Check to Ukraine and checkmate to Nabucco

A new deal between Gazprom and its Central Asian suppliers evokes images of a "gas-OPEC."

On February 11, Gazprom, Kazmunaigaz, Uzbekneftegaz and Turkmengaz officially declared that starting in 2009 Gazprom will pay European prices for Central Asian gas.

The price formula has not yet been found, and it is therefore too early to talk about the details of the agreement. Gazprom officials maintain that this formula will be a subject of the talks. The price is expected to be somewhere between $200 and $230 for a thousand cubic meters, depending on the location of its transfer to Gazprom. The price is based on current European prices (in Slovakia and Romania the relevant figure is about $330).

In the new-year forecasters were predicting that European consumer prices would reach $360 for a thousand cubic meters by 2009. That figure has now been drastically revised upwards, with analysts expecting prices to hit $380 in 2008, and possibly reach $400 by the end of this year. Many warn that, given the rapid growth of oil prices, the true figure may be even higher.

The statement came on the eve of yet another round of talks with Ukraine, which buys Central Asian fuel for far less than its European neighbors. Yet Ukraine presents itself as the main victim. Gazprom annually buys about 42 billion cubic meters of Turkmen gas, and another 8 billion cubic meters each from Uzbekistan and Kazakhstan. This year, their respective prices are $140, $145, and $160 per thousand cubic meters. Gazprom currently supplies the bulk of this gas to Ukraine for $179.5 - a price acceptable to Ukraine and modestly profitable for Gazprom. The recent price hike by the Central Asian producers means that Ukrainians will no longer enjoy cheap gas. Faced with such a sudden and dramatic price increase, Kiev may well seek to resolve some of its problems at Gazprom's expense.

The transit fee for Russian gas flowing across Ukraine to Europe has long been exploited by Kiev, and it will be no surprise if Yulia Tymoshenko's government raised transit costs to compensate for Central Asia's price leap. In that case, Gazprom would be compelled to pay up to $1.5 billion for the higher profits of its Central Asian partners.

Needless to say, Gazprom is doing all it can to prevent a radical revision of the transit price, all the more so since it could increase its own tariffs for the transit of Central Asian gas across Russian territory.

Russia currently charges the Central Asian republics $1.70 for the transit of a thousand cubic meters of gas over a distance of 100 km. All in all, delivery of Central Asian gas to Ukraine via Russian pipelines costs about $10 for a thousand cubic meters. Gazprom could double this figure.

The sides have not yet started specific calculations, and much will depend on the eventual agreement on the European price formula and transit tariffs. It would be safe to say, however, that new gas prices will encourage further talks on Gazprom's access to the domestic market in Ukraine, and will revive discussion of an international gas consortium.

Gazprom's decision to accept the terms of the Central Asian gas producers will finally bury the U.S. and EU-promoted trans-Caspian Nabucco project, which would have brought Turkmen gas to Europe via Azerbaijan, Turkey, and the Balkans. Central Asian partners could only be replaced with Iran, but that would not be politically correct.

The transition to European prices will consolidate the Russian and Central Asian project to build their own Caspian gas pipeline. An extension of the old Central Asia-Center gas pipeline, it will transit an additional 10 billion cubic meters of Turkmen and an equal amount of Kazakh gas, and is taken by many as a sign of enhanced cooperation between the ex-Soviet gas producers.

This change brings to mind associations with OPEC, the international oil cartel, especially in the context of media reports that the joint statement by three Central Asian gas companies, which coincided with the visit of Ukrainian monopoly Naftogaz to Moscow, was made with the full approval of the Kremlin.

Russia has long been working to form an association of former Soviet gas producers and exporters modeled on the famed oil cartel. It was clear that Gazprom could not control Central Asian gas supplies forever. Transition to the European price formula, which Moscow has carried out in respect of CIS countries, therefore elevates their understanding and cooperation to a new level. Despite the efforts of Western gas consumers, the four CIS countries appear to have adopted a common strategy in foreign markets.

Igor Tomberg, Ph.D., is a senior research fellow with the Center for Energy Studies, the Institute of World Economy and International Relations at the Russian Academy of Sciences.

© RIA Novosti