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Monday, February 02, 2009

Russia deepens gas hegemony

Gas pipeline01-30-2009 - ISN Security Watch by Robert M Cutler - Eastern Europe freezes as Brussels fiddles, while with Moscow's help Gazprom extends its grasp of energy production in the Caspian Sea region, Robert M Cutler writes for ISN Security Watch. Uzbekistan does not usually come to mind when one thinks of Central Asian energy producers: It exports less than Kazakhstan or Turkmenistan. However, it is one of the top 10 gas-producing countries worldwide and third in gas production in the Commonwealth of Independent States (CIS). Still, Uzbekistan has not gained corresponding attention on the world energy map because its population of approximately 28 million consumes over 80 percent of the gas produced, leaving comparatively little for export. Last month, Bulgarian President Georgi Parvanov visited Tashkent to try to induce his Uzbek counterpart, Islam Karimov, to dedicate volumes of gas to the Nabucco pipeline project planned to run from Central Asia to Central Europe. The latter declined, saying that his country exported gas through only one Soviet-era pipeline, and therefore exports only to Russia. Parvanov was, in fact, a bit late. In September, Karimov had agreed to build a new pipeline to Russia parallel to the existing Central Asia-Center and Bukhara-Urals pipelines. With a capacity of 54 billion cubic meters per year (bcm/y), it will originate in Turkmenistan and also cross Kazakhstan before terminating in Russia. About half the volume will come from Uzbekistan, increasing its exports to Russia by about half from the level in 2006, with Gazprom investing around US$1.5 billion in development of the gas condensate fields in the country's Ustyurt region. In addition, Uzbekistan's three-year agreement to supply 3.5 bcm/y to southern Kazakhstan will terminate at the end of 2010. Kazakhstan has been "repaying" Uzbekistan via a swap arrangement by sending 3.5 bcm/y from its own Karachaganak complex in the northwest of the country to the cross-border Orenburg gas processing plant in Russia. However, Karachaganak's production capacity is being further ramped up and the Orenburg plant is being expanded, so those volumes from Kazakhstan will not be lost to Russia in the future. All this suggests that despite Uzbekistan's on-again, off-again relations with the Shanghai Cooperation Organization (SCO), the country's ties with Russia are not suffering. Indeed, Russian Prime Minister Vladimir Putin's efforts to form a Central Asian "gas club" of SCO members appear to be bearing fruit; just not inside SCO itself. The signature of a trilateral agreement for yet another pipeline in December 2007, beginning in Turkmenistan and running to Russia through Kazakhstan alone, is further evidence of this energy diplomacy. The pipeline, the Caspian coastal pipeline (sometimes called the Caspian Gas Pipeline, but also erroneously, by mistranslation from the Russian, the "Pre-Caspian" Pipeline), has, however, had some trouble getting started. No multilateral consortium or any governing institution oversees it. Rather, each of the three governments is responsible for funding and assuring construction on its national segment. There has been some delay, but some of the more specific terms for the work were detailed in legislative acts adopted by the individual countries' respective parliaments in December 2008. Gazprom's growing profile in Central Asia is a result of its policy direction inaugurated earlier in the present decade to sit on its Arctic gas reserves; much of which it cannot develop without western technology and materials science. It chose to dedicate its own investment not to Russia but to other fields in third countries, and to wait until its western partners were eager (or desperate) enough to furnish not only the necessary industrial techniques but also the capital investment (while denying them the right of actual ownership). Thus in concert with the Russian government of the day, Gazprom has in the last few years sought to purchase at the source, over the long term at fixed prices, the entire export production of Azerbaijan, Libya and Algeria. Even if Gazprom has not been totally successful (Azerbaijan, for example, declined), it is no coincidence that all this production is earmarked for Europe. By contrast, at a 26 January high-level meeting in Hungary the European Commission, while reconfirming a general commitment to the Nabucco pipeline project for trans-Caspian gas, declined to pass from words to financial sponsorship. This failure risks validating the controversial distinction between "Old Europe" and "New Europe" It is the latter that shivers more, and where the poor and aged freeze worse during Russia's now no-longer-exceptional suspensions of gas transmissions to Ukraine. There are those who will have difficulty reconciling such inaction by Brussels with the all-European norm of social cohesion.

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