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    Kremlin's Offer to Turkmenistan: "More Political Than Economic"

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Summary

So keen was Russia to thwart the TCP, it was prepared to make a generous offer: purchase of 80-90 billion cubic meters (bcm) of gas, with the hope of enticing Berdymukhamedov with revenue from higher volumes, even if for less than the European prices he has always demanded.

by: Catherine A. Fitzpatrick

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Natural Gas & LNG News, News By Country, Russia, Turkmenistan, , Trans-Caspian Pipeline, Top Stories

Kremlin's Offer to Turkmenistan: "More Political Than Economic"

At a summit meeting in Moscow before the holidays, the chief item on the table for President Dmitry Medvedev and President Gurbanguly Berdymukhamedov was the Trans-Caspian Pipeline (TCP), Russian media reported, although the two leaders avoided public mention of the long-stalled project. A source in the Kremlin told the Russian business daily Kommersant that Moscow wanted to get a definitive answer from Ashgabat concerning its real intentions to help develop the Southern Corridor. So keen was Russia to thwart the TCP, it was prepared to make a generous offer: purchase of  80-90 billion cubic meters (bcm) of gas, with the hope of enticing Berdymukhamedov with revenue from higher volumes, even if for less than the European prices he has always demanded.
 
Russian only bought 10.5 bcm from Turkmenistan in the last year, a sharp reduction from the 50 bcm it was negotiating to buy before an April 2009 explosion engendered bitter recriminations on both sides. A sudden jump to 80-90 bcm could well be explained by Russia’s apprehensions about the TCP: Gazprom could stand to lose one third of its business, if Europe were able to route around Russian-dominated delivery lines.
 
Mikhail Krutikhin, a partner of RusEnergy, told Kommersant that the large-volume deal wouldn't be economically profitable for Russia, with falling European demand for Russian gas. Kommersant's government source admitted candidly that there was little sense in spending more on Turkmen gas, and said the offer "will be more a political than an economic step." The Turkmen leader has not made any public response.
 
Prime Minister Vladimir Putin also met with Berdymukhamedov, enthusing about the 33 percent increase in trade turnover between the two countries, now at over $2 billion. This was misleading, as after 2009, in fact trade crashed from a one-high level in 2008 of $6.9 billion. Only in the last year have deals particularly from Russia’s regions, started to pick up again.
 
China has stepped in to pick up the slack from the Russian shortfall with soft loans totaling more than $8 billion and a gas order for at least 30 bcm. During his trip to Beijing in November, Berdymukhamedov negotiated even more purchase orders from the Chinese National Petroleum Company (CNPC), bringing the total to 65 bcm. It would seem at first as if China had handily undercut Russia with its new bargain with Turkmenistan, although Ashgabat continued to maintain that discovery of new gas deposits ensured plenty to go around for all potential customers.
 
If anything, Moscow could only be glad that China was now actually helping to stave off the TCP – Beijing had no more interest than Moscow in having Europe enter a market and raise prices for them, too. Interestingly, the semi-official turkmenistan.ru reported December 23 that Medvedev and Berdymukhamedov were candid about developments with China, and "took into account the circumstance that in the last two years, Russia had lost its leadership position among Turkmenistan foreign economic partners, yielding the priority to China.”
 
Russia concedes Beijing’s leadership because of reduced European demand; in the last year, it only pumped half of what was allotted for Europe. While demand from the EU is expected to increase in the next decade, Russia will face other great expenses on pipelines. Putin announced this week that he has ordered moved up the start of construction on South Stream to this year, in order to bypass Ukraine and deliver gas to Europe.
 
In an article for Radio Russia,  Roman Larionov writes that Russia would not like to see Turkmenistan appear as a serious rival in European markets because inevitably prices and volumes of sale would come down. Russia's loss of status as a transit country would undermine not only its economic but political leverage, he said. But now that Putin has reached agreement with Turkey to pursue South Stream, he may succeed in knocking Nabucco back once again.
 
For years, Russia took aim at the TCP by invoking the still unresolved legal status of the Caspian Sea and the absence of a convention among the littoral states. Yet Moscow’s efforts to push through the convention stalled in 2011, as Turkmenistan and Azerbaijan claimed they would pursue bilateral projects independently. As a result, the Caspian summit has been put off.
 
Most likely, given China’s commitment and large investment, and the demanding prospects for Ashgabat in launching the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, in the coming year Ashgabat will continue to go slow on the TCP, stringing the EU along through meetings and commissions to develop proposals to see if Brussels has more to offer. Europe may want to lessen its dependency on Russia, but if it diversifies energy sources by taking on the unpredictability and possible greater investment cost of Turkmenistan, it has only traded headaches. For its part, Ashgabat has made it clear which partners it will deal with: those prepared to pony up considerable amounts for infrastructure – as Malaysia’s Petronas and China’s CNPC have – and remain loyal and patient for years if necessary.
 
Throughout the past year, with Russia’s aggressive determination to control the allotment of the Caspian Sea’s hydrocarbons, the question of possible outbreak of conflict was seriously discussed. All of the Caspian states increased their naval arsenals this year, although actual warfare over pipelines seems highly unlikely in the coming year – no pipe has yet been laid, and indirectly, China has helped remove the conflict generator in the Caspian by diverting Ashgabat from the immediate need for the TCP. In any event, Moscow only hinted at war through state-controlled media interviews with various establishment think-tank analysts as part of a bargaining process with Ashgabat, one that seems to have switched from a stick to a carrot with its recent offer.
 
If anything, Baku has been saying lately that Nabucco is too ambitious and that it will develop its Shah-Deniz II fields for smaller pipelines, the Baku-based Center for Economic and Social Development said this week. The European Commission has said that Putin’s plans for South Stream have not changed its commitment for Nabucco. Turkey, a major trading partner of Turkmenistan, has said both the TCP and Nabucco complement each other, yet has agreed with Azerbaijan build a pipeline to carry up to 16bn cubic metres of gas a year from Shah Deniz to the Turkish-Bulgarian border. Thus Baku will feel less pressure to resolve the border dispute with Ashgabat
 
Once again the correlation of forces has shifted, and for Ashgabat, the TCP remains valuable largely as a bargaining chip in its dealings with other far more lucrative customers; its value as a scare tactic of European prices may even be out of proportion to the crisis-ridden EU’s actual ability to spend.

by Catherine A. Fitzpatrick