Books on Turkmenistan
Update No: 309 - (26/09/06)
The state of the gas world
Market forces always prevail in the end. Worldwide energy shortages and the
emergence of China and India as economic giants have tilted things the way of
the Central Asian energy producers, notably Turkmenistan.
Even as perverse a figure as Saparmurat Niyazov, the dismal dictator of the
country, could hardly fail to benefit, sitting on the world's fifth largest gas
reserves. He has been able to do a good deal with the Russians at last.
But they have not necessarily been the long-term losers.
Gazprom loses out in Asia; but wins in Europe?
Under its August 5th agreement with the Turkmen government, the Russian gas
monopoly, Gazprom, decided to buy Turkmen gas at a price of US$100 per a
thousand cubic meters in 2007-2009, up 50% on current prices for its purchases
of Turkmen gas. It will purchase 12 billion cubic metres in 2006 and 50 billion
cubic metres every year in 2007-2009. In other words, it will pay US$6 billion
more than it was going to, but will control all Central Asian gas exports to
Europe as a result.
The media and industry press have not failed to notice the new price, or its
implications. Only in July Gazprom flatly refused to pay it, and even walked out
of the talks, but now has changed its tune. Apparently, a serious change in the
world gas market compelled the Russian monopolist to give in.
There are several factors influencing the major players in the world market
today, not least the Chinese option.
China has become much more active in the Caspian region. The efforts of the
Chinese companies to gain a foothold in the energy industries of Turkmenistan,
Kazakhstan and Uzbekistan are starting to threaten Gazprom's domination in
Central Asia, which rests on its monopoly ownership of the Europe-bound gas
The Chinese have crucially offered Ashgabat to build an eastward-bound export
pipeline with a capacity of 30 billion cubic metres of gas per year. They are
going to sign a production-sharing agreement for the right bank of the Amu Darya
River, which is going to become a new gas province. They have also stepped up
their involvement in developing gas resources in Uzbekistan and Kazakhstan with
a view to transporting gas to China's western provinces.
These steps have given Central Asian countries more room for manoeuvre. Turkmen
President Saparmurat Niyazov has spoken more than once about the strategic
importance of the Russian direction of the Turkmen gas exports. He has made the
point that the construction of new pipelines, including the one going to China,
which he promised to commission by 2009, will not prejudice cooperation with
Moscow. Nevertheless, Ashgabat has definitely gained more bargaining chips in
talking with Gazprom.
Europe beckons too
Apart from eastern-bound exports, the discussion of a pipeline under the
Caspian Sea to supply Europe with gas bypassing Russian routes has become
markedly more active. The Kommersant newspaper reported on September 6th that
Polish Prime Minister Jaroslaw Kaczynski is going to visit Washington with the
proposal on a joint construction of a trans-Caspian pipeline to supply Europe
with gas bypassing Russia. The Polish newspaper Rzeczpospolita wrote that in
order to receive US$5 billion for this project, the Polish authorities are ready
to sign with the US a lease for the construction of a missile base to become
part of the US ABM system.
Although in Kazakstan the subject is avidly discussed at government level, only
Turkmenistan has the resources for this gas project. Apparently, Gazprom will
now pay to freeze it as well. Niyazov emphasized: "We'll primarily supply
gas to Russia. Don't worry that Turkmenistan will walk away with its gas. We are
not ready to discuss the trans-Caspian pipeline."
Higher Turkmen gas prices will not be a big problem for Russia. Europe pays
US$230-US$250 for a thousand cubic metres of gas, and Gazprom will have its
share of the profit anyway. Moreover, having contracted almost all of
Turkmenistan's export resources until 2009, it has actually protected itself
against competition in Central Asian gas supplies. A panic demand for gas in
Europe, generated by the recent apprehensions about its near shortage, is bound
to send gas prices even higher. Today, Europe's major energy concerns are lining
up to extend long-term contracts with Gazprom, but it is not likely to meet this
demand without Central Asian gas. In the last few years, Gazprom has launched
its own gas industry and blocked a speedy growth of its independent production
in Russia. It is now compelled to negotiate with Ashgabat for this reason.
Many commentaries analyse possible changes of gas prices for Ukraine. There are
several indicators that it will have to pay much more starting in January 2007.
After the talks between prime ministers Mikhail Fradkov and Viktor Yanukovych in
middle August, it became clear that Ukraine is ready to pay more than US$95 per
a thousand cubic meters. Yanukovych quoted US$110 as an acceptable price for the
local economy. On August 28, his deputy Nikolay Azarov reported that the
Ukrainian budget for 2007 is based on the price of US$135. Perhaps, he wanted to
warn his compatriots in advance that they should expect a price rise next
One gets the impression that Moscow already has tentative agreements on gas
prices for Ukraine in 2007. This is probably why the Russian gas giant has so
easily accepted Niyazov's terms. In this case, Gazprom's concession becomes a
clever tactical step in the difficult struggle for control over Ukraine's gas
transportation system, which, regardless of colour, none of its governments
wants to share if the price stands at US$95. Now it will grow to no less than
Gazprom in charge; but problems ahead
New prices in Turkmen-Russian gas cooperation are the first sign of change
on the post-Soviet gas market. For the time being, Gazprom has been quite prompt
The market situation has helped as well. But the competition for resources keeps
growing, and control costs more and more.
Moreover, stepping up its efforts in the foreign market, Gazprom is neglecting
its own production. In January-July 2006 gas production went up by 2.5% over the
relevant period in 2005, whereas gas exports went up by 24.9%.
Ukrainian energy minister hopes to restore ties
Ukrainian-Turkmen gas relations have taken a turn for the worse, largely due to
mistakes on the Ukrainian side, Ukrainian Fuel and Energy Minister, Yury Boyko
The new heads of the fuel and energy ministry will do all they can to restore
the partnership to its former state, Boyko added. "We will be forced to
take effective measures to restore trust between the partners and re-establish
direct contracts, which are beneficial for both sides," Boyko said at a
press conference in Kiev on August 14th, Interfax News Agency reported.
Top Ukrainian government officials will soon begin preparing for a visit to
Turkmenistan, Boyko said.
Previous visits by Ukrainian officials were not properly prepared, and the
delegations did not take Turkmenistan's position into account, Boyko said. Among
the mistakes Ukraine has made in its relations with Turkmenistan, Boyko named
the loss of warranted contracts to sell Ukrainianj goods and the end to gas
trade under direct contracts. Boyko said, however, that Ukraine is not willing
to buy Turkmen gas at a considerably higher price than before.
FOREIGN ECONOMIC COOPERATION
Niyazov hails economic ties with China
Turkmenistan President, Saparmurat Niyazov, welcomed the Chinese delegation
headed by Yu Guang Zhou, deputy trade minister of the China People's Republic,
in the Turkmen capital, Ashgabat. During the talks at the presidential palace,
both sides signed a comprehensive economic cooperation agreement including oil
fields, natural gas and textiles. Delegates from both countries signed the
bilateral agreements during the meeting. The agreements are expected to boost
economic ties between the two countries. Speaking at the meeting, Niyazov
expressed satisfaction with his country's developing economic relations with
China. He went on to say that the two counties had common views on issues such
as international politics, humanitarian aid and UN reforms. "We attach
great importance to the realisation of the natural gas pipeline construction
project," he added. Niyazov invited the visiting Chinese delegation to join
together with Turkmenistan in the production of hydrocarbon, polyproplene and
liquefier gas on the Caspian coast. The Chinese will consider the proposals in
detail. With the introduction of the pipeline project, Turkmenistan will sell
30bn cubic metres of natural gas to China annually, Interfax News Agency
Meanwhile, China's CITIC Group will build new facilities and reconstruct the
Maryazot mineral fertiliser plant in Turkmenistan. Recently, Niyazov allowed
Turkmendokun, of which Maryazot is a part, to sign the deal that costs 265.95
million Euro, a source at the presidential press service said.
He also allowed the Construction Ministry to sign a contract with the Chinese
consortium Capital Longji Sci-Tech Co. Ltd on building a glass plant in Ashgabat.
The contract costs 67.38m Euro. The presidential ordinance was issued "for
fully meeting the national economy's demand for mineral fertilisers and
glass," the source said. Both projects will be partially financed with a
300 million Euro loan from the Export-Import Bank of China. Also Niyazov
permitted the State Foreign Economic Bank to sign a general credit agreement
with the Export-Import Bank of China and receive a 20-year 300 million Euro loan
at three per cent annual interest.
Govt approves Caspian tourism development plan
Turkmenistan has embarked on an ambitious plan to turn its Caspian coast
into a world class tourist attraction. Initially the plan was approved by
Turkmen President, Saparmurat Niyazov. This project is first of the series of
tourist attractions planned for the Caspian coast of Turkmenistan, reported
Total cost of the project is US$26.97m and it should be ready by February 2008.
The ministry of railways would sign a contract with the Turkish company, Delta,
for construction of a 12-storey health resort and tourist complex at the Avaza
settlement at Turkmenbashy, the Caspian city of Turkmenistan. The tourist
complex would be able to accommodate 200 guests simultaneously. There would be
single accommodation as well as family units for two, three and four persons.
The services would include bars, stores, fitness clubs, open and covered
swimming pools, tennis courts and basketball area. Physical therapy and medical
treatment facilities would also be included in the tourist complex.