Turkmens Start Gas Supplies To China

The Kremlin faced new pressure to rethink its priorities in Central Asia and to speed up Russian gas supplies to China as Turkmenistan inaugurated a gas pipeline to China on Monday.

President Dmitry Medvedev, who formerly chaired gas giant Gazprom, is scheduled to make a trip to Ashgabat within the next two weeks for talks likely to focus on improving relations soured by Gazprom’s decision to reduce Turkmen supplies in the spring.

“Moscow should have a clear understanding that it was naive to hope that Turkmen gas would always flow through its territory and that Ashgabat would forever dance to its tune,” said Vitaly Bushuyev, head of the Energy Strategy Institute.

The opening of the 1,833-kilometer pipeline “is a normal process that has been maturing and was sped up after Russia reduced its gas supplies from Turkmenistan,” Bushuyev said.

The pipeline’s opening was attended Monday by the presidents of Turkmenistan, China, Kazakhstan and Uzbekistan. Supplies from the Turkmen gas field to China’s Xinjiang region are expected to reach 40 billion cubic meters a year by 2012.

“We have to join forces at a time when the world is going through a difficult period,” Chinese President Hu Jintao said at a ceremony at a remote spot near the Turkmen-Uzbek border. “I hope we will be not only good neighbors but also reliable partners.”

Turkmen President Gurbanguly Berdymukhammedov has made it clear that the pipeline was a snub to Russia and that his country wanted closer ties with China. “This project has not only commercial or economic value. It is also political,” Berdymukhammedov told Hu on Sunday. “China, through its wise and farsighted policy, has become one of the key guarantors of global security.”

In July 2008, Gazprom signed a contract to buy Turkmen gas based on European prices, dramatically increasing costs for the once-cheap Central Asian gas. But the ensuing economic crisis dramatically reduced demand for gas and left Gazprom struggling to find markets for its own volumes.

In April, Gazprom halted purchases from Turkmenistan after a pipeline explosion there. Ashgabat blamed Gazprom for deliberately lowering the pipeline’s pressure to cause the blast, although Gazprom said it gave adequate notice of the reduction in pressure.

The disagreement came after Ashgabat raised gas prices and threatened to ban re-exports of its gas, which would make it useless for Gazprom to buy.

After months of negotiations, Gazprom deputy chief Alexander Medvedev said in September that Gazprom would resume purchases from Turkmenistan, without disclosing the details of the agreement. Medvedev is expected to travel to Ashgabat later this month, though the date for the visit has not been announced.

Gazprom officials could not be reached for comment late Monday afternoon.

Russia could have avoided the present predicament if Gazprom had invested in the joint extraction of Turkmen gas, Bushuyev said.

“Gazprom has not many any investments into the development of gas deposits in Turkmenistan so far,” he said. “We should invest in joint projects on Turkmen territory and sell commonly drilled gas. But the strategy largely used by Moscow — to pull all gas pipelines to its own territory — has proven its inefficiency.”

China has allocated $4 billion in loans to Ashgabat this year, and China National Petroleum Corporation is currently the only foreign company allowed to develop gas deposits in Turkmenistan.

But Dmitry Abzalov, an analyst with the Center of Current Politics, a think tank, said investing in joint projects with Turkmenistan could be risky and Moscow’s policy of controlling the routes of gas delivery is more realistic.

“Making large investments amid the political risks in this Central Asian country isn’t sensible because Turkmenistan might change its mind at any time,” Abzalov said. “Directing the supplies to Russian territory brings Gazprom more political and economic benefits.”

Turkmenistan has experienced problems fulfilling its gas contracts in recent years, and this means that there is no guarantee on its ability to be a stable supplier, he said.

“The problem is that Ashgabat does not really realize its own gas volumes and supply capacities and therefore cannot exactly count whether it will be able to fulfill this or that project,” he said.

“Turkmenistan cut the supplies to Iran recently, causing a major gas crisis, while its participation in the Nabucco pipeline is still pending,” he said.

Turkmenistan stopped gas supplies to Iran in January 2008, citing an outstanding debt, while analysts at the time suggested that Ashgabat was demanding a price increase.

Ashgabat has not made clear so far whether it will participate in the Nabucco project, which is largely viewed as a pipeline to compete with the Russia-backed South Stream. Participants in the project are counting on Turkmen gas to fill the pipeline.

The new Chinese pipeline will, however, pressure Russia to increase its own supplies to China, Bushuyev said.

“Russia will have to boost the fulfillment of recently agreed projects in order to strengthen its position,” he said.

Gazprom agreed in October to ship a total of 70 billion cubic meters of gas to China beginning in 2014 or 2015.