Russ Oil-Gas

03/13/2008 Moscow News by Marina Pustilnik - This week's announcement that the three Central Asian gas producers - Turkmenistan, Uzbekistan and Kazakhstan - will begin charging European-level prices for their gas starting next year was hardly unexpected, but it produced a bomb-like effect nonetheless. The heads of the three national oil and gas companies came to Moscow where they held a meeting with Gazprom CEO Alexei Miller. This too was a departure from old traditions where the next year's price of gas was a commercial secret discussed in closely-guarded bilateral meetings. Follo­wing this meeting, however, Gazprom's press service issued a press release that said: "Based on the interests of national economies and taking into account international obligations to guarantee reliable and uninterrupted deliveries of energy resources, starting in 2009 Central Asian countries will sell their natural gas for European prices." Although even the price formula for the Central Asian gas deliveries has not been determined yet, experts agree that in 2009 Gazprom will have to pay anywhere from $230 to $300 for 1,000 cubic meters of gas, depending on many variables. This year the Russian gas monopoly is paying between $140 and $180 for 1,000 cubic meters, depending on the country of origin and previous agreements. The game for Central Asian gas has several major players. This week's announcement has marked some clear winners and losers in this round of the game, but the outcome is still largely undecided. The clear winners of this story who will reap the rewards no matter what are the three Central Asian states who have already been labeled by the Russian media as the "Asian gas OPEC." By getting Gazprom to agree to raise the purchase price of their gas, Turkmenistan, Uzbekistan and Ka­zakhstan have secured a good price from a long-term partner, while simultaneously making a polite nod in the direction of Washington and Brussels, whose envoys have long tried to lure their leaders with European prices and projects to build gas pipelines bypassing Russia. Ukraine seems the likeliest loser at the moment, because it is now unable to hold separate negotiations for the Central Asian gas. It can either buy gas from Turkmenistan via Gazprom or turn its sights elsewhere, but the price it will have to pay next year will be high, and it is yet unclear how its gas-dependent industrial sector will react to the shock therapy. Ukraine does, however, have some leverage over Gazprom and that is the gas transit tariffs which are not kept significantly lower than average European ones. Raised tariffs might set the Russian gas monopoly $1-1.5 billion back. At the same time Gazprom has the same leverage against the Central Asian states - as it can also raise the tariffs for transportation of their gas across the Russian territory. Other losers in this geopolitical game are the United States and the European Union. Gazprom's compliance with the Central Asian states' demands for a higher price makes it difficult, if not impossible, for all other negotiations. Whatever price agreed between the four gas companies, the European firms would have to pay more as well as shoulder the construction of the South Stream pipeline or the high ground transportation costs. The South Stream pipeline itself no longer seems like a viable project. And this, of course, is the main paradox of this situation - to have Gazprom and the Central Asian states forge a new price alliance after all the diplomacy that went into breaking that partnership is akin to shooting oneself in the foot. And what of Gazprom? I am actually surprised to see the state monopoly behave in such a market-like manner. Of course, it's difficult to name Gazprom one of this game's winners until we see the actual numbers for the prices and tariffs, but the fact that it actually managed to turn this situation to its advantage commands some respect.