Russia labors as neighbors do deals

By Sergei Blagov
Asia Times
Dec 17, 2009

Russian officials insist that the Turkmenistan-China gas pipeline project, which this week passed an important milestone in its development, is not a matter of Moscow's concern. Moscow, however, has been struggling to sustain its earlier gas agreements with Ashgabat.

The Turkmenistan-China gas pipeline project would not adversely affect Russia's energy cooperation with China, including plans to build gas pipelines from Russia to China, Russian Prime Minister Vladimir Putin announced on December 3.

"We know China's gas demand ... and do not think the Turkmenistan-China gas pipeline could undermine [our plans]," he said.

However, also on December 3, Uzbekistan's state-run energy company Uzbekneftegaz announced that it aimed to test the first stage of the Turkmenistan-China gas pipeline on December 15. (The pipeline was inaugurated this week at a ceremony attended by Turkmen President Gurbanguly Berdymukhamedov, Chinese President Hu Jintao, Kazakhstan's President Nursultan Nazarbayev and Uzbekistan's President Islam Karimov, Radio Free Europe reported. See China ends Russia's grip on Turkmen gas, Asia Times Online, December 16, 2009.)

The construction of Uzbekistan's 530-kilometer section of the Turkmenistan-China gas pipeline started in July 2008. The project's first stage is due on stream in January 2010. The second stage is expected to be completed by the end of 2011, thus raising the pipeline capacity up to 40 billion cubic meters (bcm) per year. The pipeline is estimated to cost US$2.975 billion.

Therefore, the project's first stage will have taken less than four years to build. In April 2006, late Turkmen president Saparmurat Niyazov and Chinese President Hu signed a framework agreement on oil and gas cooperation in Beijing. China pledged to purchase 30 billion cubic meters (bcm) of natural gas annually at the Turkmenistan border over 30 years to be supplied via the Turkmenistan-China gas pipeline.

The pipeline project moved ahead as Turkmenistan and Uzbekistan resolved their disagreements on how to share gas deposits near the border. Uzbekistan is an important transit nation for Turkmenistan because parts of the existing Central Asia-Center gas pipeline network, as well as the gas pipeline to China, pass through Uzbek territory. In October 2007, during Uzbek President Karimov's visit to the Turkmen capital of Ashgabat, a bilateral treaty was signed and the two countries pledged to jointly explore and develop gas deposits on the right bank of Amu Darya River to fill the Turkmenistan-China gas pipeline.

By contrast, Russian plans to build gas pipelines to China have been discussed for more than five years. In October 2004, Russian gas giant Gazprom and China's state-run CNPC clinched a partnership deal, including plans to supply natural gas. In March 2006, Gazprom and CNPC signed a memorandum on the delivery of Russian natural gas to China from 2011.

Also in March 2006, in his previous capacity as Russian president, Putin promised to export up to 40 bcm of Russian gas to China via a planned 6,700-kilometer $10 billion Altai pipeline. Subsequently, in the past three years, both sides struggled to turn a Memorandum of Understanding into any kind of a viable and binding contract. Gazprom reportedly offered to supply gas at European prices, while CNPC insisted on significantly lower gas prices.

On October 13, 2009, Gazprom and CNPC signed yet another framework agreement on gas supplies, including construction of a gas pipeline. Nonetheless, Russian plans to build gas pipelines to China still firmly remain at a stage of preliminary discussions.

Meanwhile, Moscow has been struggling to salvage its earlier gas agreements with Turkmenistan. After the April 9 explosion on Turkmenistan's Davletbat-Daryalik pipeline, also known as the Central Asia-Center (CAC)-4, near the border with Uzbekistan, Gazprom cut imports of Turkmenistan's gas. Initially, Ashgabat insisted that the blast was caused by Gazprom's violation of its gas supply agreement and indicated that it planned to seek financial compensation. Subsequently, Turkmenistan toned down its accusations and no longer mentioned any compensation from Gazprom.

Less than two years ago, in March 2008, Russia agreed to raise the gas price for Turkmenistan, Kazakhstan and Uzbekistan up to European levels from 2009. As a result, Gazprom had to buy Turkmenistan's gas well above the domestic cost.

Moscow apparently made an expensive miscalculation by agreeing to raise gas price for Turkmenistan up to European levels. But the gas dispute between Russia and Turkmenistan benefited alternative gas export routes as it pushed Ashgabat to seek alternative energy alliances.

On June 1, Gazprom deputy CEO Valery Golubev urged Turkmenistan to either cut its export volumes to Russia or scale down gas prices. He argued that Gazprom no longer needed Turkmenistan's gas at European prices as European and Ukrainian gas consumption had plunged. Golubev also claimed that Ashgabat had no alternatives but to sell its gas to Gazprom. However, the Turkmenistan-China gas pipeline project came as an indication that Ashgabat managed to develop alternative gas export routes.

The rift between Moscow and Ashgabat came as a departure from Russian and Turkmenistan's pledges to develop their "strategic" relationship. Since April this year, Russia and Turkmenistan have apparently refrained from mentioning the planned Pricaspiysky gas pipeline, designed to supply more Central Asian gas to Russia. Both sides also failed to sign an agreement on the "East-West" 600km link that is supposed to connect Eastern Turkmenistan with the Pricaspiysky pipeline at an estimated cost of $1.5 billion.

Moscow has repeatedly dispatched top level missions to Ashgabat. Russian President Dmitry Medvedev last traveled to Turkmenistan in September 2009. On November 26, Russia's first deputy Prime Minister Viktor Zubkov traveled to Ashgabat for bilateral economic talks with Turkmen President Berdymukhamedov and other Turkmen officials. In the wake of Medvedev's and Zubkov's trips to Ashgabat, no agreements were announced. As both sides remained silent, the last round of bilateral talks was understood to produce very limited, if any, results.

On November 29, Medvedev and Berdymukhamedov met at Medvedev's Zavidovo residence outside Moscow. Officially, both leaders only discussed economic cooperation and "bilateral partnership." Berdymukhamedov noted that bilateral trade reached $5.5 billion in January to October 2009, while the annual trade turnover amounted to $7 billion in 2008. Berdymukhamedov's trip to Russia came as an unexpected development. The Turkmenistan leader was believed to be seeking to discuss Gazprom's plans to cut gas imports from Turkmenistan. However, after the talks no announcement was made on the bilateral gas pricing dispute.

The meeting came as the latest in a series of Russian efforts to repair ties with Turkmenistan. After the meeting, it was only announced that Medvedev is due to visit Turkmenistan in late December to attend the opening of a Russian school in Ashgabat. But it remains far from certain whether the two sides will manage to resolve their differences before the end of 2009.

Prior to working as Moscow-based independent researcher and journalist, Dr Sergei Blagov was a newswire reporter. He spent nearly seven years reporting from Hanoi, Vietnam, between 1983 and 1997.