Turkmens Aim for 30% Gas Price Hike

APBerdymukhammedov and Zubkov talking during a meeting of CIS government officials in Ashgabat on Thursday.
Turkmenistan is hoping to hike the price of gas it sells to Gazprom by at least 30 percent next year, Gazprom chief executive Alexei Miller said Friday, raising the possibility that the higher costs would be passed on to foreign customers.

During a visit to Ashgabat, Miller met with Turkmen officials, "who raised the question of the necessity to increase the purchase gas price by at least 30 percent, as early as 2008," Miller said in a statement.

Turkmen officials made the move following criticism by U.S. and EU officials, who argued that the price the country was offering Gazprom was too low compared with European standards, Miller said. Negotiations would continue next week, he added.

The price, which would rise to at least $130 per 1,000 cubic meters from $100, could be passed on to Gazprom's customers in Ukraine, Miller said.

Gazprom and Ukraine have yet to agree to a price for 2008, but it is set to rise from the current $130 per 1,000 cubic meters, paving the way for a slow transition to European pricing levels. European countries currently pay an average of $250.

Gazprom has been criticized for its handling of price hikes for its ex-Soviet neighbors after shutting the valves to Ukraine during a tense pricing dispute two years ago. Turkmen gas is key to keeping Ukrainian supplies cheap. Russia sells Ukraine, via trader RosUkrEnergo, a mix of its own gas with cheaper gas from Turkmenistan and other Central Asian producers.

The expected price hike comes amid a wider rise in natural gas prices, prompted by a skyrocketing oil price, which is nearing $100 per barrel.

Miller said in the statement that Gazprom estimates that the price for gas to Europe will rise to an average of $354 per 1,000 cubic meters.

Prices could also rise to the Baltic countries. A Gazprom official said in an interview published Friday that the price of gas to Latvia could rise by up to 50 percent next year to reach average European levels.

"Taking the current situation into account, the price could rise by from 40 percent to 50 percent," Alexander Miheyev, Gazprom's first deputy head for oil and gas marketing, told Latvia's Dienas Bizness newspaper, Reuters reported.

To boost its supplies as production at existing fields lags and new fields await development, Gazprom buys 50 billion cubic meters of Turkmen gas per year. The volume and price were sealed in an agreement signed last year, which runs through 2009.

Analysts said the price hike was expected and did not link the rise to a stalled pipeline deal between Russia and Turkmenistan.

Miller accompanied Prime Minister Viktor Zubkov on his visit to Ashgabat, where Zubkov said he expected an agreement on the pipeline to be signed soon, after meeting with President Gurbanguly Berdymukhammedov.

A preliminary agreement on the pipeline, due to carry Turkmen gas around the Caspian and through Russia, was struck in May. But confirmation of the deal has stalled as Turkmenistan continues to consider other options, including a U.S.-backed Trans-Caspian pipeline that would bypass Russia.

"The Turkmens have much more leverage right now," said Gairat Salimov, top Central Asia analyst at Renaissance Capital. "It's not just European gas demand that's growing, but also Russian demand -- to a point where they really need this gas."

The country is estimated to hold 2.9 trillion cubic meters of gas, according to the 2007 BP Statistical Review, but claims to have much more.