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Russia: Moscow's Alliance With Central Asian Gas Could Serve Europe

Russian Energy Minister Igor Yusufov says Russia plans to sign a gas-alliance agreement with three Central Asian nations by the end of the year. The pact could also serve the interests of Ukraine and Europe, but many hurdles need to be overcome.

Boston, 5 November 2002 (RFE/RL) -- Officials say a gas alliance of Russia and Central Asian nations could supply Europe with a new pipeline through Ukraine.

Platts Global Energy news service reports that the cooperation of Russia, Kazakhstan, Turkmenistan, and Uzbekistan comes nearly two years after President Vladimir Putin proposed the idea of a gas counterpart to the Organization of Petroleum Exporting Countries (OPEC).

Last month, Russian Energy Minister Igor Yusufov said Moscow plans to sign a gas-alliance agreement with the three Central Asian nations by the end of this year. The statement at a 23 October meeting of CIS energy ministers is the firmest indication yet that Putin's initiative will be implemented in some form.

The impact of the alliance remains open to question since it is highly unlikely to turn into the kind of powerful group that could influence the world price of gas, as OPEC does for oil. Russia already effectively controls nearly all the gas exported from Central Asia, because the former Soviet pipeline system runs through its territory.

The difference is that an alliance could aid in allocation of the region's resources, since gas from producers like Turkmenistan has been barred from reaching Europe since Soviet times. Decrepit pipelines, limited capacity, and Russia's monopoly over export outlets have made an alliance seem pointless, until now.

But Russia's gas monopoly Gazprom is rapidly running out of cheap resources on its own territory to exploit. Last week, at an industry forum in Moscow, a Gazprom official warned that the company's mainstay Siberian fields are fading fast. Even the new Zapolyarnoe field, which opened last year and reversed Gazprom's output declines, will reach peak production in 2006, said Vladimir Vovk, head of the company's offshore development.

Gazprom plans substantial investment in new Arctic fields to help fulfill Russia's plan of doubling energy exports to Europe by 2020. But in the meantime, Central Asia may represent a ready supply of fuel. If Russia cannot meet the needs for exports and its own domestic demands, it can at least hope to manage the rapidly growing gas output of countries like Kazakhstan. For the Central Asian nations, cooperation may mean a chance to gain access to the European market for the first time.

Russian companies have already formed joint ventures with all three of the Central Asian producers to develop either oil or gas. But the biggest limitation for exports is the deteriorating state of the Central Asia-Center pipeline system that carries gas to the West.

Last January, Turkmenistan President Saparmurat Niyazov estimated that the network's capacity had dropped from 100 billion cubic meters to between 70 billion and 75 billion per year. But analysts have put the real figure at 40 billion to 50 billion, which is less than Niyazov claimed that Turkmenistan would export this year.

Kazakhstan has started work on restoring the capacity. State-owned KazTransGaz spent $150 million in 2001 and plans to spend $95 million this year on modernizing the lines, Interfax reported.

But last week at a conference in Kyiv, Ukraine advanced a plan to increase the capacity further with a new pipeline. Yuriy Boyko, chairman of the state-owned petroleum company Naftohaz Ukrayiny, said the line would run along an existing route from the Kazakhstan border with Russia at Aleksandrov Gai to Novopskov in the north of Lugansk Oblast in Ukraine.

Boyko said: "With 28 billion cubic meters capacity, this gas pipeline could serve as a link in the system transporting gas from Central Asia to Europe. It could be built and operated on a multilateral basis, which would ensure independent and, therefore, secure deliveries of natural gas to Europe." The distance is some 800 kilometers. Boyko gave no estimate of the cost or sources of funding.

Ukraine's plan is to re-export Turkmen gas to Europe. But the entire alliance depends on agreements that have yet to be reached.

Although Russia announced a 15-year gas pact with Turkmenistan in September, the term does not begin until 2005, and the two countries have yet to agree on the price for the gas. Turkmenistan's existing exports to Ukraine may take up most of the pipeline capacity until then.

Last week, Gazprom and Naftohaz Ukrayiny signed incorporation papers for a consortium to manage Ukraine's pipelines following an agreement between Putin and Ukrainian President Leonid Kuchma last June. But Ukraine continues to insist that it will keep control of its transit lines to Europe, posing a sticking point for implementation of the deal.

Russia has apparently not given up on the idea of bypassing Ukraine with new pipelines if Ukraine proves uncooperative. Last week in Moscow, Gazprom chief executive Aleksei Miller met with the head of Gasunie of the Netherlands to discuss building a North European Gas Pipeline project to Europe through Finland across the Baltic Sea, RBC News said.

All the interests of Russia, Ukraine, Central Asia, and Europe could come together in a gas alliance if all of the problems are solved. But the sweeping plans are likely to be costly, and any one of the parties could slow the alliance the down.