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Ukraine: Kyiv Re-Exports Turkmen Natural Gas To Europe

  • Michael Lelyveld

Ukraine has been reselling gas from Turkmenistan in Europe and plans to continue the practice with exports to Great Britain this year. The move suggests that more Central Asian resources could reach Western markets, although Russia is still expected to dominate the trade.

Boston, 21 February 2003 (RFE/RL) -- Rising amounts of gas from Turkmenistan are reaching European markets for the first time in years as Ukraine resells supplies it cannot use.

In Ashgabat this week, Yuriy Boyko, head of the Ukrainian petroleum company Naftohaz Ukrayiny, said the firm sold 6 billion cubic meters of Turkmen gas to European countries in 2002. Boyko said the re-exports went to Romania, Germany, and Poland, ITAR-TASS reported. More sales are planned to Great Britain this year "at a large amount," he said.

Although the volumes are still modest by European standards, they accounted for one-seventh of Turkmenistan's gas exports of 41 billion cubic meters last year. For the Central Asian nation, with its large but landlocked reserves, the sales also represent the first return to the European market since the early 1990s, when Russia blocked access to former Soviet pipelines and claimed the business for itself.

The prospect of selling Turkmen gas to Great Britain is remarkable, given the distance of more than 4,000 kilometers to the market. But the evolution of the new trade may be all the more notable because Turkmenistan seems to have little or no role in how it came about.

After complaining repeatedly in the 1990s about the Russian cutoff, Turkmenistan has now become a gas source for European countries, virtually without the effort of marketing or arranging tariffs and transit deals.

The arrangement may actually be preferable for European importers, because Turkmenistan's autocratic President Saparmurat Niyazov has been famously difficult to negotiate with. Russia has been trying to settle a long-term price deal on supplies with him for nearly three years.

But Ukraine has had more success after having been thrown together with Turkmenistan in a match first engineered by Russia. In order to reduce Ukraine's dependence on Russian gas supplies, Moscow channeled Kyiv's demand toward Ashgabat as an alternate source several years ago.

The strategy helped to keep Turkmen gas out of the profitable European markets that Russia reserved for itself. At the same time, Russia's gas monopoly Gazprom hoped it would curb Ukraine's habit of diverting Russian gas from transit lines on its way to Europe and running up huge unpaid debts. In 2001, Turkmenistan signed an agreement to supply Ukraine with 250 billion cubic meters of gas through 2006.

Despite periodic frictions over nonpayment, the Turkmen-Ukraine link has endured. Niyazov has been forgiving about two tiers of Ukrainian gas debts from 1993 and 1999, running into the hundreds of millions of dollars. He has also allowed Ukraine to pay for half its current gas deliveries in goods and services, reducing its costs from the quoted rate of $44 per thousand cubic meters.

Over time, Russia has also eased its conflict with Ukraine over the transit lines to Europe. Plans for an international consortium to manage the lines have tried to finesse the issue of whether Russia will eventually gain control. Ukraine's diversions have stopped.

But Boyko's statement about Turkmen gas sales in Europe may be a measure of how much has actually changed. Three years ago, Moscow exploded with anger when it discovered that Ukrainian traders were selling gas in the European spot market while the country was still diverting Russia's gas from the transit lines. The practice undercut Gazprom sales because Ukraine was selling at a lower price.

After the blowup, an agreement strictly limited the amount of gas that Ukraine could resell. But this week, Boyko spoke openly about the Turkmen re-exports, which seem to be far above the agreed limits.

One reason for the reduced tension is that Ukraine's gas consumption has been falling for the past two years following payment reforms first instituted by former Deputy Prime Minister Yuliya Tymoshenko, now a leader of the opposition to President Leonid Kuchma. While Ukraine's economy has recorded strong growth, its gas consumption dropped 4 percent in 2001 and another 2 percent last year.

The reductions have left Ukraine with a surplus, while contracted imports continue from Turkmenistan along with gas collected from Russia as a transit fee, in addition to purchased imports. Boyko argued that the resale of Turkmen gas in Europe is helping it pay for its purchases. Although Boyko did not quote figures, European gas prices are about twice as much as Ukraine's costs.

So far, no one has complained about the profitable practice, although Russia is still likely to dominate the region's European gas trade. Turkmen gas can only reach Ukraine through Russia, allowing Moscow to stop it whenever it wants. Gazprom has also formed a joint venture with Kazakhstan to export its gas to Europe and has been negotiating with countries, including Great Britain, Interfax reported in December.

The developments suggest that there may be better prospects for Central Asian gas exports to Europe over the long term.

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