EurasiaNet Business & Economics - Turkmenistan: Gas Blast Ignites Turkmen-Russian Row

BUSINESS & ECONOMICS

TURKMENISTAN: GAS BLAST IGNITES TURKMEN-RUSSIAN ROW
4/10/09

In a row with important implications for European Union energy issues, Turkmenistan has accused Russia’s energy behemoth of "egregious" behavior by allegedly engineering a pipeline explosion that disrupted exports from the Central Asian nation. Russian experts have attributed the incident to Turkmen negligence and worn-out infrastructure. Whatever the cause, the Caspian Basin’s key energy relationship has hit a rocky patch.

The pipeline blast occurred April 9 on the Davletbat-Dariyalyk pipeline, also known as the CAC-4, at a spot near the Turkmen-Uzbek border. The ensuing blame game helps illustrate the difficult position that Gazprom now finds itself in, as the global economic downtown has shrunk Russia’s energy Goliath back down to size. [For background see the Eurasia Insight archive]. Declining demand for natural gas is ravaging the company’s bottom line. The newspaper Vedomosti, for example, reported that the company’s production fell 24 percent in March in comparison with the same period in 2008.

As it struggles to cope with its reversal of fortune concerning demand, Gazprom is also facing pressure on the supply side, in particular its 25-year export agreement with Turkmenistan. What was not too long ago deemed as a lucrative deal, now poses a growing burden on Gazprom. [For background see the Eurasia Insight archive].

On April 10, the Turkmen Foreign Ministry issued a blistering statement that accused Gazprom of turning off the pipeline without proper warning. It called such action a "unilateral and egregious violation" of the export agreements under which Turkmenistan ships gas to Russia. Ashgabat claimed it only had a few hours’ notice of Gazprom’s intention to reduce gas flows, not enough time to make proper adjustments. The resulting explosion was caused by the excessive buildup of pressure in the pipeline. The Turkmen statement insisted that any action to decrease export volume should have been preceded by at least a week’s notice.

"This is first of all linked with the need to take related measures for the preparation of gas wells and all elements of the gas transportation infrastructure for changes in the technological regime of work," the statement said. "Ignoring these conditions can result in emergencies and stoppages in the whole pipeline system in the overwhelming majority of instances."

Gazprom vehemently denied responsibility for the April 9, adding that the pipeline would need only a few days of repairs. Meanwhile, the official Russian news agency RIA Novosti quoted Anatoly Dmitrievskii, director of the Institute of Oil & Gas Issues in Moscow, as saying antiquated pipeline infrastructure, much of which dates to the 1960s and 70s, was primarily to blame for the incident. He also hinted that Turkmen negligence may have been a factor.

The spat has sparked speculation in the Russian media that the Kremlin now has a "gas war" looming on its southern front. Relations between Turkmenistan and Russia have deteriorated in recent weeks, and an increasingly confident Ashgabat seems determined to diversify its energy export potential. [For background see the Eurasia Insight archive].

Hawkish commentators in the Russian press are pointing out that Ashgabat is no stranger to "technical difficulties" when it is convenient. Iranians shivered for months in early 2008 while Turkmenistan supposedly labored to resolve transmission issues. Supplies were resumed after Tehran agreed to increase the price it paid for gas. [For background see the Eurasia Insight archive].

Natalia Milchakova, an analyst with Otkritie Financial Corporation, told the RosBusiness Consulting news website that the explosion was a "political provocation" because Turkmenistan is either unwilling or unable to pay for an upgrade to the 36-year-old pipeline. Michael Korchemkin of the US-based energy consulting firm East European Gas Analysis said Turkmenistan’s version of events was inconsistent and that metal corrosion was the likely culprit. "Russia is not interested in a deterioration of gas relations with Turkmenistan, I am sure," he stressed.

Dmitry Abzalov, an analyst at the Russian Center for Political Studies, suggested Turkmenistan has bigger ambitions than a mere pipeline upgrade and may be seeking to bolster its clout when it comes to fixing the price of gas in the second half of 2009.

The same glut of gas on European markets that has caused Gazprom’s gas production to plummet is likely to have an effect on the price the company is willing to pay for Turkmen supplies, explained Abzalov. "Turkmenistan does not want to reduce prices because gas is the main source of income. So, this move also aims to strengthen their negotiating position when discussing the price of Turkmen [gas]," the Gazeta.ru website quoted Abzalov as saying.

Financial Bridge analyst Dmitry Alexandrov told Gazeta.ru that Ashgabat may be devising a Machiavellian scheme to support a "multi-vectored" approach to energy exports. Alexandrov and others in Moscow are wondering if Ashgabat is attempting to create a pretext in order to make a concrete commitment to the US-backed Trans-Caspian Pipeline. "The tone of the Turkmen MFA message says that the problem has a political nature," Alexandrov said. "Unfortunately, the Turkmen announcement is evidence that Russia is losing its position in Central Asia."