SUCCESS?

Russian President Vladimir Putin has completed his sensational visit to Kazakhstan and Turkmenistan, a visit which was preceded by that of new Turkmen leader, Gurbanguly Berdymuhammedov, to Moscow and another round of Russia-EU talks in Samara. We can now summarize the results of this stage of Russia's struggle for Central Asian energy.

It is notable that this lengthy visit by the Russian leader took place at a time when the presidents of Ukraine, Azerbaijan, Georgia, Lithuania, Poland and Kazakhstan were holding a summit in Krakow, Poland. What is more, after Nursultan Nazarbayev at first agreed to take part in this event, after Putin's visit to Astana he was forced to give up on the Krakow visit, sending his special representative - Deputy Minister of Energy and Natural Resources Lazzat Kainov - to the negotiations. For this reason, many experts were quick to note the failure of the Polish summit, saying that Kazakhstan was due to become the main supplier of oil for the new route, Odessa-Brody-Plotsk-Gdansk, since Azerbaijan will be pumping most of its oil by the already existing Baku-Ceyhan pipeline.

Meanwhile, the presidents of Russia, Kazakhstan and Turkmenistan agreed to build a Caspian gas pipeline. An agreement on this is scheduled for signature by 1 September 2007, says a joint declaration on the results of the talks signed by the three countries' leaders in Turkmenbashy. The document provides for the drawing up of a feasibility study and the joint obligations of the parties. The three countries' leaders instructed their governments to ensure the implementation of the project to construct the Caspian pipeline from the second half of 2008. The declaration was signed "with the aim of developing capacities to transport Turkmen natural gas, including compliance with the 10 April 2003 agreement between the Russian Federation and Turkmenistan on cooperation in the gas sphere, as well as Kazakh natural gas".

It is planned that the Caspian pipeline will run through Turkmenistan and Kazakhstan along the Caspian coastline and will enter Russian territory.

Transcaspian reserves

Many political experts described the declaration signed in Turkmenbashy as the failure of the proposals for Transcaspian energy arteries. Is this true? Let's have a look at the chronology.

Our readers probably remember that on 23-24 April, the new Turkmen leader paid his first official visit, to Moscow (if we do not count Berdymuhammedov's pilgrimage to Mecca before that). In the run-up to the visit, the Russian press hurried to say that Turkmen gas was already in Gazprom's pocket. But it turned out that it was too early for them to trumpet their victory. The visit of Saparmurat Niyazov's successor turned out to be quite low-key - also because Russia's first president, Boris Yeltsin, died at the same time. Berdymuhammedov did not make any special promises or statements, only saying diplomatically that he was in favour of the comprehensive development of relations with Russia. For this reason, the Ashgabat government will develop its policy only on the basis of comprehensive state interests. Trying to calm the Russian propagandists, he also said for the first time in Moscow that the idea of the Transcaspian pipeline will be studied along with other projects.

Then Putin took a trip along the Ashgabat-Astana-Ashgabat route. In Turkmenbashy, Putin persuaded his Kazakh and Turkmen partners to start working on the Caspian gas pipeline, but failed to persuade them to give up on the Transcaspian one. It was clear that the "war of the pipelines" will continue until at least the next summits - in Turkmenistan in September and in Lithuania in October. 

This is when statements appeared saying that the political result of the work of the two alternative summits that took place in the middle of May will be finally known after another summit - between the EU and Russia, which was held in Samara on 17-18 May. During this summit, the European Union was reportedly going to support one or another option of energy policy in the Caspian region. The result of this meeting is in fact clear: it almost failed. For the first time in the last few years, the sides failed to sign any final agreements. The only assurance that Putin offered journalists was his statement that, "Russia and the EU identified the line of their future actions".

Considering the European Union's attitude towards Russian monopolism, if we do not fall under the influence of Russian propaganda, we can presume in advance that Europe will be in favour of alternative options for energy supplies, bypassing Russia, especially as one of the countries that blocked the new agreement between the EU and Russia was Poland which hosted its own informal energy summit on a new pipeline several days before the Samara summit…

At the same time, the Central Asian negotiations also had a commercial component, and this is where the summit suffered its main setbacks. There were three issues related to pipelines on the business agenda of the meeting: the Caspian and Transcaspian pipelines, as well as the expansion of the capacity of the Caspian Pipeline Consortium (CPC). Putin, Nazarbayev and Berdymuhammedov managed to move from the starting line on only one of them. The final documents of the meeting say that, by September 2007, the sides will prepare a draft intergovernmental agreement and commercial agreements on the establishment of a consortium for the Caspian pipeline at a new summit in Turkmenistan. But, in fact, by September the sides will be preparing documents for a bigger project. The Caspian pipeline (presently the Central Asia - Centre 4 gas pipeline) is planned for expansion from its current capacity of 1-2bn cu.m. of gas per year to 10bn cu.m. within five or seven years, while the existing branch of the Central Asia-Centre-3 gas pipeline (CAC-3) which runs from Turkmenistan to Russia through Uzbekistan and Kazakhstan, will be expanded to 20bn cu.m. per year. However, none of the sides said who will be selling the extra 30bn cu.m. of Turkmen, Kazakh and Uzbek gas (Uzbek President Islam Karimov signed the declaration of the Turkmenbashy summit earlier, on 9 May, at a meeting with Viktor Khristenko). We must stress that this volume is absolutely not guaranteed to go to Gazprom. It must be remembered that at the first meeting of the summit, Putin and Nazarbayev agreed that the joint venture of Gazprom and Kazmunaygaz - Kazrosgaz - will sell 15bn cu.m. of gas per year in Europe (this gas will be produced at the Orenburg gas refinery from the gas condensate of Kazakhstan's Karachaganak deposit).

Thus, at the September meeting in Turkmenistan, Berdymuhammedov and Nazarbayev will probably demand that Vladimir Putin sets up a joint company to operate the new pipeline. As for the expansion of CAC-3, Gazprom only managed to confirm its plans for the reconstruction of the system of gas pipelines in Central Asia. We should point out that this kind of project was signed between Turkmenistan, Uzbekistan and Kazakhstan in 2004, but it was not implemented due to problems with Turkmenistan and Uzbekistan. In September, the Central Asian states will definitely demand concessions from Gazprom which will undermine its monopoly on gas exports to the European Union.

But the most important point is that Vladimir Putin failed to persuade his partners to give up on the project of the Transcaspian pipeline. The presidents of Turkmenistan and Kazakhstan clearly said on 12 May that the project opposed by Russia and Gazprom will be discussed. This pipeline, which bypasses Russia, could become part of the EU's Nabucco project that will deliver Azerbaijani gas and, in the long-term, Turkmen and Iranian gas to the EU, bypassing Russia. Both the Turkmen and Kazakh sections of the Caspian pipeline could become part of the Transcaspian pipeline in the future.

What is more, the Turkmen summit failed to solve the issue of whether the CPC pipeline will be expanded from its current capacity of 31m tonnes to 67m tonnes. Nursultan Nazarbayev suggested that Russia, which owns 24 per cent of the shares of the consortium, should support the expansion, but he did not get a clear answer from Putin. At the same time, Kazakhstan made it clear that the approval of the project depends on its participation in the Russian oil pipeline Burgas-Aleksandropolis. Otherwise, Kazakh oil will flow by the Odessa-Gdansk pipeline to Poland, bypassing Russia, i.e. through Azerbaijan.

In this regard, the most important factor is that negotiations on which projects should be supported by transnational oil companies will be held mainly with Azerbaijan, Kazakhstan and Turkmenistan, not with Russia and Uzbekistan. However, it is clear that Nazarbayev and Berdymuhammedov have more options for bargaining with Chevron, Exxon Mobil, BP and Eni, which will be extracting oil and gas in the Caspian. If we bear in mind that most of them are involved in energy, as well as pipeline, projects in Azerbaijan, the political and negotiating actions of the West and Azerbaijan will play a very great role in this period.

Moreover, we have to point out that a big question mark hangs over the option for parallel gas exports to China from Russia and Turkmenistan. The International Energy Agency says in its forecasts that, even in 2020, net gas import in China will be no higher than 30-40bn cu.m. All this gas will be used in the south-eastern industrially-developed regions. China also intends to build major facilities to receive liquefied gas from Qatar and Nigeria. As for the northern regions of China, they will not need large amounts of gas.

It must be remembered that on 21 March 2006, in China, Putin signed a document on gas cooperation which provides for supplies of 30bn cu.m. of gas by 2010. Three weeks later, the late Saparmurat Niyazov (Turkmenistan) visited China and signed exactly the same document on exactly the same amount of gas. Together with Russian gas, this amounts to about 60bn cu.m. But China will need only 30bn cu.m. of gas in 2015-20. It is planned to buy gas, but only a small amount, while the share of coal - the country's main fuel - will fall from 82 to 75 per cent of China's overall energy balance by that time. This is clearly not a significant fall, which means that gas will still play a marginal role. Thus, we can assume that the pipelines to China will meet the fate of the Blue Stream to Turkey, which has a capacity of 16bn cu.m., but which exported only 4.7bn last year, which is less than 30 per cent.

In these conditions, we can ask one simple question: What Russian success in Central Asia are we talking about?

Several "buts"…

In this regard, we should not forget the political component of this issue which follows the economic one, especially as we are talking about such expensive projects.

Something will have to be done soon about the Asian agency. Of course, the Russian direction is more beneficial to Turkmenistan and Kazakhstan as it entails less expenditure on the transport infrastructure. However, there are several "buts" here. First, both countries have already realized that an orientation solely towards Moscow is not yielding the expected economic dividends: Russia is trying to monopolize supplies, but does not want to increase the cost of the energy it gets from Central Asia. Turkmenistan has already experienced this as it sold its gas to Russia at a price three times lower than that at which Russia sold gas to Europe, while Kazakhstan has been unable to increase oil exports by the CPC pipeline because of the Kremlin's political manoeuvres. Export via Azerbaijan would open new and considerably different opportunities for Kazakhstan and Turkmenistan: they can become equal partners here. Second, as we said above, the final decision belongs to Western companies which operate in these two Central Asian states. It is no secret who is behind these companies and which companies they are. The West has been trying to get rid of the Russian monopoly for the last few years. So who will the West support?

Third, the main oil and gas-producing states of Central Asia have to shake hands with the West in the face of its inevitable expansion to the east.

The best answer to all these questions was given by the presidents of Turkmenistan and Kazakhstan immediately after the Asian summit with Vladimir Putin. "The agreement on the construction of the Caspian gas pipeline does not take off the agenda the issue of Turkmenistan's participation in the project on the Transcaspian gas pipeline along the Caspian seabed," Turkmen President Gurbanguly Berdymuhammedov said, while commenting on the results of the trilateral negotiations with the Russian and Kazakh presidents. "The whole world is diversifying gas transportation routes," Berdymuhammedov said. Asked whether Turkmenistan has enough gas reserves to supply gas to China and Iran, the president said: "Don't worry, there is enough gas."

Although Kazakh President Nursultan Nazarbayev was less outspoken, the main meaning of his statements is absolutely clear - Astana has a pragmatic approach to the construction of new gas transportation facilities. "The diversification of gas and oil supplies is a beneficial condition for us. There are no politics here. The increasing volume of oil and gas extraction in Kazakhstan requires such diversification," Nazarbayev stressed.

Meanwhile, Ashgabat and Baku officials are increasing political contacts and negotiations. On 22 May, Azerbaijani Foreign Minister Elmar Mammadyarov paid a one-day visit to Ashgabat. The press secretary of the Foreign Ministry, Xazar Ibrahim, said that during the visit, Mammadyarov held a meeting with Turkmen President Gurbanguly Berdymuhammedov. They discussed a wide range of issues concerning bilateral relations. Special attention was paid to the development of relations in the spheres of energy and transport, as well as in the trade-economic sphere. Mammadyarov also handed the Turkmen leader a message from Azerbaijani President Ilham Aliyev. The Azerbaijani minister made a number of proposals to expand bilateral relations and suggested setting up a joint intergovernmental commission to expand cooperation. 

Berdymuhammedov supported the idea of setting up the commission and said that this will serve to expand cooperation in all spheres. Mammadyarov also held negotiations with Turkmen Foreign Minister Rashid Meredov. 

Thus, in this situation, Baku and Western circles need to be more active on the other side of the Caspian Sea. In that case, positive results will not keep us waiting…