Monday, 19 March 2012

Natural Gas Europe - Kiev and Ashgabat Try to Rekindle Long-Distance Relationship


Below is my latest article for Natural Gas Europe - original available here:
Turkmen President Gurbanguly Berdimuhammedov visited Ukraine in early March, in an apparent effort to rekindle their neglected long-distance relationship. Their shared interest in reducing Russian control over their gas exports and imports has given them common ground, but the hard realities of geography mean that rebuilding the relationship will be a very difficult task.
Berdimuhammedov’s trip to Kiev produced little of substance. Local media mainly reported that the Turkmen leader and his Ukrainian counterpart Viktor Yanukovych signed a raft of standard agreements on culture, science, humanitarian affairs, and interstate economic cooperation - no further details were provided and no concrete deals were signed.
There was also no breakthrough on the main purpose of the trip, as reported by Ukrainian officials - the resumption of direct gas supplies between Ashgabat and Kiev. Energy Minister Yuriy Boiko insisted that a dialogue was continuing but the absence of a deal, whilst expected, shows how far there is to go. The restoration of direct gas supplies was also the subject of Yanukovych’s visit to Ashgabat in September, which also produced no deals.

Turkmenistan did sell gas direct to Ukraine, via the Russian network, until 2003 (as well as during Soviet times); from then until 2009 it sold gas to Kiev through intermediaries. These intermediaries included notorious and murky Gazprom-linked shell companies such as Eural Trans Gas and RosUkrEnergo. Pricing and volumes were the subject of perennial disputes.
The 2009 cut-off of Turkmen gas to Russia, when Gazprom’s sudden halt of Turkmen imports led to an explosion on the pipeline network, also led to a halt in supplies to Ukraine. But with Ukraine steadily losing ground in its gas battle with Russia, and Turkmenistan keen to expand its customer base, both sides now have an interest in rebuilding the relationship.
Yanukovych proposed that Ukraine could buy Turkmen gas for $200 / thousand cubic metres, which is about half the price of the gas which it purchases from Russia. This may not be enough for Ashgabat given that Russia – directly or through third party companies - may angle to impose transit fees for using its pipeline network.
In October Ukrainian Prime Minister Mykola Azarov said that Moscow would allow transit of Turkmen gas to Ukraine, and that an agreement governing the issue would be signed within six months of the new CIS free trade agreement promoted by Russia. Although Kiev and Moscow have signed the treaty, Ashgabat has refused to do so, which may make agreeing the conditions for a gas transit deal problematic.
Transit through the Russian network, even on favourable terms, is not ideal for either Ukraine or Turkmenistan. Direct supply is the real goal, and the proposed White Stream project is the way to do it. In its broadest form this would involve a new pipeline (or expansions to existing lines) running from Azerbaijan to Georgia’s Black Sea port of Supsa, from which an undersea pipeline would run to Ukraine and Romania. The critical element would be a Trans-Caspian Pipeline to take Turkmen gas west to Azerbaijan.
None of these elements is currently in place and White Stream is not capable of challenging the existing plans for the Southern Corridor. Building a TCP is, despite recent trilateral negotiations between the EU, Azerbaijan and Turkmenistan, no closer than ever to overcoming staunch Russian and Iranian opposition.
Even a TCP is insufficient without completing the East-West pipeline, allowing supplies from Turkmenistan’s gas-rich eastern provinces to reach the Caspian littoral. The pipeline, which Turkmenistan is constructing itself but with assistance from foreign companies, is due to be finished by 2015. Until it does, there is no chance of Turkmen gas reaching Ukraine.
Perhaps seeking to speed up the pipeline, or perhaps simply looking to get Ukrainian companies a foothold in the Turkmen market, Yanukovych also expressed his interest in working on Turkmenistan’s gas projects, including the East-West pipeline and part of the Turkmenistan-China pipeline. Russian media reports have suggested that the Ukrainian steelmaker Metinvest will get a major contract to sell 300,000 tons of large-diameter pipes to Turkmenistan, building on existing deals.
Ashgabat and Kiev will probably continue to pine for each other. Certainly, Ukraine believes that it can be an excellent partner for Turkmenistan’s gas exports. Wikileaks cables reveal that in 2008 (admittedly a long time ago in Eurasian energy politics), Ukrainian officials told US Embassy staff that “Ukraine could be Turkmenistan’s best partner”, far better than the tight-fisted Chinese or the unpredictable Iranians.
Despite changes in the landscape, Ukraine may still believe this to be the case. But the chances of the two sides rekindling their relationship for now are very slim. Like many separated couples, Kiev and Ashgabat are being kept apart by geography, circumstance, and a scheming third party.

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