國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
36
to deal freely with Russia's rivals. The creation of commercial relationships between CAS and Russia has been a painful process. Transit of natural gas is a key issue because all pipelines taking Central Asian gas to Europe pass through Russia.
Hence, Gazprom's complete control of those supplies. In the past, all Russian export to Europe was transited through Ukraine, and around 15 %88 also passed through Moldova. With the opening of the Yamal pipeline Belarus came increasingly important country. Central Asia gas deposit could restrict Russian ability to compete in world markets with rapidly increased rates of demand for fossil fuels. According to Steven Bank, ―Given the centrality of oil and gas to Russia‘s economy that would be a catastrophe‖89 Central Asia‘s natural gas situation is specific because of the location and size of natural gas deposits, the current need for pipelines, and the much larger ownership role of Russia.90 See map 3.1
Sources: Gazprom
Map 3.1 Russian gas pipelines in Central Asia
88 Jonathan P. Stern, ―The future Russian gas and Gazprom‖, U.K. 2005, p.66
89 Stephen Bank, ‖Russo-Chinese energy relations: politics in command‖ U.K. 2006, p. 23
90Dina Spechler and Spechler Martin, Central Asia. Trade, energy, and security in the Central Asian arena, Seattle: National Bureau of Asia Research, 2006, p. 218.
‧
economically more advantageous than in the north of Russia where the overwhelming majority of Russian oil and gas fields are concentrated. Russia is striving to drag as large a part as possible of the hydrocarbon resources of Central Asia into its own fuel-energy balances in order to support internal consumption, without simultaneously lowering the volumes of its own hydrocarbon exports to external markets, first and foremost to Europe.913.1 Turkmenistan
During the Soviet era Turkmenistan provided significant quantities of gas to Russia and other republics. After the break-up of Soviet Union, Turkmenistan demanded payment for its gas from all former republics, including Russia, in hard currency at world prices. A series of disputes ensued over payment and non-delivery of gas between Turkmenistan and the former Soviet republics.92
Turkmenistan is Central Asia‘s biggest player with proven reserves of 3 trillion cubic meters, and production of 54.6 billion cubic meters (bcm), of which 38.6 bcm were exported in 2004, mostly to Russia through Soviet-era pipelines crossing Kazakhstan93. In Turkmenistan, Russia cut off Turkmen gas exports to Europe and tried to cut itself in on any future pipeline construction. Russia also apparently bought Turkmenistan's gas supply at low prices and resold it to Turkey at a 300 percent markup94.
91 Dr Vladimir Paramonov and Dr Aleksey Strokov The Defense Academy is the United Kingdom
"Structural interdependence of Russia & Central Asia in the oil and gas sectors",2008, p.
6 ,http://www.da.mod.uk/colleges/arag/document-listings/ca/07(16)VPEnglish.pdf access July 15 2010
92 Ibid.
93Dina Spechler and Spechler Martin, Central Asia. Trade, energy, and security in the Central Asian arena, Seattle: National Bureau of Asia Research, 2006, p 218.
94 Stephen Blank, The Strategic Studies Institute is the U.S. Army "Energy, Economics, and Security in Central Asia: Russia and Its Rivals", USA 1995 p.19 http://www.strategicstudiesinstitute.army.mil/pdffiles/pub119.pdf, access July 15 2011.
‧
of Companies are working in Turkmenistan. Project and investment activity of Russia and Russian companies in the oil and gas sectors of Turkmenistan is still extremely low. It encompasses only the gas transportation area and the volume of Russian investments at the end of 2007 was just in the region of 25 million U. S. dollars96. These investments were directed towards the supply from Russia of technical equipment for the gas sector of Turkmenistan, the renovation and modernization of gas pipelines, compression and distribution stations, etc. 97On the other hand, considering the significant hydrocarbon and, above all, the gas reserves of Turkmenistan, one can with great certainty assume that in the near future the investment activity of Russian companies will increase dramatically. Up to and including 2012, Gazprom alone plans to invest not less than 2 billion dollars in the gas sector of Turkmenistan. Furthermore, it is most likely that other Russian or joint companies can be expected to appear in Turkmenistan, in the first instance Lukoil and TNK–BP.
Turkmenistan‘s ability to exploit and export its natural gas is constrained by its geography and export options, primarily the routes and the capacity of those systems.
There exist two export routes for Turkmen gas: northwards to Russia and to Iran to the south. Of these two routes, the overwhelming majority of export infrastructure is focused towards Russia, a legacy of the Soviet Union‘s integrated pipeline network.
The export of natural gas generates up to 8598 percent of Turkmenistan‘s annual revenue. Turkmen gas is also essential for Russia. Exports from Turkmenistan provide energy to major portions of southern Russia, thus allowing Moscow to meet its income generating export demands in Eastern Europe. In addition, as the yields decrease in Russia‘s main gas fields and production sags due to a combination of aging
95 Jonathan P. Stern, ―The future Russian gas and Gazprom‖, U.K. 2005, p.72
96 Ibid.
97 Dr Vladimir Paramonov and Dr Aleksey Strokov The Defense Academy is the United Kingdom
"Structural interdependence of Russia & Central Asia in the oil and gas sectors",2008, p.
6 ,http://www.da.mod.uk/colleges/arag/document-listings/ca/07(16)VPEnglish.pdf access July 2010
98 Central Asia-Caucasus Institute Analyst, http://www.cacianalyst.org/?q=node/4378/print, access July 2011
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
39
infrastructure and a lack of upstream investment, Turkmen gas allows Gazprom to meet mounting European energy demands.
Russia is the source of nearly half99 of Europe‘s total gas imports (varying by country), and according to the Economist - European demand is set to double in the next 30100 years. Gazprom‘s ability to meet those demands is a result of continued access to Turkmen gas. With gas the prime income earner, both the new Turkmen government and Russia are extremely dependent on the continued flow of gas exports.
For the Berdymukhammedov administration, access to export revenues will allow the patronage systems put in place by Niyazov to continue, thereby maintaining the status quo among the various competing interests at work in the country
In the immediate short term, we can expect there to be no changes in Turkmenistan‘s policy of gas exports. Rather, while the situation remains fluid in Ashgabat, and until presidential elections are held in early February, the interim Berdymukhammedov government will draw closer to Russia. This is simply the result of the fact that Moscow is best positioned to both influence and provide much needed stability to the new government. Moreover, Russia is the only viable export route for Turkmen gas, a fact well-known in both Moscow and Ashgabat.
One of Berdymukhammedov‘s first statements was that oil and gas exports would continue uninterrupted throughout Turkmenistan‘s transition, and thus far this appears to have occurred. Early indications suggest that the acting president and his backers in the security services of the ancient régime will likely win the February elections, thereby formalizing the transfer of power, and perpetuating the Niyazovist system. As a result, it is likely that a pro-Moscow gas export policy evolves in the short term, continuing to enrich the Turkmen nomenclature and advance Gazprom‘s profits and acquisitions.
99Heritage Foundation, http://www.heritage.org/research/reports/2007/11/europes-strategic-dependence-on-russian-energy , access July 15 2011.
100 Central Asia-Caucasus Institute Analyst, http://www.cacianalyst.org/?q=node/4378/print, access July 15 2011.
‧
Main priority for Russia is relationship with Turkmenistan is still continuing. In 2003 Russia obtained the option to buy all Turkmen gas for next 25 years. However prices were to be negotiated each year, which inevitably led to much hard bargaining.
―Moscow refused to give up when gas deliveries were stopped in the winter of 2004-2005, and showed considerable flexibility when seeking to secret Turkmenistan‘s support in the gas conflict with Ukraine in 2006‖ 101 . When new president Berdymukhammedov understood that Western proposals to cooperate are unreal, he decided to sign deal with Gazprom (this same agreement was signet also by Uzbekistan and Kazakhstan) in 2009 which granted an increase gas import from 50 to 90 bcm 102 and allowed to modernize The Khiva – Aleksandrov Gay pipeline and west and south of the country. Gas exports from Kazakhstan to Russia use the Central Asia-Center pipeline, which also carries gas from both Turkmenistan and Uzbekistan.
Russian gas trade with Kazakhstan, even during the Soviet period, never involved large volumes. However, the exchanges between the countries were logistically useful because of the location of Kazakh gas fields far from centers of population. For the same reason as in Turkmenistan case, the collapsed of the Union quickly saw the trade reduced to negligible levels. Kazakhstan is important to world energy markets because it has big oil and natural gas reserves. The existence of Soviet era pipeline system which links Russia and Kazakhstan has meant that ―Russia has had
101 Morten Anker, Baev Pavel, Brunstad Bjorn , Overland Indra and Torjesen Stin , The Caspian Sea Region Towards 2025, The Netherlands, Asmsterdam: EburonNederland, 2010, p.79.
102Ibid. p 77.
103 Central Intelligence Agency, The World Factbook https://www.cia.gov/library/publications/the-world-factbook/geos/kz.html (estimate of January 1, 2009), access July 15 2010.
‧
After years of foreign investment into the country's oil and natural gas sectors, the landlocked Central Asian state has recently begun to realize its enormous production potential. Main oil Gas Company in Kazakhstan is KazMunNaiGas105, which belongs to the state. Kazakhstan could become a major world energy producer and exporter over the next decade. Main destination for Kazakhstan gas is Russia and Ukraine. At the end of 2009 to importers of Kazakhstan gas has joined China.
Kazakhstan exports most of its gas volumes to Russia through KazRosGaz which at present has a de facto monopoly on gas exports from Kazakhstan.106 KazRosGaz is a joint venture between Gazprom (50%) and KaZmuNaiGaz (50%).
Due to pipeline configurations, Kazakhstan exports much of its own gas production to Russia. At the same time, several regions depend on imported gas. Most imported gas goes to the southern network, which remains almost completely independent from imports via Uzbekistan107.
Russian companies such as Lukoil, Gazprom and Rosneft are active in Kazakhstan at the present time. At the end of 2007, total Russian investments in the oil and gas sectors of Kazakhstan amounted to an estimated 3.4 to 4.1 billion dollars. By the end of 2012, Russia plans to invest an additional sum of between 6.7 and 7.5 billion dollars. It is suggested that this will be mainly invested in geological survey projects and the opening of promising oil and gas fields as well as in the development of the pipeline system.108
104 Archie Brown, Contemporary Russian politics, Oxford: Oxford University Press, 2001 p.448.
105 КазМунайГаз http://www.kmg.kz/page.php?page_id=1009&lang=2, access July 15 2010.
106 The Oxford Institute for Energy Studies, http://www.oxfordenergy.org/pdfs/NG25.pdf access July 15 2010.
107Terterov, Marat, Kazakhstan's Dynamic Economy: A Business and Investment Review, London : GMB Publishing Ltd, 2006, 2006 p. 24
108 Dr Vladimir Paramonov and Dr Aleksey Strokov The Defense Academy is the United Kingdom
"Structural interdependence of Russia & Central Asia in the oil and gas sectors", 2008,
http://www.da.mod.uk/colleges/arag/document-listings/ca/07(16)VPEnglish.pdf access July 15 2010.
‧
gas processing plant in southern Russia and build new pipelines to it, enabling at least 15 Bcm109 per year of gas, mostly from Karachaganak, to be processed, with 7 bcm pump back to Kazakhstan and the rest exported through the Gazprom system.Karachaganak‘s gas production is projected by its consortium to grow to 25 bcm by 2012. Gas consumption is rising but with the expected growth in production, Kazakhstan will be an important natural gas exporter by the end of the decade.
Kazakhstan was a net importer until 2004, when foreign investment started to raise production gradually, to an estimated 25.7 Bcm in 2006110. The slow growth is caused by the lack of transport infrastructure. The country‘s most populous southern region is not connected to the western fields and relies on imports. This is a legacy of the Soviet system, which created links based on proximity and Soviet-defined needs, not internal borders.
Kazakhstan‘s gas is often more difficult to extract than that of neighboring countries, as much of it is associated. Flaring refers to the burning off of gases in an
associated oil field. Reinjection refers to the re-introduction of released gases into an
underground oil reservoir to maintain pressure and ensure a higher oil recovery rate‖111. The government has put force on companies to reduce flaring, at times even at the cost of production.3.3 Uzbekistan
Uzbekistan was, after Russia, by far the largest gas producer in CIS countries during 1990s after Turkmen production began to decline. Uzbekistan is unusual within the CIS in having a very substantial gas market but a relative lack of trade. It exported
109 International Crisis Group "Central Asia‘s energy risks", 2007,
http://www.crisisgroup.org/~/media/Files/asia/centralasia/133_central_asia_s_energy_risks.ashx , access July15 2010.
110 Ibid.
111 Ibid.
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
43
around 3 Bcm in 2002 and this more than doubled to 6, 2 bcm the following year112. In 2000s Uzbekistan has become much more engaged outside Central Asia, although Gazprom remains its main partner.
The gas sector is mismanaged and worsening. The transport and distribution system began breaking down in the late 1990s, and an estimated 20 Bcm per year was lost. Since then it has received little investment. Recently the government began charging for domestic gas flows in order to increase exports. The estimate of 35 Bcm per year of gas production is far below conventional estimates based on official statistics of 57-60 bcm but adequately takes into account this worsening113.
At present Russian companies such as Gazprom and Lukoil are active in Uzbekistan. At the end of 2007, Russian investments in the oil and gas sectors of Uzbekistan amounted to between 520 and 1 billion dollars114. By 2012, Russia plans to invest a suggested 4, 7 to 6, 2 billion US dollars115 into the oil and gas sectors of Uzbekistan. These resources are to be put into geological study and opening of oil and gas fields projects as well as into the upgrading of pipeline infrastructure
Gazprom is the largest investor, its stake apparently tied to import deals and development of transport infrastructure; it is also the largest importer of the gas.
Foreign investment may one day slightly increase Uzbekistan‘s diminishing output, but it will be a major task just to make up for the existing decline rate and repair transport infrastructure. Uzbekistan will continue to transit far more of Turkmenistan‘s gas than its own in the Central Asia Centre (CAC) pipeline to Russia.
112 Jonathan P. Stern, "The Future of Russian Gas and Gazprom", U.K. 2005, p. 81
113 International Crisis Group "Central Asia‘s energy risks", 2007,
http://www.crisisgroup.org/~/media/Files/asia/centralasia/133_central_asia_s_energy_risks.ashx , access July 2010.
114 Gazeta Wyporcza, http://gospodarka.gazeta.pl/gospodarka/1,34581,5011662.html ,access July 15 2010
115 Dr Vladimir Paramonov and Dr Aleksey Strokov The Defense Academy is the United Kingdom
"Structural interdependence of Russia & Central Asia in the oil and gas
sectors",2008, ,http://www.da.mod.uk/colleges/arag/document-listings/ca/07(16)VPEnglish.pdf access July 15 2010.
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
44
3.4. Gas Market Prices and Assessment of CAS policy
Russia (Gazprom) brings annually 40 billion cubic meters of raw material from Turkmenistan, 9 billion cubic meters - from Uzbekistan and 8 billion cubic meters - from Kazakhstan 116. For now, it is not clear if the price of gas will increase in Central Asia. This is because gas contracts are under very strictly confidential policy.
In 2007 gas from Kazakhstan was selling by 145 USD per 1,000 cubic meters, and then sold in Europe at Gazprom-determined ―market‖ prices averaging $250 and over117. In 2008 the Russian company bought it at an average of 180 USD per 1000 cubic meters118 . In recent years, Kazakhstan, Uzbekistan and Turkmenistan sold gas at prices lower than the average in Europe. Since 2009 price could increase by 60-70 percent from January 2009 to up to 306 USD per 1000 cubic meters 119
Gazprom used few different gas prices. The lowest prices on the Russian market, forced by administrative authorities, is approximately 30 - 40 USD per 1000 cubic meters120. Russia is planning to increase domestic price to 100 USD per 1000 cubic meters in 2011121. Price for former Soviet republics is around 100-230 USD per 1000 cubic meters. It depends on political issue between Russia and another states.
See table 3.1 After collapse of the Soviet Union, many of the economic relations had to be continued. Kazakhstan, a former Soviet republic extremely dependent on Russian gas, has not been able to pay market prices for fuel.
116Gazeta Wyporcza, http://gospodarka.gazeta.pl/gospodarka/1,33181,5011662.html, access July 15 2010.
117 Jamestown Foundation http://www.jamestown.org/single/?no_cache=1&tx_ttnews[tt_news]=32749,access July 15 2010.
118Reuters, http://uk.reuters.com/article/oilRpt/idUKL1840067520080318,access July 15 2010.
119Ibid.
120 Polityka, http://www.polityka.pl/krotki-kurs-gazownictwa/Lead33,1091,279283,18/, access July 15 2011.
121 Polit.ru, http://www.polit.ru/news/2006/11/28/gaz.html, access July 15 2010.
‧ 國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
45
Table 3.1 Russian gas sales prices in 2008. USD per 1000 cubic meters
Sources: U.S. Energy Information Administration
The European prices is variable - in the so-called contract is determined.
Pricing formula, which is a special mathematical model, which substitutes a number of sizes, including the trading price of oil. Is around 450 USD per 1000 cubic meters122. Today Russia providing 50 % of European gas demand123. The best time for Gazprom was 2008 – higher price was 472 USD per 1000 cm124.
Sources: East European Gas Analysis
Figure 3.1 Average Russian price for gas exporting to Europe
122 Polityka, http://www.polityka.pl/krotki-kurs-gazownictwa/Lead33,1091,279283,18//, access July 15 2011.
123 EU-Russia energy relations:. the need for active engagement. EPC Issue Paper No. 45, http://www.epc.eu/, access July 15 2011.
124http://www.eegas.com/ukr-eur-2009-price.htm, access July 15 2011.
‧
Central Asian exporting countries – Turkmenistan, Kazakhstan and Uzbekistan – which are becoming increasingly important sources of gas supply for the CIS countries including Russia. Kazakhstan and Uzbekistan are also transit countries, as is Russia itself. The politics of the gas relationships between Russia and Central Asian countries are very important to both the Putin administration and other national governments.
Russian makes diplomatic and economic pressure in Central Asia to buy cheap gas while at the same time protecting Gazprom‘s dominant gas market position in Europe from competition from Central Asian gas. Russia and Gazprom, as the suppliers of 50%125 of Europe‘s imported gas, have sought to exclude other Central Asia gas supplies from European markets or at least to ensure that any gas flows to the West through Russia and Gazprom‘s system. Hence, the United States has worked diplomatically to support commercially questionable alternative gas pipelines, such as the Nabucco project, that would supply gas to Europe from Azerbaijan, Turkmenistan, and possibly Iraq, while bypassing Russia.
Gazprom had a near-monopsony from 2007 to 2009, and most likely beyond, for Central Asian gas exports, all of which in the near future will go through it, except for a small amount to Iran and small amounts to the other two Central Asian republics.
A monopsony is the reverse of a monopoly126. There are many sellers, but only one buyer. Generally, a monopsony results in a loss in economic efficiency, as just one buyer has market power to affect the price by varying the quantity bought. The result
A monopsony is the reverse of a monopoly126. There are many sellers, but only one buyer. Generally, a monopsony results in a loss in economic efficiency, as just one buyer has market power to affect the price by varying the quantity bought. The result