IHS Global Insight Perspective | |
Significance | The seeds of a new "gas war" between ex-Soviet states have now been planted with Turkmenistan's accusations that Gazprom's actions caused a pipeline blast that knocked out Turkmen gas exports to Russia. |
Implications | Turkmenistan said that Gazprom failed to give adequate notice that it planned to reduce its offtake volumes, causing a build-up of gas that sparked the blast, which comes as Gazprom is dealing with lower demand for its gas exports in Europe. |
Outlook | The pipeline blast conveniently reduces Gazprom's Turkmenistan's gas imports at a time when they are not needed, but the surprisingly strong language from Turkmenistan could signal a more concentrated effort by the country to diversify its export routes and reduce reliance on Russia in the future. |
Angry Response
Repair work is continuing on a section of the Central Asia-Centre (CAC) gas pipeline that ruptured last week, halting Turkmen gas exports to Russia, with supply volumes expected to resume shortly (see Turkmenistan: 10 April 2009: Pipeline Blast in Turkmenistan Halts Gas Supplies to Russia). Nevertheless, Turkmenistan's Foreign Ministry laid blame for the blast squarely at the feet of Gazprom, issuing a statement on Friday (10 April) accusing the Russian gas giant of "rash and irresponsible" actions that caused the blast, which hit a section of the CAC-4 pipeline in Turkmenistan near the border crossing with Uzbekistan.
In a statement issued on Friday, the Turkmen Foreign Ministry said emphatically that, "This accident happened due to a unilateral and egregious violation by Russian company Gazprom Export [Gazprom's export arm] of agreements and rules of natural gas purchases." The Ministry said separately that, "The letter received from Gazprom Export in Turkmenistan by the end of April 7 cannot be regarded as an early notice as the Russian company's gas offtake rates had already dropped significantly by 11 a.m. on April 8," adding that it is "well known" that any changes in the amount of gas supplied through the main trunk pipeline system should be preceded by at least one week's notice. Platts, citing a source at Turkmengaz, reported that Turkmenistan's state gas firm had received a request on Wednesday (8 April) from Gazprom to reduce gas deliveries to the Russian gas firm by 90%.
The Turkmen Foreign Ministry said that additional advance notice of reduced offtake volumes is needed to prepare gas wells and make technical adjustments to the transport system, stating that, "In the overwhelming majority of cases ignoring these circumstances results in accidents and the failure of the whole pipeline network. This is exactly what happened at the Turkmen section of the CAC-4 gas pipeline in the early hours of April 9, 2009." Gazprom CEO Alexei Miller, in Kazakhstan late last week, made no mention of the pipeline blast, although he did seek to defuse tension with Turkmenistan by saying that, "[Turkmenistan] is our strategic partner in the gas sector, with whom we are linked by many years of fruitful cooperation. We are sure that in future this cooperation will only strengthen."
Gas War on a New Front?
However, the unusually strong rebuke for Gazprom does not bode well for a strengthening of Russian-Turkmen relations. The Turkmen gas outage comes as Gazprom is grappling with declining gas prices and lower demand for its exports in Europe, as well as renewed tension with Ukraine over its bilateral accord with the European Union to modernise Ukraine's gas transit system, sidelining Russia. Lower European demand and Naftogaz Ukrainy's own request to reduce its offtake volumes appears to have prompted Gazprom to go back to Turkmenistan, its chief supplier in Central Asia, with a request to lower the Russian firm's offtake volumes via the CAC system.
Gazprom's apparent failure to give sufficient notice may well put it at fault for last week's pipeline blast, but the incident itself still has the same effect of "rewarding the aggressor and punishing the victim", such as it may be. Gazprom is seeking to lower its offtake of Central Asian gas as weaker European and Russian demand due to the economic downturn make imports of Central Asian gas less necessary, so the blast—by halting supplies, at least temporarily—achieves that outcome for Gazprom. What is more, the accident allows Gazprom to boost its own production (again, perhaps just temporarily) to compensate for the halt in Turkmen gas supplies, ensuring that its own production and exports take precedence in supplying what the market needs.
For Turkmenistan, the pipeline blast not only knocks out its exports, forcing the country to make repairs to get volumes restored, but the incident also serves as a reminder about the pecking order among the ex-Soviet states when it comes to gas exports. Rising gas prices and strong demand over the past few years provided Turkmenistan with growing leverage in its relations with Russia, but the weaker demand and falling prices over the past few months have begun to erode Turkmenistan's power vis-à-vis Russia and Gazprom. The Russian gas giant, in this latest incident, has once again demonstrated to Turkmenistan who is really in control.
Outlook and Implications
Even as Turkmenistan has talked about plans to diversify its export options, and work is continuing on a new pipeline that will link Central Asia to China, the reality of the current situation is that Turkmenistan remains beholden to Russia and Gazprom as its main gas export market. As such, Turkmenistan is still reliant on Gazprom for the bulk of its gas export revenues, which ensures that—in the current economic downturn and the sharp change in the outlook for gas demand in Europe—the Russian gas giant holds the trump card over Turkmenistan in the "competition" between Gazprom and the Central Asian country to sell their gas in a shrinking market.
Nevertheless, the angry Turkmen response to the pipeline blast could herald a definitive shift in the relationship if it prompts the Central Asian country to convert its rhetoric on diversifying gas export markets into reality. Already, President Gurbanguly Berdymukhammedov has called on the Turkmen government to hold an international tender to build the East-West gas pipeline, dealing a rebuke to Russian authorities who expected to secure the contract behind the scenes (see Turkmenistan: 30 March 2009: President Instructs Turkmen Government to Hold International Tender to Build East-West Gas Pipeline and Turkmenistan: 26 March 2009: Russian Officials Press Turkmen President on Pipeline Projects, Access to Oil and Gas Reserves). The decision to build a pipeline linking Turkmenistan's prolific gas fields in the south-east to the country's Caspian coast—from which the pipeline could then tie into the planned south-north pre-Caspian pipeline to Russia, a proposed trans-Caspian pipeline to Azerbaijan, or both—in itself signals a determination by Turkmenistan to reduce its heavy reliance on Russia as an export partner.
Some suggestions are that last week's pipeline blast was a response by Russia to Turkmenistan's attempts to wriggle free of Gazprom's firm embrace in calling for an international tender for the East-West pipeline, although Russian officials have denied this. Russia's Foreign Minister Sergei Lavrov said that the accident was not political in nature, and that it appeared to be a technical problem. Nonetheless, it is clear that, whatever the reason, Gazprom—in the short run, at least—is a net beneficiary of the outage in Turkmen gas supplies as it allows the Russian gas firm to reduce its gas imports, emphasise its own production and exports, and send a message to Turkmenistan. The question now is whether Turkmenistan applies the lessons learned from this incident in moving to diversify its export partners and reduce reliance on Gazprom.