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. Last Updated: 07/27/2016

Turkmenistan to Resume Gas Supplies to Russia

ASHGABAT, Turkmenistan ¬– Turkmenistan agreed Tuesday to resume natural gas supplies to Russia, resolving a months-long dispute and helping Moscow to lock in supplies from Central Asia.

Russia will buy 30 billion cubic meters of gas annually from Turkmenistan, with supplies to resume by Jan. 10, under the agreement signed by representatives of gas companies in the presence of Russian President Dmitry Medvedev and the Turkmen leader, Gurbanguly Berdymukhammedov.

This is significantly less than the 50 billion cubic meters that Russia was buying from Turkmenistan before a pipeline explosion cut supplies in April.

During the price dispute that followed, observers said Gazprom was deliberately dragging its feet while the European market remained depressed.

Russia will now pay European prices for Turkmen gas, Gazprom deputy chief executive Alexander Medvedev said. The company refused to disclose specific price terms.

Gazprom has been the key buyer of Turkmen gas, eager to secure the energy supply against use in a rival gas pipeline project. The United States and European Union are seeking to channel Central Asian gas into the planned Nabucco pipeline, which is to run from the Caspian Sea to Europe, circumventing Russia.

The supply cut in April prompted Turkmenistan to look for new markets and last week it opened a new pipeline to China, the first major gas export route from Central Asia that bypasses Russia. Turkmen gas deliveries to China through the pipeline are expected to hit around 6 billion cubic meters next year and increase incrementally until reaching 40 billion cubic meters in 2015.

"It is a fact that Turkmenistan no longer views Russia as its one and only business partner," said Alexander Nazarov, gas analyst at investment bank Metropol. The price for Turkmen gas is likely high, so the contract allowing Russia to buy 40 percent less gas than before should prompt Gazprom to be more active in boosting production at home, he said.

"The more gas Gazprom buys from Turkmenistan, the less profitable the company is," Nazarov. "Ideally, Russia shouldn't buy any Central Asian gas for re-sale to Europe at all. Instead of building extra pipelines, Gazprom would be better off investing in domestic production."

Russian gas output has been flat or declining in the past years and is set to fall by 14 percent this year.