EurasiaNet Business & Economics - US Diplomat: Gazprom's Gains From Central Asia Are Put to "Nefarious Uses"

BUSINESS & ECONOMICS

US DIPLOMAT: GAZPROM’S GAINS FROM CENTRAL ASIA ARE PUT TO "NEFARIOUS USES"
Joshua Kucera 3/26/08

A US official has welcomed recent news that the Kremlin-controlled gas company Gazprom will start paying higher prices for natural gas from Central Asia, saying that it represents a victory of market forces over state-orchestrated monopolistic practices.

Gazprom announced earlier this month it would pay European market prices -- perhaps upwards of $300 per thousand cubic meters (tcm) -- for gas to Kazakhstan, Uzbekistan and Turkmenistan. The new prices will go into effect next year and would nearly double the amount the company pays now -- between $130 to $180/tcm. [For background see the Eurasia Insight archive].

"We welcome the fact that gas prices in Central Asia are moving closer to those in Europe, because that reflects increased economic efficiency, and from the perspective of US national security, we think our security is best served when the markets of our most important allies function more efficiently," said Matthew Bryza, deputy assistant secretary of state for European and Eurasian affairs. "I would guess that the Central Asian producers, especially Turkmenistan, understand how important their gas supplies are going to be to Gazprom meeting its contract obligations over the next decade or so."

Bryza made his comments at a March 25 conference organized by Georgetown University and the Embassy of Azerbaijan in Washington, titled "US-Azerbaijan Relations: Energy and Security in a Challenging Region."

Bryza also said that US-backed pipeline projects that would take gas from Azerbaijan to Europe made commercial sense. He stressed, however, that Washington was placing heavy diplomatic emphasis on their construction, reasoning that the export routes would additionally serve US strategic interests. [For background see the Eurasia Insight archive].

He said that two pipelines -- Turkey-Greece-Italy and Nabucco -- could take enough Azerbaijani gas to Europe to replace about a quarter of what Gazprom now supplies. "That is a major amount of natural gas that could have a significant impact on the margins in terms of gas pricing in Europe," he said.

"The US government is not going to subsidize any of these projects. They make commercial sense, we’re not in the business of paying for the pipelines or the upstream investment, but we do see a clear strategic advantage in expanding the flow of as much natural gas to the European market as possible," Bryza said.

Pointing out that Russia now charges European companies between $300 and $400/tcm for gas, as opposed to paying less than half that for Central Asian supplies, Bryza said the massive profits that Gazprom reaps "go toward nefarious uses."

"This massive price differential," he asserted, "fuels organized crime and provides a disincentive for reform, be it of the countries along the supply chain, or of Gazprom itself." [For background see the Eurasia Insight archive].

"Our goal is not to have a confrontation with Gazprom, our goal is not to have a new Cold War with Russia about natural gas, our goal is to use the force of market competition to place our own allies in Europe, as consumers, in a stronger negotiating position," he said. "We need to find a way to work with Gazprom and with Russia. And to do that, we won’t succeed just by calling for that to happen or by issuing threats or banging our shoe on the table. The only way we’re going see Gazprom evolve in the way that we hope, in a market-based way, is to increase competition."

Bryza was asked if the new agreement between Gazprom and the Central Asian states was evidence that a new "gas OPEC" led by Russia could be forming.

"When I go around Europe and speak to a variety of heads of energy companies, energy leaders, I often hear a fear that there is an attempt to form a gas OPEC," he said. "In fact, the CEO of one company in Europe a couple of weeks ago said to me �I really see that happening, Russia is trying to collude with Iran and perhaps control Iran’s energy exports into Europe. I would just hope very much that the power of competition � would forestall that from happening. We will strongly oppose that in the US government." [For background see the Eurasia Insight archive].

Bryza was also asked about the possibility that US allies on the Black Sea like Romania and Ukraine could possibly stop the construction of the South Stream pipeline, the Russia-backed pipeline that would compete directly with the Turkey-Greece-Italy and Nabucco pipelines. Bryza said it was a question that Washington was interested in.

"The question is whether Ukraine and Romania, whether their exclusive economic zones extend far enough into the Black Sea to require a rerouting of South Stream in a way that would make it commercially nonviable," he said. "I don’t know the answer to that: some lawyers are taking a look into that. I would presume, though, if Gazprom is determined to make the pipeline work, then there might be a routing that will make it work."

Editor�s Note: Joshua Kucera is a Washington, DC,-based freelance writer who specializes in security issues in Central Asia, the Caucasus and the Middle East.

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