Turkmenistan: dictator’s death throws gas leases into question

This Dec. 22 account from the Russian daily Kommersant reveals another recent win for Moscow in its bid to rebuild influence in the “near abroad” of Central Asia, and beat the American and European competition to the punch in securing strategic control of its hydrocarbon resources. This ups the ante on the US to exploit that passing of Turkmenistan’s wacky despot Saparmurat “Turkmenbashi” Niyazov to effect another pro-West “revolution” in the region. We will be watching Turkmenistan closely in the weeks to come:

Gas Agreements Die with Turkmenbashi
The death of President of Turkmenistan Saparmurat Niyazov has put both Russia and the West in an inconvenient situation. His death has started a fierce battle for power in the country and, more importantly, a new phase in the battle among Russia, China, the European Union and other interested parties for Turkmen gas. Turkmenbashi’s death also places agreement reached between Gazprom and Ashgabat in jeopardy.

Since Niyazov’s death, sincere condolences have been pouring into the Turkmen capital from all sides. The United States, EU, China, Russia and former Soviet states have all expressed their sympathy. Turkmenistan, which has been in long, self-imposed isolation from the rest of the world, is an important presence on the international market for natural gas. The EU, U.S., Russia, Ukraine, China and Iran had all been in a desperate scramble to gain the goodwill of Niyazov, all closing their eyes to the openly authoritarian nature of his regime. Turkmenbashi died practically at the height of his glory… That turns the struggle for power in Turkmenistan into an event of world significance, and makes the circumstances of his death appear suspicious.

The worldwide battle for Turkmenistan began in earnest this year. Until then, Ashgabat sold its gas in insignificant quantities and almost for nothing. In 1997, [it] stopped exporting gas completely, pouring water or cement into the wells, in order to drive the price up. After that, intermediaries took over sales of Turkmen natural gas. First it was [Russian firm] Itera, which paid just $10 per 1000 cubic meters of Central Asian gas, since it was so easily produced. At the beginning of this decade, Itera began to raise its purchase prices in Central Asia, but unwillingly and by miniscule increments of $5-10 per 1000 cu. m. In 2003, the Hungarian Eural Trans Gas became the intermediary in sales to Ukraine. In 2004, a Gazprom subsidiary, the Swiss Rosukenergo, inherited the contract with a price of $40.

Turkmenbashi’s day in the sun came thanks to Moscow. Last winter’s gas war between Russia and Ukraine inspired thoughts of higher gas prices in Turkmenbashi’s mind and frightened Europe into diversifying its energy sources. The EU even developed a proposal for the Nabucco gas pipeline to lead from Central Asia through Turkey to Austria. Russia, however, did everything in its power to preserve its monopoly on gas supplies to Europe and prevent Turkmen gas from reaching it directly.

Gazprom set itself the goal of buying up all the natural gas in Central Asia. In order to squeeze Ukraine off the market and take full control over the export of Turkmen gas, the Russian monopoly paid $4.2 billion for a contract that had cost $1.68 billion a year earlier. In September, Gazprom head Alexey Miller and Niyazov signed an agreement for the purchase of 12 billion cu. m. of gas in 2006 by Gazprom Export and 50 billion cu. m. per year between 2007 and 2009. That deal set Gazprom back $16.2 billion. The expected price had been $10.5 billion.

That was the first contact with a supplier in which Gazprom agreed to high prices. After that, Uzbekistan and Kazakhstan also raised their prices from $44-50 to $100 per 1000 cu. m. And Moscow was rewarded. Niyazov declared as he signed the agreement with Gazprom, “We will guarantee gas to Russia in the first place. Don’t think that Turkmenistan wants to take its gas anywhere. We are not ready to consider a Transcaspian gas pipeline.” As a sign of friendship, Niyazov suggested that Gazprom develop the Iolotanskoe deposit, one of the biggest in the country, which could cover gas exports until 2030.

The EU continued negotiations with Turkmenistan. On December 18, newly appointed EU special representative for Central Asia Pierre Morel visited Ashgabat. Official Turkmen media reported that the EU and Turkmenistan had reached an agreement on cooperation. The specifics of the agreement will probably never be known now, for the meeting with Morel was practically Niyazov’s last public appearance.

Gazprom’s recent triumph over the EU seems Pyrrhic after Niyazov’s death. He succeeded in realizing his plan of raising gas prices to over $100 per 1000 cu. m. Now no one will ever pay less than that again. But the political guarantees of loyalty to Russia and refusal to participate in pipeline projects or export gas to the EU died with Turkmenbashi. His promise of a pro-Russian policy with no direct supplies of gas to Europe was never put in writing. Now nothing is stopping the Europeans from entering into new negotiations with the new Turkmen authorities on a resource base for the Nabucco pipeline that will bypass Russia…

Turkmenbashi’s successors have a wide selection before them. The late president was known for his love of holding parallel negotiations with different parties for the same gas. Last year, besides Gazprom, he signed an agreement with China, promising it 30 billion cu. m. of gas per year beginning in 2009. He had also developed an interest in a southbound pipeline, through Afghanistan and Pakistan or Iran. The first project was of great interest to the U.S. Thus, a lot depends on whom the president’s successor decides to make friends with and who will support him on his path to power.

Meanwhile, Russia’s FinMarket reports Dec. 22 that there has already been a “coup” in post-Turkmenbashi Turkmenistan:

New dictator ahead for Turkmenistan
Turkmenistan”s President Niyazov has died and a mini-coup taken place. Control over the country is in the hands of a power bloc and an illegitimate son of Niyazov.

According to Turkmen Constitution, the speaker of Parliament, Mr Ataev, should have become acting president, but yesterday, he was accused of a crime and imprisoned. After this, Health Minister Gurbanguly Berdymukhamedov was appointed acting president – a choice with a certain logic if we take into account rumours that he is an illegitimate son of Niyazov. The power bloc retains control over the country.

Currently, the situation remains stable, although we expect tough under-the-carpet fight at all levels of authority. Although the Turkmen Constitution does not allow an acting president to participate in new elections, the current administration has already shown that it is very flexible with the constitution and ready to violate it. We think that Gurbanguly Berdymukhamedov has a high chance to become the next president, although, the risk of political destabilisation is also high. Russia”s support of the new (old) team would increase chance for a peaceful scenario… In a positive outcome, Turkmenistan will continue to fulfil its obligations and commitments and Gazprom will get 50bn cub.m of gas at US$100 a year in 2007-09 (41bn cub.m will go to Ukraine). In a negative case scenario, interruptions in gas supply are possible, which is a risk for Ukraine.

We expect more clarity on Tuesday, when a session of parliament is scheduled.

See our last posts on Turkmenistan, Russia’s pipeline wars and the Great Game for Central Asia.