Russ Oil-Gas

Turkmenistan turns off the gas
June 30, 2006 Kommersant by Natalia Grib - Relations between Gazprom and Turkmenistan have come to an open conflict over natural gas. Yesterday they annulled their agreements on gas supplies to Russia for this year and next. Gazprom's monopoly on Central Asian gas is thus broken. The conflict is to the advantage of Ukraine, which can now obtain 17 billion cubic meters of gas, more than half of its import needs for the second half of the year. It also strengthens Ukraine's position in negotiations with Gazprom that are to take place on July 1. The official Gazprom statement reads that "Turkmenistan proposed obtaining gas for $100 per 1000 cu. m. The parties did not reach an agreement, in connection with which negotiations were broken off." A report distributed through the Turkmenistan Foreign Ministry stated that President of Turkmenistan Saparmurat Niyazov and Gazprom head Alexey Miller met for three hours on the morning of June 29 and discussed conditions for the supply of 25 billion cu. m. gas in the second half of the year and 50 billion cu. m. in 2007. "The parties did not reach an agreement and negotiations were broken off," the ministry confirmed. Turkmenistan said that it would continue to supply Russia with gas through September and then supplies would be shut off. The agreement reached on January 4 between Gazeksport, a wholly-owned subsidiary of Gazprom, and Turkmengaz stipulated the deliver of 30 billion cu. m. of gas at $65 per 1000 cu. m. A source at Gazeksport said yesterday that "Turkmenistan will supply 21.5-22 billion cu. m. by July 1. In the second half of the year, there is 8 billion cu. m. left. Saparmurat Niyazov proposed raising the price on the volume of gas to $100 but, in that case, Turkmenistan will receive heavy fines for unilateral failure to meet the conditions of the contract. Then they agreed that the remaining volume would be supplied at the previous price, and Gazprom refused to make further purchases." Turkmenistan has hardened its position as Gazprom demanded that its customers pay average European prices. Gazprom and Naftogaz Ukrainy bid against each other for Turkmenistan's gas (after it had made agreements with both companies), with Gazprom winning at an additional price of $450 million. Gazprom buys gas from Uzbekistan and Kazakhstan from LUKOIL for $60-65 per 1000 cu. m. and gas intended for processing at the Orenburg oil refinery will cost it $140 per 1000 cu. m. A Ukrainian delegation headed by Minister of Fuel and Energy Ivan Plachkov arrives in the Turkmen capital of Ashghabad today. Should the Ukrainians fail to reach an agreement on gas purchases, Belarus will certain be next in line. Ukraine is likely to reach an agreement with Turkmenistan, however. The price of $95 per 1000 cu. m. set by Gazprom and Rosukrenergo is to be substantially raised on July 1 and Ukrainian Prime Minister Yulia Timoshenko has sworn that the agreement with those companies will be reconsidered. Gazprom has stated that "there is an agreement on the pumping of gas for Ukraine; therefore, if the company buys it, the monopoly will guarantee its transport." Ukraine will then be able to negotiate with Gazprom until mid-autumn and the good relations between Timoshenko and Niyazov mean that Ukraine will probably receive a significant volume of Turkmen gas. Thus, Gazprom has saved $385 million and lost its monopoly over Central Asian gas and its leverage over Ukraine. It is possible that Gazprom has lost gas that was intended for export to Western Europe.