Russia Seeking to Keep Kazakhstan Happy

It was Lord Palmerston, one of the chief architects of Britain's imperial policy in the 19th century, who stated that a nation has no permanent friends, only permanent interests. Kazakhstan's Nursultan Nazarbayev is putting a 21st century twist on Palmerston's maxim and applying it to the Caspian Basin oil-and-gas game. Russia, as the state with the most to lose in the Caspian Basin at present, is heeding what Nazarbayev has to say.

Following an announcement that the state-controlled Russian energy giant Gazprom would pay up to 50 percent more for natural gas imports from Turkmenistan, Kazakhstani officials announced December 5 they too intended to jack up the price of gas exports by roughly 36 percent. Russia seems ready to agree to the new Kazakhstani price of $190 per 1,000 cubic meters. [For background see the Eurasia Insight archive]

Speaking to journalists in Astana, Nazarbayev explained that the decision was nothing personal, but strictly business. "There is no politics here, only economic interests," the Kazakhstani president said.

Although it currently controls energy export routes out of Central Asia, Russia does not apparently feel in position to quibble with Nazarbayev, or, for that matter, with Uzbekistan's Islam Karimov, whose government has also voiced a desire to receive a higher export price. The centerpiece of the Kremlin's strategy to maintain its regional energy dominance is the Prikaspiisky Pipeline project, on which Russia, Turkmenistan and Kazakhstan reached agreement in principle last May. [For background see the Eurasia Insight archive].

Since then, the Prikaspiisky project has become bogged down, and is already lagging behind its initial timeline for implementation.

Paying higher prices is seen in Moscow as part of the cost of maintaining its stranglehold over energy routes. Over the past year, Turkmenistan and Kazakhstan have both publicly expressed a desire to join a US-backed project known as the Trans-Caspian Pipeline project (TCP), which would allow the Central Asian states to link to Azerbaijan's Westward-bound pipelines and, therefore, avoid Russia as an energy-export middleman. Ensuring that the Central Asian leaders remain happy, and preventing them from making any firm commitment to TCP's construction, is one of the Kremlin's top foreign policy priorities.

When it comes to keeping Kazakhstan contented, paying a higher gas price is only part of the equation. The Kremlin is interested in trying to close a deal between Gazprom and the Kazakhstani government-controlled KazMunaiGaz to form a gas processing joint venture in Orenburg Region of Russia.

"All agreements are done, documents are signed, but the joint venture is yet to be set up," KazMunaiGaz Deputy CEO Daniyar Berlibayev told journalists in Astana on December 4. He indicated that the Kazakhstani side was still assessing the value of Gazprom's contribution to the Orenburg venture. Gazprom has said that its contribution amounted to the assets of the gas processing facility itself, and that Kazakhstan would be expected to pay for facility upgrades. That arrangement apparently does not suit Astana.

The Orenburg venture would be used to process gas pumped at the Karachaganak field in northwestern Kazakhstan. The processed gas would be sold via another joint venture, KazRosGaz.

The head of Russia's largest single investor in Kazakhstan, the energy conglomerate LUKoil, paid a December 6 courtesy call to Astana. In talks with Nazarbayev, the company's CEO, Vagit Alekperov, emphasized that LUKoil has invested roughly $1.5 billion in various projects in Kazakhstan, the Kazinform news agency reported. Alekperov also stated that LUKoil would start drilling in the Tsentralnoye field in the northern Caspian as soon as this month.

Russian President Vladimir Putin's choice of first deputy Prime Minister Dmitry Medvedyev as his preferred successor, announced on December 10, means that Central Asian energy issues will continue to figure prominently in the Kremlin's policy-making calculus. Although Medvedyev's upcoming presidential bid will require him to leave his current position as Gazprom's board chairman, ties between the Kremlin and Russia's gas monopoly are expected to become even stronger that they are now once Medvedyev assumes the presidency, as is now universally expected.