Turkey, Iran, Arab states, China, Japan and Indonesia. The Americans hastened to proclaim the Caspian a zone of their vital interests. Even Ukraine left Russia far behind in trade with Turkmenistan. Ashgabat managed to stick to the wait-and-see attitude and avoid choosing a strategic partner during numerous Turkmen visits by wanted and unwanted guests that were rushing to divide the Caspian pie. With many reservations, Putin's trip to Ashgabat seven years ago can be qualified as an attempt at comeback - Russia had lost many good opportunities, and economic cooperation was reduced to the purchase of Turkmen gas in tough competition with Ukraine. However, it was during that visit that a new round of top level meetings was launched. Putin's current visit to Ashgabat will be inevitably analyzed in the historic context as the summing up of his activities in Central Asia. Let's count its pluses and minuses.

The main plus is that Russia has finally got rid of its imperial ambitions towards a former constituent province. A flexible and gradual increase in prices on imported Turkmen gas allowed it to edge out its Ukrainian rivals and sign in 2003 a long-term agreement (valid until 2028) on the purchase of almost all Turkmen gas exports with the exception of 5-7 billion cubic meters that are annually pumped into northern Iran. Moreover, the monopoly position allowed Moscow to derive not only economic but also geopolitical gains by reselling gas to Ukraine. The biggest minus is that the old Central Asia-Center pipeline that supplies Russia with gas is badly worn out. In 2006, the pipe pumped a little more than 41 billion cubic meters of gas. By comparison, in the Soviet times, the relevant figure was 85 billion. The second plus of Moscow's efforts to upgrade its economic presence in the region is expansion of markets for Russian businesses and introduction of domestic technologies. Ashgabat visits by regional business delegations have become Russia's foreign policy know-how. St. Petersburg Governor Valentina Matviyenko came to the Turkmen capital with the leading businessmen from her region, while Sverdlovsk Governor Eduard Rossel arrived with their colleagues from the Urals. Direct contacts between producers and consumers have given a considerable impetus to bilateral trade. In the past year, it reached $307.5 million, an almost double increase compared to 10 years ago.

Trade could have been even bigger if Russia risked direct investment in the Turkmen economy instead of limiting itself to strictly commercial relations. At one time, Turkmenistan offered Gazprom a very promising project - exclusive rights to the exploration and industrial development of gas deposits in the Amudarya's right bank. Ashgabat patiently waited for several years for Gazprom to make a decision. Eventually, it offered the project to the Chinese. With a view to future profits, they quickly signed the agreement, showing more flexibility than Russia's gas monopoly. Japanese, Turkish, Ukrainian and many West European companies have already made investment in the Turkmen economy - processing of agricultural produce, capital construction, and oil production and refinery. Russian companies have just appeared there. This delay is an obvious minus. Russia has even fewer achievements in the cultural and social spheres. During the recent Moscow visit of President Gurbanguly Berdymuhammedov it transpired that Russian education technologies were in high demand in Turkmenistan. Turkmenistan has only one Russian-Turkmen general education school. It is more difficult to get into it than into a prestigious college.

The Russian drama theater is also on the Turkmen government payroll. Moscow's long-standing plans to pay for it and create a Russian cultural center on its basis have remained on paper. But humanitarian contacts are secondary to economic relations. If Russia wants to restore its positions in this dynamic region, it should consider big joint projects such as development of hydrocarbon reserves on the Turkmen part of the Caspian shelf and construction of pipelines to link Turkmenistan with Russia "as a crow flies" - along Kazakhstan's eastern Caspian coast. The itinerary of Putin's current trip shows that the political ground for promising long-term tripartite projects is ready.


Russia Squeezes Out West With Crucial Pipeline Deal

Russia scored a breakthrough Saturday in an intensifying rivalry between world powers for Central Asia's vast energy resources by securing a landmark pipeline deal. The presidents of Russia and the region's main energy producers, Turkmenistan and Kazakhstan, agreed to build a pipeline along the Caspian Sea coast to ship Turkmen natural gas to western markets via Kazakhstan and Russia. The deal is a blow to U.S. and European efforts to secure alternatives to Middle East oil and gas that would be independent from Russian influence. It means a great advance for Russia in its increased competition with the West for the influence over the ex-Soviet region since the death last year of President Saparmurat Niyazov of natural gas-rich Turkmenistan. Niyazov had kept both Russia and the West at arm's length, while signing deals to build export pipelines to power-hungry China.

"We are opening the Caspian route at the request of Turkmenistan," Russian President Vladimir Putin said after the announcement of the deal in the Turkmen city of Turkmenbashi on the Caspian shore. The new pipeline's cost was not announced, but the ITAR-Tass news agency cited a 2003 estimate putting it at around US$1 billion. Other details, such as how the costs would be split between the three countries were also unavailable. The presidents ordered their governments to sign an agreement outlining the deal's specifics by Sept. 1. Putin said the actual construction would begin in mid-2008. Turkmenistan is the second-biggest gas producer in the former Soviet Union after Russia, and its gas resources are playing an increasingly important role in the geopolitics of the region. Russia controls the only export routes for Turkmenistan's gas and the main pipeline for Kazakh oil exports. Russia is already the world's No. 1 natural gas exporter and it would further strengthen its clout by maintaining monopoly on transit of Turkmen and Kazakh exports to Europe. There have been no independent audits of Turkmenistan's proven gas reserves, but the CIA has estimated them at more than two trillion cubic metres.

The United States and the European Union have lobbied hard for a route under the Caspian Sea to Azerbaijan and Turkey, bypassing Russia. European fears of excessive energy reliance on Russia, which supplies a quarter of Europe's gas and is its second-biggest supplier of oil, have grown after Russia briefly halted gas supplies to its ex-Soviet neighbours at the start of 2006 and 2007. The shutdowns, amid politically charged price fights, led to shortfalls in supplies to the EU. The EU has long pushed Russia to ratify an energy pact that would give independent producers access to its export pipelines and oil and gas fields, but Putin has rejected the demand, saying it was against Russia's interests. Putin said the new pipeline may carry "at least" 20 billion cubic metres of gas annually by 2012, while Russian Industry and Energy Minister Viktor Khristenko told reporters that it could eventually carry 30 billion cubic metres a year.

Russia bought about 42 billion cubic metres of Turkmen gas last year at US$100 per 1,000 cubic metres, well below its US$250 price for customers in Europe. Building the new pipeline and modernizing the old ones would allow Russia to purchase up to 80 billion cubic metres of gas from Turkmenistan, said Alexei Miller, the head of Russia's state OAO Gazprom gas monopoly. Both Turkmen President Gurbanguli Berdymukhamedov and Kazakh President Nursultan Nazarbayev signalled Saturday that the trans-Caspian pipeline may also be considered in the future. "We will transport (oil and gas) by whichever route is profitable," Nazarbayev said. The latest deal, however, means that Russia would control the bulk of Central Asian energy exports, thus boosting its role as a major supplier of oil and gas to Europe and strengthening western fears that Moscow could use its energy clout for political purposes. Putin sought to assuage such fears, saying that "we very responsibly take our role in the global energy sector." But when asked whether others could join the new pipeline project, he answered with a curt "no." "It's enough to have three countries," Putin said.

Also on Saturday, the three presidents announced an agreement involving Uzbekistan to revamp the entire Soviet-built pipeline network that carries Central Asian gas to outside markets via Russia. Khristenko said that once upgraded, the system would be capable of carrying 90 billion cubic metres of gas annually. He scoffed at the trans-Caspian pipeline proposal as being economically unfeasible, saying it could only be viewed as a "political project." In another blow to western hopes of securing Central Asian energy shipments that bypass Russia, Putin and Nazarbayev on Thursday agreed to expand the existing oil pipeline that carries crude oil from Kazakhstan's Tengiz field to the Russian Black Sea port of Novorossiisk. Putin also agreed to Kazakhstan's participation in a Russian-controlled pipeline that runs from Bulgaria's Black Sea port of Burgas to Alexandroupolis, in northern Greece. The two deals are likely to reduce Kazakhstan's interest in routes connecting with the U.S.-backed Baku-Tbilisi-Ceyhan pipeline that carries Caspian oil to Turkey on a route that bypasses Russia.



Some European energy experts believe that Russia's latest deals with Turkmenistan and Kazakhstan -- which could jeopardize Turkey's policy of becoming an energy route for Caspian oil and gas, bypassing the strategic and busy Bosporus and Dardanelles straits -- should be seen as a serious blow both to Turkey and the EU's aspirations to reduce reliance on Russian gas and energy. The renewed risks of Russia's increased dominance in the Caspian region first surfaced when Russian President Vladimir Putin signed an agreement with Bulgaria and Greece in March for building the Burgas-Alexandroupolis pipeline to carry
Russian oil.

Then came the news from Turkmenistan early last week that Putin and the region's main energy producers, Turkmenistan's President Gurbangul Berdymukhamedov and Kazakhstan's Nursultan Nazarbayev, shook hands to build a pipeline along the Caspian Sea coast to ship Turkmen natural gas to Western markets via Kazakhstan and Russia. A few days before, Nazarbayev said at a May 10 meeting in the Kazakh capital of Astana with Russian President Putin, that 17 million tons of Kazakh oil might be used in the Burgas-Alexandroupolis project, the Russian Itar Tass news agency reported. All this news obviously represented a blow to both US and European efforts to secure alternatives to Middle East oil and gas that are intended to be independent from Russian influence, such as US-backed Baku-Tbilisi-Ceyhan (BTC) pipeline, which has started carrying oil to the European markets via Turkey's Ceyhan port in the south. It may be true that the two deals are also expected to reduce Kazakhstan's interest in routes connecting with the BTC pipeline.

Russia's deals with Turkmenistan, in particular, also have the potential to affect the Nabucco natural gas pipeline project, which will transport natural gas from Turkey to Austria, via Bulgaria, Romania, and Hungary as it is intended to reduce Europe's dependence on Russian gas. Western diplomatic sources recall that Nabucco has the capacity to meet around only 10 percent of the gas needs of Europe, but politically it is an important project as it is intended to bypass Russian gas. But according to the same sources, Turkey's slowness in making a decision contributed to the prevention of Nabucco partners from signing a deal to secure the supply contract. "The Nabucco project, of course, is not finished simply because Russia made these latest deals. But we [Nabucco] partners could have proved to the Azeris and Turkmens that the project is going to be a reality soon with the signing of the supply contracts. But Turkey has been taking it too slow," claimed one Western source. The same source recalled that delays in decisions prompted supplier countries such as Turkmenistan to look for other routes to transport its gas.

It is worth remembering here that Turkey's slowness in taking quick action prevented the realization of the Trans-Caspian gas pipeline project in the past that was intended to carry Turkmen gas via Turkey to European markets. Though Iranian gas is also important for the Nabucco project, the initial supply contracts for Nabucco should have been signed with both Azerbaijan and Turkmenistan. Turkey's attempts to use its political influence, among other things, on pricing the gas also makes the other Nabucco partners nervous. Turkey has to follow EU norms under which it cannot block any country, and Nabucco needs a liberalized gas export as well as a liberalized transit routes, according to Western energy experts. For example, Turkey's suspension of talks with Gaz de France recently over Nabucco in reaction to a French bill on the condemnation of the so-called genocide of the Armenians during Ottoman rule, making denial f the genocide a crime, angered other pipeline project partners.

Some partners stressed that the secure supply of gas via the pipeline should be free of political influence and that Turkey should not use politics in this project. The four other countries involved in the project, Bulgaria, Romania, Austria and Hungary, have already approved partnership with Gaz de France in the project, which will transmit Caspian and Iranian gas to Western Europe, bypassing Russia. It is also true that independent from Turkey, the project faces a series of problems, including financing, possible steel bottlenecks and pending EU permits for the pipeline. If construction of the 3,300-kilometer-long pipeline starts in 2008, it could begin operating in 2011. The 4.6 billion euro ($6.14 billion) project could transport 25.5 to 31 billion cubic meters of Caspian gas to Europe annually by 2020. Turkey's attempts to use politics in the Nabucco gas pipeline project may be a hurdle in furthering the project, but the main reason behind the project's slowness is the US's reservations toward Iran, which has lately been involved in a serious standoff with the West over its uranium enrichment program to acquire a nuclear bomb, according to many. But at the end of the day Ankara should avoid pursuing narrow approaches to some of its policies that also affect its economic interests.

Source: Today's Zaman, Turkey May 22 2007

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