RusEnergy

// Kazakhstan proposes expanding the CPC in exchange for not building a gas line across the Caspian
May 11, 2007 - Kommersant.com - by Dmitry Butrin
There are two competing projects in Russia and Kazakhstan's joint action plan approved by the countries' presidents for the thermal and electric complex this year and next. They are the explanation for the contradictory statements made by Russian President Vladimir Putin and Kazakh President Noursultan Nazarbaev after their meetings. Kazakhstan is proposing that Russia give up its full monopoly on the transit of Central Asian oil and natural gas. Russia is prepared to do that, but it intends to pay for Kazakhstan and Turkmenistan's moderation in their encroachment on Gazprom and Transneft. In spite of the full agenda for the presidents' meeting, the only significant agreement reached was the approval of a plan for Russia and Kazakhstan's joint action in the thermal and electric complex this year and next. The plan, as laid out in a joint statement, is not noteworthy for its specificity, but the key points for future negotiations are seen. Kazakhstan, which owns a 19-percent share in the Caspian Pipeline Consortium, is most interested in oil issues. It is lobbying in Russia (owner of 24 percent of the CPC) for the approval of a project to expand the pipeline's capacity in exchange for a guaranteed supply to another pipeline, the Burgas-Alexandroupolis line, of 17 million tons of oil annually. That is the only figure that Nazarbaev cited accurately in relation to the CPC, when he said that the pipeline's capacity had to be raised from 23 million to 40 million tons per year. The pipeline already pumps 31 million tons per year, and the expansion project foresees increasing that to 67 million tons annually by 2012. Seventeen million tons, that is, half of the planned increase in transport through the CPC, is being offered to the Burgas-Alexandroupolis line, in which Russia has a 51-percent share. Technologically, the project to expand the CPC implies no less growth in volume. In essence, Kazakhstan is suggesting that Russia exchange the expansion for a guarantee of participation in Burgas-Alexandroupolis. The rest of the oil will be transported by different routes, including the Odessa-Brody pipeline, a competitor of Transneft. It follows from comments made by the Russian side that Russia is offering Kazakhstan the opposite choice – an increase in oil shipments to the EU through Russia. Putin made exactly the same proposal to Nazarbaev concerning gas from the Prikaspiiskoe deposit. In April of this year, during his visit to Moscow, new President of Turkmenistan Gurbanguly Berdymukhammedov proposed that Russia participate in the Transcaspian gas pipeline, an alternative to the Prikaspiisky. There is a principle difference between the two. The Prikaspiisky pipeline, which does not cross the Caspian Sea, would connect to Gazprom export pipelines, while the Transcaspian, which crosses the Caspian but not Russia, would connect to the Baku-Tbilisi-Erzurum line. In the first case (only), Russia retains control over the gas flow to Europe. The Prikaspiisky pipeline is of interest to Kazakhstan and Turkmenistan, which plan to increase their combined gas export by 30 billion cu. m. by 2010, only if they are guaranteed a large share in the profit from sales to the EU. Considering the way another agreement, on processing gas condensate from the Karachaganak deposit in Orenburg, was reached yesterday Russia is prepared to share money from gas exports to Europe with Kazakhstan and Turkmenistan. Kazmunaigaz vice president Zhaksybek Kulikeev stated yesterday that the gas processed in Orenburg would be sold in Europe not by Gazprom, but by Kazrosgaz, a joint enterprise of Gazprom and Kazmunaigaz. The delivery price at the Russian-Kazakh border is to be $140-145 per 1000 cu. m. Kazrosgaz is expected to sell about 15 billion cu. m. of gas annually. It is not known yet whether Gazprom will let another 30 billion cu. m. of Kazakh and Turkmen gas into Europe to be sold by a trinational joint enterprise. But the alternative is Gazprom's losing control over that gas in Azerbaijan, and then Turkey and the EU. Al things considered, the compromise between Russia and Kazakhstan will be for Russia to give in in oil issues and Kazakhstan in gas. But Turkmenistan has to be included in that formula. Berdymukhammedov may let his views be known about how and how much Russia should pay for Turkmenistan not to participate in projects that are unprofitable for Gazprom. The solution to that problem may come today at the summit of CIS and Eastern European leaders in Warsaw. An agreement among Russia, Kazakhstan and Turkmenistan on oil and gas is unprofitable for that group as a whole.