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. Last Updated: 07/27/2016

Turkmens Take On Gazprom

Turkmenistan quietly switched off natural gas supplies to Russia last month in a dispute over prices with Gazprom, a source in the Turkmen Embassy confirmed Wednesday.

Although the disruption will hardly interfere with Gazprom's day-to-day operations, it aims at a deal signed in 2003 to provide Russia with up to 80 billion cubic meters annually by 2009.

The Russian gas behemoth, which last year produced 534 bcm, has used the Turkmen gas to fill gaps in the domestic market and to buy time while it develops remote northern fields.

Turkmen national gas company Turkmengaz entered an agreement with Gazprom to begin supplying 5 bcm in 2004. The amount was to increase gradually to 7 bcm this year and 10 bcm in 2006, eventually reaching between 70 bcm and 80 bcm by 2009.

Gazprom agreed to buy the Turkmen gas for $44 per 1,000 cubic meters until 2006, with payment delivered half in cash and half in technology and equipment for Turkmenistan's oil and gas sector.

"The goods shipped as payment become more and more expensive," the source in the Turkmen Embassy said. "This price is simply no longer fair."

A Gazprom spokesman declined to comment but said the company may issue a statement on the issue on Thursday.

While current volumes from Turkmenistan are almost insignificant for Gazprom operations, the contract was seen as giving the company time to develop the remote but vast Yamal fields in western Siberia.

Analysts received the news negatively.

"Reliability and the honoring of contracts are crucial in the oil and gas sector, given that these are very capital-intensive sectors," said Valery Nesterov, oil and gas analyst with Troika Dialog investment bank.

"What this shows is that Turkmenistan is proving to be an unreliable partner," he said.

Turkmenistan reportedly cut off shipments in January to both Russia and Ukraine, which has bought Turkmen gas on the same terms as Gazprom.

The Ukrainians caved in quickly to the Turkmen demands, as Ukraine depends on imports for nearly all its of gas.

The lame-duck government of Ukrainian Prime Minister Viktor Yanukovych signed a new deal to buy Turkmen gas for $58 per 1,000 cubic meters. The new Ukrainian government under Prime Minister Yulia Tymoshenko is now trying to reverse that agreement.

The Russians, however, chose not to react. Gazprom CEO Alexei Miller, who was due to travel to Turkmenistan in January, canceled the visit.

The Turkmen side is ready to sit the dispute out, the embassy source said.

The source referred to the last price disagreement with Gazprom in the mid-1990s, when the Turkmen side waited for 2 1/2 years before it resumed shipments. Turkmenistan is storing excess gas and cutting output to cope with the reduction in exports, the source said.