Gazprom Agrees to Resume Turkmen Imports

Gazprom on Tuesday agreed to resume Turkmen gas imports next year, ending a nine-month political dispute, but the volumes were less than half of what had been agreed in deals before a supply dispute prompted Ashgabat to develop new markets in China and Iran.

The state-run company said it would import up to 30 billion cubic meters of Turkmen gas under a long-term deal and the two countries could also cooperate on a new pipeline and production ventures.

But the annual volumes are below the 50 bcm that Gazprom was buying annually before the dispute and also below the 70 bcm to 80 bcm agreed in a long-term deal earlier this decade.

“We plan to start supplies starting from Jan. 1, but no later than Jan. 10,” Gazprom deputy chief Alexander Medvedev told reporters.

He did not specify volumes for 2010 or the price that Russia would pay, saying only that they would move to a pricing formula that “fully matches the terms of the European gas market.”

The Russian delegation to Ashgabat was headed by President Dmitry Medvedev, who was meeting Turkmen President Gurbanguly Berdymukhammedov for the third time in as many months in an attempt to solve the gas supply dispute.

“I consider this a step forward,” President Medvedev said after the gas deal was agreed on.

Berdymukhammedov told reporters: “Our meeting with the president confirmed our mutual readiness and desire to increase cooperation.”

But Turkmenistan, holder of the world’s fourth-largest gas reserves, has since moved out of Moscow’s shadow with deals to supply energy to China and Iran.

“If you deny a country like Turkmenistan access, then sooner or later they will find ways to circumvent your territory. It was important for Russia to bring Turkmenistan into the fold,” said Chirvani Abdoullaev, senior oil and gas analyst at Alfa Bank.

Turkmenistan, long dependent on Russian gas purchases, accused Moscow in April of suspending gas imports at a time when demand for gas nose-dived in Europe, and stepped up diplomacy to clinch alternative gas export routes elsewhere.

Alongside oil and cotton, gas represents the lion’s share of Turkmen budget revenues, bringing in up to $1 billion per month. The suspension encouraged Turkmenistan to open a new gas pipeline to China this month and develop contacts with Iran.

“Turkmenistan lost at least $7 billion, or about 25 percent of annual GDP” because of the halt, Mikhail Korchemkin, an analyst at East European Gas Analysis, said in an e-mail. “Before signing a new deal, Russia needs to reimburse the loss of Turkmenistan, for instance by price discounts in Russian exports.”

Gazprom initially blamed an explosion on a key pipeline for the halt but later said Ashgabat should understand that it cannot sell the same volumes when demand in Europe is falling.

Turkmenistan aims to boost gas production to 100 bcm in 2010 from about 75 bcm in 2009, but the country has repeatedly failed to achieve its aggressive output targets in previous years.

China’s foray into the region, including a 1,833-kilometer pipeline with capacity to pump 40 bcm of gas eastward by 2012 to 2013, represents a challenge to Russia, which sees the region as part of its sphere of influence.

Russia made a further play for a share of its market when the two sides discussed various deals, including a new pipeline.

“There is the prospect of constructing a new gas pipeline, across Turkmenistan and further into Europe,” Gazprom’s Medvedev said. “We also see the prospect of cooperation in exploration and production of oil and gas in the Turkmen zone of the Caspian shelf.”

Deputy Prime Minister Igor Sechin, the country’s top energy official, said cooperation could extend into many other spheres.

“There is a colossal number of projects, in shipbuilding, aircraft building, machine building as a whole,” Sechin said. “Ahead lie the realization of projects and the examination of proposals in gas and chemicals, fertilizers, electricity, the power grid.”

(Reuters, Bloomberg)