Deal with Turkmenistan Enhances Russia’s Energy Position in Central Asia

Turkmenistan's recent commitment to expand energy cooperation with Russia could significantly strengthen Moscow's position in the struggle for control over Central Asia's natural resources.

Turkmenistan's leader, Saparmurat Niyazov, visited Moscow on January 23 for talks with Russian President Vladimir Putin, as well as with top Russian business executives. During discussions with Vagit Alekperov, who heads the LUKoil conglomerate, Niyazov agreed to a proposal under which Turkmen and Russian experts will consider a variety of energy-related projects. The Turkmenistan.ru website quoted Alekperov as saying that feasibility studies could be completed as early as March. "I can say our plans envisage rather serious investments and their implementation will allow us to make a contribution to the strengthening of the Russian-Turkmen strategic partnership," Alekperov said.

During his meeting with Putin, Niyazov announced that "cooperation with Russia will be an honor for Turkmenistan." He went on to say that Russian-Turkmen cooperation would not only aim to develop Turkmenistan's natural resources, but to export gas "in the European direction." The mercurial Turkmen leader also expressed full support for Russia's "efforts to stabilize regional and European gas supplies."

Putin welcomed Niyazov's commitment to broaden "our interaction in energy production and transportation." The Russian leader described the energy sector as "the most important area of cooperation between Russia and Turkmenistan."

An expansion of Russian-Turkmen cooperation would increase Moscow's leverage in its ongoing disputes with its neighbors over energy supplies. Unilateral moves by Russian suppliers in recent weeks to raise energy prices prompted sharp protests, especially from Ukraine. [For background see the Eurasia Insight archive]. Some experts in Georgia also view the recent disruption in gas supplies as part of a broader Russian strategy to use the energy issue as a means to expand Moscow's geopolitical influence. Ukraine in particular has sought to diminish its dependence on Russian supplies by trying to strike a deal with Turkmenistan. If Russia and Turkmenistan manage to fully realize their cooperation plans, Moscow could effectively prevent Ashgabat from serving as an alternate energy source for Ukraine and other nations.

Putin was upset by Niyazov's recent offer to supply gas to Ukraine at $50/tcm, Russia's Nezavisimaya Gazeta daily claimed on January 20. Niyazov also met Ukrainian Fuel and Energy Minister Ivan Plachkov on January 22. Although no details of those talks were officially disclosed, various media reports said Plachkov failed to secure a deal on Turkmenistani gas supplies.

Niyazov's Moscow visit was arranged during his phone talk with Putin on January 5 – the day after Russian and Ukrainian officials reached a gas supply agreement. [For background see the Eurasia Insight archive]. Putin reportedly initiated the phone call. Niyazov, according to a report in the Kommersant business daily, readily agreed to travel to Moscow out of a desire to secure security guarantees from the Russian government.

On January 13, the Vedomosti business daily reported that Turkmenistan was planning to raise the price for its gas deliveries to the Russian conglomerate Gazprom to $85 per 1,000 cubic meters (tcm) during the latter half of 2006, up from $65 during the first six months of the year. The Turkmen Embassy in Moscow denied the report, and no new pricing arrangement was announced during Niyazov's Moscow visit. Nevertheless, uncertainty continues to shroud the issue. Speculation is being fueled by the announcement that Gazprom head Alexei Miller is expected to travel to Turkmenistan "soon" to discuss gas issues.

A hike in Turkmen gas prices could produce a ripple effect that hampers implementation of the January 4 Russian-Ukrainian supply agreement, under which RosUkrEnergo is required to supply Ukraine with natural gas at a rate of $95/tcm.

In April 2003, Russia and Turkmenistan signed a framework agreement on gas cooperation and a 25-year contract on gas supplies to Russia. Niyazov pledged to supply up 100 billion cubic meters (bcm) of gas to Russia from 2010 onward, or a total of 2 trillion cubic meters over 25 years.

Turkmenistan halted gas supplies to Russia and Ukraine in December 2004. Niyazov demanded $60/tcm, but Russia's Gazprom declined to increase the price. Last April, Russia and Turkmenistan clinched a deal to end the dispute, with Gazprom agreeing to make cash payments at a rate of $44/tcm, instead of the earlier barter arrangements.

In October 2005, Turkmenistan sought another price increase from $44/tcm to $50 in 2006 and up to $60 later on. In late December, Gazprom agreed to buy 30 bcm from Turkmenistan at $65 this year, including 15 bcm during the first quarter. This filled the pipelines from Turkmenistan to capacity, and prevented Turkmenistan from supplying gas to Ukraine under a separate pact.

Russia's efforts to corner Turkmenistan's export market are driven not only by competition with Ukraine, but also by China's efforts to move into the Central Asian market. On January 18, Niyazov met with Zhang Guobao, deputy head of China's State Committee on Development and Reforms, to discuss a draft of bilateral agreement on Turkmenistani gas supplies to China. Officials were hoping to have the agreement ready for signing during Niyazov's visit to Beijing scheduled for this spring.

In addition to energy cooperation, Russia is keenly interested in boosting strategic ties with Turkmenistan. According to the Kommersant report, the Kremlin is ready to assist Niyazov in upgrading Ashgabat's Caspian Sea flotilla. In recent months, Moscow has pushed for the creation of a multi-national Caspian Basin security group, dubbed CASFOR. [For background see the Eurasia Insight archive]. During a January 23-24 visit to Azerbaijan, Russian Defense Minister Sergei Ivanov renewed the call for CASFOR's establishment. Ivanov's Azerbaijani counterpart Safar Abiyev indicated that Baku was ready to cooperate. At the same time, Abiyev noted that an ongoing disagreement among regional states on a comprehensive Caspian Sea pact remains an obstacle to CASFOR's creation.

Prior to Niyazov's visit to Moscow, Russia enhanced its economic presence in Central Asia by striking a gas supply deal with Uzbekistan. Miller, Gazprom's chief, announced that January 20 the conglomerate would pay $60/tcm for Uzbek gas. Uzbekistan currently produces 56 bcm of natural gas per year. In 2005, Gazprom procured 8.15 bcm of Uzbek gas, up from some 7 bcm the previous year. This year, Uzbekistani gas supplies to Russia are expected to reach 9 bcm, of which up to 7 bcm will be sold to RosUkrEnergo.

Uzbekistan may sell three of its largest gas deposits to Gazprom in exchange for political protection, according to a report published by Kommersant on January 19. The paper claimed that in exchange for gas, Tashkent would receive a commitment from Moscow to help maintain President Islam Karimov's administration in power. Russian and Uzbek officials have not officially commented on the Kommersant report.

Gazprom also appears to face difficult negotiations with other partners in Central Asia. For instance, Kazakhstan's state-owned gas transport company Kazmunaigaz raised its price for transporting natural gas for Russia from Central Asia, the company announced on January.19. The current transit price stands at $1.1/tcm per hundred kilometers.