Institute for War and Peace Reporting | Giving Voice, Driving Change

Turkmen-Russian Pipeline Still Likely

During a visit to Moscow this week, Turkmen president Gurbanguly Berdymuhammedov confounded expectations by not coming away with a signed-and-sealed contract for a new pipeline taking Central Asian gas to Russia.

However, NBCentral Asia observers say the contract signing has only been delayed temporarily, and the pipeline will almost certainly go ahead, as an alternative to other routes that would bypass Russia.

When President Berdymuhammedov visited Moscow on March, 24 and 25, the and Kommersant newspapers said the signing of the Caspian pipeline contract would be the cornerstone event of his trip. Although their prediction was based on inside sources in Gazprom, the Russian firm which buys Turkmen gas and controls the region’s pipelines, it proved untrue.

Berdymuhammedov and Russian president Dmitry Medvedev signed 12 agreements on other matters including education, science, agriculture, transport, investment protection, and cooperation between the two countries’ security forces.

Russian media subsequently reported that Berdymuhammedov refused to sign the agreement “for certain political reasons” – which were left unexplained. Another reason, they said, was that Gazprom did not have spare funds for new investments available at a time of falling oil and gas prices.

The pipeline project dates from May 2007, when the presidents of Russia, Kazakstan and Turkmenistan agreed to expand an existing gas pipeline leading northwards along the eastern Caspian Sea shore from Turkmenistan via Kazakstan to Russia, and to build a new one alongside it. Uzbekistan, which also exports gas to Russia, subsequently agreed to become part of the project, the suggestion being that its own pipeline network would be linked up to the Caspian shore route.

The actual signing of a final agreement has been postponed several times, but NBCentral Asia observers believe the project will go ahead despite these teething troubles.

One of the reasons for holding off, say analysts, is that Gazprom has been forced to cut exports by a third as demand for fuel declines, especially among the European states that account for the bulk of its sales.

The international financial group Unicredit Aton estimates that Russia has cut its own gas production by 21 per cent, and is only drawing a fifth of the volume it would have previously taken from underground storage facilities.

The reduced need for gas means the Kremlin is no longer so reliant on exports from Turkmenistan. Gazprom has a 25-year contract to buy the bulk of the volume of Turkmen gas currently produced (the country plans to satisfy other customers through a dramatic increase in production). When Gazprom signed the deal, Turkmen gas was an essential component of its strategy for exporting to Europe.

Gazprom is currently buying about 80 billion cubic metres of Turkmen gas a year. The price it pays has not been made public, although NBCentralAsia understands it of the order of 319 dollars per1,000 cu m.

European consumers buy Central Asian gas at an average of 400 per 1,000 cu m.

Vyacheslav Mamedov, who chairs the Civil Democratic Union of Turkmenistan, based in the Netherlands, believes disagreements over gas export prices are the main reason why the Caspian pipeline remained unsigned.

He says that when Berdymuhammedov was in Moscow, the Russians tried to reduce the price they were paying to about 300 dollars per 1,000 cu m, but the Turkmen refused to accept this.

“There was no point in signing the agreement on building the Caspian pipeline when the two countries disagreed over pricing,” said Mamedov.

According to Annadurdy Khajiyev, a Turkmen economic analyst based in Bulgaria, the Kremlin is now being very cautious so as not to suffer losses. Building new pipelines is not economically viable at a time of financial crisis and falling fuel prices.

“I think it was Gazprom that proposed not signing,” he added.

The lack of agreement will allow Turkmen leaders to keep their options open – talking about a “multivector” approach to export pipeline routes, engaging with projects favoured by the West, such as routes that would bypass Russia, said Khajiev.

Nevertheless, he said, Turkmenistan is likely to opt for Moscow as its key partner in the end, and the shoreline pipeline will go ahead.

This view was supported by a commentator in Ashgabat, who said the interests of Russia and Turkmenistan were so intertwined when it came to natural gas that the new pipeline was almost inevitable.

“Russia will resolve this issue rapidly, and the Caspian project will be implemented whatever happens,” he said.

(NBCentralAsia is an IWPR-funded project to create a multilingual news analysis and comment service for Central Asia, drawing on the expertise of a broad range of political observers across the region. The project ran from August 2006 to September 2007, covering all five regional states. With new funding, the service has resumed, covering Uzbekistan and Turkmenistan.)