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. Last Updated: 07/27/2016

Lavrov Seeks to Retain Turkmen Gas

APSergei Lavrov
Foreign Minister Sergei Lavrov held talks Thursday with the new leader of gas-rich Turkmenistan amid U.S. efforts to break Russia's near monopoly on the Caspian country's exports of the fuel.

Lavrov met with President Gurbanguly Berdymukhammedov in the Turkmen capital, Ashgabat, the Foreign Ministry said in a statement on its web site. His visit comes one month after the United States revived a plan to ship Turkmen gas to Europe via Azerbaijan, Georgia and Turkey.

Lavrov would try to persuade Berdymukhammedov to reject the U.S. proposal, Kommersant reported Thursday. Foreign Ministry spokesman Boris Malakhov said he was not able to comment immediately when contacted by telephone.

Reinvigorated foreign interest in helping Turkmenistan diversify its energy export routes could put Russia's virtual monopoly on Turkmen gas in jeopardy.

"There are many Russian rivals in Turkmenistan, like Europe and China," said Valery Nesterov, oil and gas analyst at Troika Dialog.

In a signal of the high priority Russia is lending to bilateral relations, Deputy Prime Minister Sergei Naryshkin was appointed co-chair of the Russian-Turkmen Intergovernmental Commission on Economic Cooperation by Prime Minister Mikhail Fradkov at the end of March, Itar-Tass reported.

The commission will likely play an important role in future relations and shows that Russia is hoping energy cooperation will get a new impulse and become more predictable with Berdymukhammedov, Nesterov said.

Russia uses its control of a Soviet-era pipeline network to buy Turkmen gas cheaply and resell it at higher prices to Ukraine and Western Europe. Turkmenistan plans to boost gas production by 20 percent, to 80 billion cubic meters in 2007, enough to supply Italy, Europe's third-largest gas consumer.

Lavrov said after the talks Thursday that he had conveyed Russia's "interest in deepening trade and economic ties" with Turkmenistan, the Foreign Ministry statement said.

U.S. State Department official Steven Mann discussed the proposed gas pipeline from Turkmenistan at a March 5 meeting with Berdymukhammedov, the U.S. Embassy in Ashgabat said.

Mann, a former U.S. ambassador to Turkmenistan, said after that meeting that it was "the hope of the United States that Turkmenistan will develop its energy potential to the fullest," the U.S. Embassy said in a statement on its web site.

In March, Azerbaijan's deputy foreign minister said EU energy security would strengthen if it bought Turkmen gas directly, via a trans-Caspian route, instead of via Russia, Reuters reported.

But a trans-Caspian pipeline project -- which Lavrov is trying to prevent -- is risky, has no short-term perspective and is unlikely to get started before agreement is reached on the delineation of the Caspian Sea, Nesterov said.

Gurbanguly Berdymukhammedov

Turkmenistan, which borders Afghanistan and Iran, last year sold 42 bcm of gas to Russia and 8 bcm to Iran. For 2007 to 2009, Ashgabat has agreed to sell 50 bcm per year to Russia.

Since coming to power, Berdymukhammedov has made positive gestures toward foreign investors, pledging to fulfill existing contracts, encourage foreign investment and stimulate the development of private business.

Last month, Ireland-registered Dragon Oil, which operates two offshore oil and gas fields in the Cheleken area in the Caspian Sea, was reported by Turkmen state media to have launched the first foreign-owned refinery in Turkmenistan.

A spokesman for Dragon Oil in London confirmed that the refinery had started working, but said he could not confirm that the refinery was completely foreign-owned.

Vedomosti reported March 14 that Berdymukhammedov had reorganized the country's energy sector, setting up a new government agency under his direct control to regulate the energy sector and award licenses.

"It's too early to say what this will mean," said Jonathan Hines, a partner at the Moscow office of law firm LeBoeuf, Lamb, Greene & MacRae who has been involved in oil and gas deals in Turkmenistan. "Things don't happen quickly there. We have to see how it functions first."

In 2000, Turkmenistan adopted detailed administrative rules for hydrocarbon operations and the basic standard contract "is not so bad," Hines said. Rigidity on the government side, however, makes it very hard to negotiate away from the standard contract, he said.

There have been no changes to oil and gas laws since Berdymukhammedov came to power, Hines said.

Turkmenistan has an infrastructure problem, hindering its gas getting out, said Nadya Kazakova, an analyst at MDM Bank.

Increasing the capacity of the main gas pipeline to Russia, currently the country's only westward export route, appears to be the easiest short-term way to fix this problem, Nesterov said. Russia is eager for such an increase, he said.

MT, Bloomberg