Wednesday, January 04, 2006

Turkmen gas, and the Russia – Ukraine gas crisis

Although acres of newsprint have been devoted to the Russia-Ukraine gas crisis in the world press lately, not much mention has been made of Turkmenistan, which presently supplies about one half of Ukraine’s gas needs.

Ukrainian and Turkmen agencies report that Naftogaz Ukrainy chairman Oleksiy Ivchenko today met Turmen President Saparmurat Niyazov, and that Presidents Yushchenko and Niyazov, in a telephone conversation, agreed to stick to the previous agreements whereby Turmenistan is to supply 40 Bcm of natural gas to Ukraine at a price of $50/Mcm in 2006. They also discussed the termination of Russian gas supplies to Ukraine.

How this will work out is a mystery, and a big problem for Ukraine, because Gazprom, according to its Chairman Alexei Miller, has purchased 30Bcm of Turkmen gas for delivery in 2006 [even though Russia has the largest gas reserves in the world], yet pipelines westward, which are wholly owned by Gazprom, are only capable of transporting 35-40 Bcm of gas per annum.

Turkmenistan could easily increase gas production with modest investments and export the same quantities of gas as Russia, or even more. At the moment about half of Russia’s total gas production is for domestic purposes. In March 2004 President Yushchenko proposed creating an international consortium to build, own, and operate a new large-capacity gas pipeline from Turkmenistan via Kazakhstan and Russia to Ukraine and on to Western Europe, but this would have challenged Putin's plan of a Eurasian producers' cartel which would enable Russia to monopolize supply and dictate the price of gas delivered to European customers.

It is clear what’s going on here. Russia is attempting to limit Ukraine’s, and Europe’s, gas supplies from Turkmenistan. Gazprom admitted that when they closed off Ukraine’s share of gas deliveries to Europe yesterday they also terminated delivery of Turkmen gas to Ukraine. Ukraine ‘assumed’ that the Turkmen gas was still on stream – as a result pressure fell dramatically at the European end of the pipelines. Today Gazprom confirmed that they are no longer delivering Turkmen gas to Ukraine.

The whole matter of delivery of gas from Turmenistan to Ukraine is very murky indeed. It is controlled by a Swiss-based ‘kick-back’ company RosUkrEnergo created in summer 2004 after talks between Putin and former Ukrainian President Kuchma. It acts as an intermediary between Gazprom and Naftohaz Ukrainy to transit Turkmen gas through Russia into Ukraine. For its services it receives a whopping 13Bcm of Turkmen gas destined for Ukraine per annum, which it then sells on in European markets to provide huge off-the-books slush funds for its highly placed secret Russian and Ukrainian directors. Recently sacked Ukrainian Prime Minister Yulia Tymoshenko said that plugging this scam would go a long way towards solving Ukraine’s gas problems.

There is an urgent need for the EU to show some leadership and formulate an integrated policy for gas deliveries. It's time for some serious bargaining to take place between Russia, the EU countries, Ukraine, and possibly Turkmenistan, to solve this crisis and ensure that it does not occur again.

No comments: