Gazprom pays more for gas from Turkmenistan, Kazakhstani - Uzbekistan to follow ? Putin agrees to foil US /EU plans for Trans Caspian pipeline

In 2004 , in the wake of the Andijan masacres President Putin visited Tashkent and as a result LUKoil signed a 35-year agreement for more than 200 bln cubic metres of gas which is to be extracted from three gas fields in the southern Bukhara region of Uzbekistan and one in the north of the country.

Russian First Deputy Prime Minister Sergei Ivanov , Lukoil OAO president Vagit Alekperov, was officiating last month at the launch ceremony of four gas fields by a joint venture controlled 90 pct by LUKoil and 10 pct by the Uzbek government. Ivanov said Uzbekistan should not let any countries other than Russia exploit its gas reserves.

Speaking at the inauguration of the vast Khauzak gas field, Ivanov said: 'Russian companies such as Lukoil respect the environmental criteria, unlike foreign companies operating in Russia. Why give companies from outside Russia the opportunity to make money?'

More than 200 bln cubic metres of gas is to be extracted from three gas fields in the southern Bukhara region and one in the north of the country.

This is the first production-sharing agreement in Uzbekistan, a country largely closed to foreign investors that has significant gas reserves and infrastructure dating from the Soviet era, to come on stream.

Chairman of LUKoil, Vagit Alekperov said 'For the first time, today, our company is autonomously operating a gas field, while until now Lukoil was considered an oil company.'

In total, Lukoil plans to invest about 3 bln usd in the project, which is expected to reach peak annual production of 11 bln cubic metres of gas in 2012 or 2013. To date activities aimed at drilling over 160 production wells and constructing over 1,500 km of pipelines, 40 km of railways and a gas processing plant with a capacity of over 8 bln cu m of gas per annum are to be implemented as part of Kandym -Khauzak -Shady -Kungrad project. To date over US$ 350 mln (over US$ 300 mln for Khausak gas field development) have been invested into Uzbekistan’s economy in work related to the project.

Uzbekistan, produced about 60 bln cubic metres of gas in 2006, of which 12 bln were exported.

Following an announcement that the state-controlled Gazprom would pay up to 50 percent more for natural gas imports from Turkmenistan, Kazakhstani officials announced December 5 they too intended to jack up the price of gas exports by roughly 36 percent. Russia seems ready to agree to the new Kazakhstani price of $190 per 1,000 cubic meters.

Days laterUzbekistan followed suit , with a source in the state energy company Uzbekneftegaz saying Uzbekistan also wanted to be paid more than the current $100 per 1,000 cubic meters.

"World prices are rising, the dollar is weakening. It's only logical that [Uzbek] gas prices should rise," the source said. "The question is by how much. But that is something to be discussed behind closed doors."

Moscow sees paying higher prices as part of the cost of maintaining its stranglehold over energy routes from the Caspian. Over the past year, Turkmenistan and Kazakhstan have both publicly expressed a desire to join a US-backed project known as the Trans-Caspian Pipeline project (TCP), which would allow the Central Asian states to link to Azerbaijan’s Westward-bound pipelines and, therefore, avoid Russia as an energy-export middleman (and the abilty to ibterfere with supplies to Europe) . Keeping the Central Asian leaders remain happy, and preventing them from making any firm commitment to TCP’s construction, is currently one of the Kremlin’s top foreign policy priorities.

Vagit Alekperov , head of LUKoil, paid a December 6 courtesy call to Astana to have a chat with Nazarbayev - reminding him that LUKoil has invested roughly $1.5 billion in various projects in Kazakhstan and that LUKoil would start drilling in the Tsentralnoye field in the northern Caspian as soon as this month.

To secure energy resources in the region the Russian strategy is to maintain its regional energy dominance with the Prikaspiisky Pipeline project, on which Russia, Turkmenistan and Kazakhstan reached agreement in principle last May - which has stalled currently.

Putin, along with Turkmen leader Gurbanguly Berdymukhammedov ( successor to dictator Saparmurat Niyazov) and Kazakhstani President Nursultan Nazarbayev, were expected to sign a formal agreement on the pipeline upgrade in September

The deal would expand a spur of the pipeline network linking Turkmenistan and Russia, known as Central Asia-Center. Nazarbayev is involved because the so-called Prikaspiisky spur travels across a section of Kazakhstani territory. At present the Prikaspiisky route is capable of handling a relatively small amount of natural gas, about 5 million cubic meters per day. The deal outlined by Putin envisions a large expansion of the spur’s capacity, up to an additional 20 billion cubic meters (bcm) by 2012.

The deal, when (and if) completed, would appear to lock up the bulk of Turkmenistan’s gas production for export via Russia. Under an existing agreement, Turkmenistan is due to supply Gazprom with 60 bcm of gas in 2007 and up to 70 bcm in 2008. The deal between Ashgabat and Gazprom runs through to 2028.

Since the death of Saparmurat Niyazov , the United States, European Union and Azerbaijan have lobbied his successor, Berdymukhammedov, to commit to a trans-Caspian pipeline (TCP) that would circumvent Russia. However success of the Prikaspiisky pipeline’s export projections, as well as its other commitment to Russia and China, means that there would be there would be little gas left over from Turkmenistan to make a TCP route viable or profitable.

(At the end of the 1,760-kilometer-long US funded Baku-Tbilisi-Ceyhan pipeline, pushed through by Clinton in the shadow of Turkey’s gleaming Ceyhan oil terminal, the village of Golovasi, previously revolved around fishing in the nearby Mediterranean Sea, but the arrival of the BTC pipeline effectively put an end to that. See more here With catches growing smaller, dozens of fishermen in the nearby village of Deveci Usagi have instead found jobs working for American military subcontractors in Iraq.)

The corrupt, ex soviet leaders of the CSU states play along with Putin - but cannily keep their options alive with Uncle Sam.

Watch this space.

One thing is certain - Lord King is absolutely fucking wrong, energy prices in the UK and EU are not going to go down, they are going to rise, and supplies become more difficult to contract for.... feeding inflation.

PS US Energy Information Adminstration (EIA maps of the pipelines in the region here
Central ASia briefing with manyn links to further information here