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Russia: Moscow Seeks Support For Central Asian Gas Exports Control

Russia is seeking support for a natural gas alliance with Central Asian nations. The new strategy follows forecasts of rising gas output from the isolated region and a search for alternate pipeline routes.

Boston, 24 January 2002 (RFE/RL) -- Russian President Vladimir Putin's new plan for an alliance of gas producers may face a dim future in Central Asia if it turns out to be another tool for Russian control.

Putin made the proposal for a "Eurasian alliance of gas producers" on 21 January during Turkmenistan President Saparmurat Niyazov's visit to Moscow.

Speaking on Russian television, Putin said the alliance "would make it possible to a substantial extent to exercise effective control over the volumes and directions of Central Asian gas exports, and would ensure the creation of a unified balance between the production and consumption of natural gas, and also its export through a unified export channel." The remarks were transcribed by the BBC.

No immediate reaction from Niyazov was reported, beyond his willingness to examine the idea. Putin's plan is for an association to include Turkmenistan, Uzbekistan, Kazakhstan, and Russia. All four countries are on the route of the Central Asia-Center pipeline network that carries the region's exported gas.

Despite the Soviet breakup, the bundle of four pipelines operates much as it did over a decade ago. Russia's Gazprom controls access to the network, largely because all westward exports run through Russia. The control that Moscow has lost since independence is over gas production in Central Asia and over the resources themselves.

Putin's comments suggest that all CIS countries would be better off if a single authority could match supply with demand. Total control would make it easier to manage production, exports, and prices.

Russia pushed the idea of an "energy balance" in its two years of negotiations with Ukraine over gas supplies, debt, and transit to Europe. Although a settlement was reached on debt restructuring, it is unclear that any balance was achieved.

But Russia's effort now seems to be aimed at influencing the production of gas in Central Asia at a time when it is poised for significant growth. If past experience with groupings like the Eurasian Economic Community can serve as a guide, Russia expects to dominate the decision-making if a gas alliance is formed.

Russia now manages Central Asia's gas trade on a year-to-year basis through a combination of negotiations and strong-arm tactics. The process primarily affects Turkmenistan, which is the only major gas exporter in the group.

Although Uzbekistan is a bigger producer, the country uses most of its gas domestically, exporting small amounts to isolated areas of neighboring states.

Kazakhstan, which is primarily an oil producer, generated only 8.4 billion cubic meters of gas in 2001. Uzbekistan produced 57.4 billion, while Turkmenistan reported output of 51.3 billion cubic meters. The three together accounted for less than one-fourth of the 511 billion cubic meters produced by Gazprom.

But Russia is concerned about competition at a time when Gazprom's output has been declining. Russia's big supply commitments to Europe have added pressure for a new strategy to control the gas from Central Asia before the countries can develop alternate routes.

Russia's past strategies have had limited success with Turkmenistan. In 1994, Moscow began steering Turkmen gas to Georgia and Ukraine rather than letting it compete in Europe with Russian gas supplies. A feud over the destination led to a complete shutdown of Turkmen exports in 1997. But Ukraine has since become Turkmenistan's biggest customer for gas.

The link is far from ideal for the Turkmen economy, since Ukraine pays for only half the gas in cash. Russia is believed to be profiting by taking a huge portion of the gas as a transit fee, in addition to the modest amount of Turkmen gas that it buys.

But dealing with Niyazov has been difficult. His insistence on higher prices has stalled a series of larger deals. Putin's bid to buy up to 50 billion cubic meters a year from Turkmenistan failed during his visit to Ashgabat in May 2000 after Niyazov sought higher tariffs. The same sticking point reportedly delayed a smaller long-term accord during Niyazov's visit to Moscow this week.

Frustration has also marked Niyazov's negotiations for other pipelines. A trans-Caspian pipeline project fell apart following a feud with Azerbaijan. Civil war in Afghanistan halted plans for another Turkmen outlet. It is still unclear whether peace will restart them again.

But Kazakhstan's growth as a gas producer could change the picture for Russia's network. Officials predict that Kazakhstan's output will rise fourfold by 2005. The new volume is likely to strain the capacity of the old Soviet pipeline system. Niyazov estimates that the network, which could once carry 100 billion cubic meters, can now handle only 70 billion. Some analysts put the capacity at just 55 billion annually.

Rebuilding the pipelines could restore the capacity, but it will not help Russia solve the problem of how to manage the competition from Central Asian gas. Restricting it may only force the countries to find more competitive routes.

Putin's plan for an alliance could appeal to all the countries involved, but first they must be convinced that they will not be under the biggest ally's control.