Energy Ties Take Medvedev Eastward

Gazprom CEO Alexei Miller held talks with Turkmen President Gurbanguly Berdymukhammedov in Ashgabat on Tuesday, focusing attention firmly on energy ties ahead of President Dmitry Medvedev's trip to the region later this week.

Medvedev's whistle-stop visit, which starts Thursday and takes in Azerbaijan and Turkmenistan, is his third foreign outing since taking office in May and already his second trip to the energy-rich former Soviet states on the Caspian Sea.

Coming just over a month after he visited Kazakhstan, the trip to Baku and Ashgabat underlines Russia's determination to maintain its grip on resources flowing out of the region.

In a much-heralded coup for Russia last December, then-President Vladimir Putin signed a deal with his Turkmen and Kazakh counterparts to upgrade a gas pipeline running through Russia along the northern coast of the Caspian.

The deal was seen as striking a blow to plans supported by the United States and EU that would see gas shipped directly under the Caspian to Azerbaijan, leaving Russia out of the picture amid increased fears of overdependence on Moscow.

Despite skepticism over the feasibility of the schedule for the project, work on the pipeline will begin in the second half of this year and take 18 months to complete, Deputy Energy Minister Anatoly Yanovsky said at the World Petroleum Conference in Madrid on Tuesday, Bloomberg reported.

The proposed network would eventually carry a combined total of 20 billion cubic meters of gas from Kazakhstan and Turkmenistan through Russia.

Medvedev, former Gazprom chairman, could be looking to raise the amount of Turkmen gas the firm buys in the short term to plug any potential shortfalls caused by Gazprom's failure to open new domestic fields. Last year exports to Russia accounted for well over half of Turkmenistan's total production, and Russia sold the vast bulk of the gas to Ukraine.

"Turkmenistan is offering to sell us more gas," Yanovsky said, Bloomberg reported.

Medvedev's visit to the region comes at a "crucial moment" in gas relations after Gazprom's March commitment to start paying "European prices" for gas from Central Asia by next year, said Jonathan Stern, Director of Gas Research at the Oxford Institute for Energy Studies.

Come next year, Gazprom could start paying around $250 per thousand cubic meters of Central Asian gas, Stern said, leaving Central Asian states with less incentive to sell to Europe and China.

December's pipeline agreement came only after Gazprom resolved a pricing dispute with Turkmenistan by agreeing to up payments to $150 by the middle of this year.

Talk of bolstering sales to Russia will be seen as a setback for the United States and European Union. Amid worries over rising dependence on gas coming from Russia, both have been pushing for an alternative pipeline to be built under the Caspian Sea, bypassing Russia.

Following the construction of the Baku-Ceyhan oil pipeline, Azerbaijan is viewed as a crucial player by all sides in determining the eventual route of gas from the Caspian basin to Europe.

The continuing attempts to woo the Turkmen authorities are part of a scramble for access to the country's vast gas reserves, sparked by the death of eccentric and isolationist former President Saparmurat Niyazov in late 2006.

According to the 2007 BP Statistical Review of World Energy, Turkmenistan is estimated to hold 2.9 trillion cubic meters of gas, but the country's government has put the figure at over 20 trillion cubic meters.

Since Niyazov's death, a steady stream of international energy executives have headed for Ashgabat, and in May, Berdymukhammedov and EU officials signed a memorandum of understanding on energy and discussed an impact assessment for the trans-Caspian pipeline route.

The EU has already signed similar memoranda with Azerbaijan, Kazakhstan and Ukraine.

The EU is keen on linking Turkmenistan to the proposed Nabucco gas pipeline through Central Europe. But the Nabucco project is facing serious competition from Gazprom's planned South Stream pipeline, after Bulgaria, Serbia, Hungary and Greece all signed up to the project following a diplomatic push from Putin earlier this year.

But Stern at the Oxford Institute of Energy Studies said increased competition for Central Asian resources was far more likely to come from China rather than Europe over the next decade. Work is progressing rapidly on a network linking Turkmenistan to China, he said.

Kremlin spokespeople could not be reached Wednesday for further details on Medvedev's trip. But in preparation for his upcoming visit, Medvedev spoke to Berdymukhammedov by telephone Sunday, a statement on the Kremlin web site said.

After Medvedev wished the Turkmen president a happy birthday, the discussion touched on energy matters and other issues of cooperation, the statement said.

After Tuesday's talks with the Turkmen president, Gazprom CEO Miller emphasized the close ties between the state-run gas giant and the former Soviet republic.

"Gazprom and Turkmenistan are reliable and time-tested partners," Miller said in a statement posted on Gazprom's web site.

"We are sure that our cooperation will only strengthen and develop," he said. Miller's statement also stressed satisfaction with the deal for long-term cooperation between Gazprom and Turkmenneftegaz.