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Central Asia news

No more cheap Central Asian gas for Gazprom

12.03.2008 11:06 msk

Vedomosti (Moscow)

Business Russia

Turkmenistan, Kazakhstan, and Uzbekistan will start selling gas to Gazprom at European tariffs as of 2009 in accordance with the decision made at the meeting of senior executives of Gazprom, Kazmunaigaz, Uzbekneftegaz, and Turkmengaz yesterday. Gazprom Press Service reports that these countries intend to apply to Gazprom the price-formation formula Gazprom itself uses dealing with long-term customers in Europe.

Oil prices soared in late 2007, and Gazprom may up the price for Europe now and set it above $400 for the first time in history (European customers were paying Gazprom $258 in early October last year, the 30% duty already subtracted).

Gazprom buys 55-60 billion cubic meters of gas from Central Asian countries mostly at the prices already set. Nearly 40 billion cubic meters are imported from Turkmenistan and 8 billion cubic meters from Uzbekistan (this latter will cost Gazprom $130 for 1,000 cubic meters during the first six months of 2008). Kazakhstan alone applies the formula that takes into account gas prices over the period of preceding 3-6 months, which means that Gazprom is paying it $180 at this point. East European Gas Analysis Director Mikhail Korchemkin claims that Central Asian gas will cost Gazprom about $8 billion this year.

Specialists say that the new prices should include Gazprom's transportation expenses, premium (because all of the Central Asian gas goes to Ukraine), and the fact that payment for the whole lot is made in advance. According to Korchemkin, Gazprom's expenses might increase by at least $3.5 billion if and when Central Asian providers up the price to $210. As long as they bear in mind that Gazprom is paying an export duty (30% of the European price), that is. They may up the price for Gazprom to $270-300 on the border otherwise, and it will mean an increase of annual expenses from $8 billion to $16 billion.

This burden may be placed on the shoulders of Gazprom itself or Ukraine as the end user of the Central Asian gas. This country is buying Central Asian gas at $179.5 nowadays. Gazprom will face a dilemma. It may up the price for Ukraine or it may shoulder part of the expenses. Ukrainian Naphtha and Gas (one of the buyers) declines comment at this point. "We'll set the 2009 price at the talks," Valentin Zemlyansky of Ukrainian Naphtha and Gas said.

The European Union and United States have pestered Central Asia to up gas price for Gazprom, claiming that it has long-term contracts for practically all gas exported by Turkmenistan, Kazakhstan, and Uzbekistan, but no alternative gas pipelines to Europe. The way Brussels and Washington see it, Gazprom bends gas producers to its will. Gas producers in the meantime struggle for a higher price and contemplate alternative gas pipelines bypassing Russia - Trans-Caspian (Turkmenistan to Turkey across the Caspian Sea) and Nabucco (Caspian Sea to Europe).

Specialists say that the new procurement price will be discussed within the framework of negotiations over development of the Central Asia - Center gas pipelines.

Difference

Gazprom expects the price in European contracts to average $350 by the middle of the year. $179.5 is what Ukraine is paying on the border for the Central Asian gas.

Vedomosti, No 44, March 12, 2008. © Translated by Ferghana.Ru