Russia, Turkmenistan set to resume gas trade in 2019

17 October 2018, Week 41, Issue 1003

Russia is ready to resume imports of gas from Turkmenistan in 2019 after a three-year hiatus. The move would provide a lifeline to the Turkmen economy, which has stagnated under the pressure of low energy prices.

Russia is ready to resume imports of gas from Turkmenistan in 2019 after a three-year hiatus. The move would provide a lifeline to the Turkmen economy, which has stagnated under the pressure of low energy prices.

During a visit to the Turkmen capital of Ashgabat last week, Gazprom’s CEO Alexei Miller said he expected the company to resume purchases from Turkmenistan starting on January 1. Miller explained that the matter had been discussed with Turkmen officials, although supply volumes and other details are yet to be worked out.

Turkmenistan’s state news agency TDH – which serves as the government’s de-facto mouthpiece – confirmed that the sides had held talks on “resuming Turkmen gas supplies from January 1, 2019.”

“Substantive negotiations on this topic are under way between Gazprom and the Turkmen partners and concrete agreements will be reached in the nearest future,” the agency said.

Russia was once the biggest buyer of Turkmen gas, with shipments peaking at 40 bcm per year in 2008. Gazprom sold most of this gas on to its customers in Europe, netting a handsome profit. However, it began scaling back purchases in 2009, amid sluggish gas demand in Europe and increased production in Siberia.

Gazprom halted shipments altogether in January 2016, citing a dispute over pricing. The decision compounded the impact of low oil and gas prices on Turkmenistan, which relies on gas sales for around 70% of its export revenues and the bulk of its hard currency.

Turkmenistan also stopped selling gas to Iran in early 2017, because of a row over debts. The loss of these two markets caused Turkmen gas production to tumble from a peak of 72.8 bcm in 2015 to 66.9 bcm in 2016 and only 62 bcm in 2017.

Turkmenistan’s only major remaining customer is China, which took 33.58 bcm of its gas last year. A large share of revenues from these sales is thought to be used to pay off debts related to previous Chinese upstream and midstream investments in Turkmenistan. Beijing is reluctant to expand purchases, instead opting to buy more gas from Kazakhstan in order to diversify its import mix.

Recent signals that Moscow is willing to resume trade follow a meeting in Sochi in mid-August between Russian President Vladimir Putin and his Turkmen counterpart Gurbanguly Berdymukhammedov. Ahead of the meeting, the Kremlin said the talks were expected to touch upon the “entire range bilateral relations,” including a “possible energy dialogue.”

Moscow’s decision to resume gas trade with Ashgabat follows several years of record Russian gas sales to Europe. Gazprom may be looking to supplement its own production with Turkmen gas to meet growing demand on the continent. Ashgabat is growing increasingly desperate to find new ways of monetising its gas. As such, it may well agree to a comparatively low price for sales to Russia.

Reports in the independent media in recent years suggest Turkmenistan’s economy is in dire shape. There have been shortages of basic goods, cases of workers going months without pay and even mass layoffs. Russia could be renewing gas imports as a means of propping up the Turkmen economy and avoiding regional instability. It may also want to counter growing Chinese political influence in the country.

Furthermore, Moscow could be trying to dissuade Ashgabat from pursuing plans to build a trans-Caspian pipeline to send gas to Europe, Russia’s core market. In return for buying gas, Russia may also expecting access to onshore oil and gas fields in Turkmenistan.

Joseph Murphy

Edited by

Joseph Murphy

Editor

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