Friday, 14 March 2008

Kazakhstan, along with its Central Asian neighbors Turkmenistan and Uzbekistan, will receive a huge increase in energy-related revenue following a flurry of regional diplomatic activity. Ukraine, meanwhile, stands to lose the most under the new pricing framework for Central Asian natural gas.
The most important development over the past week or so was a March 11 announcement by the Russian state-controlled conglomerate Gazprom that, starting in 2009, it would pay European market prices for Central Asian natural gas. Gazprom did not specify a price, but given the current market conditions, Kazakhstan, Turkmenistan and Uzbekistan can expect to receive somewhere in the range of $200-$300 per 1,000 cubic meters (tcm) of gas next year. At present, Gazprom is paying up to 180/tcm for Central Asian gas. A statement issued by Gazprom said the deal was is "based upon the interests of the national economies and considering the international commitments with regard to the energy supply reliability and continuity."
The deal is certain to hit Gazprom’s bottom line. It could also potentially cause supply disruptions down the road by sparking pricing disputes, likely involving Ukraine, which is the key transit nation for European energy exports. But the Russian conglomerate’s action helps solidify Moscow’s position as the gatekeeper for Central Asian energy exports to Western European markets. Over the past year, the competition over Caspian Basin energy has intensified, with the United States, European Union and China all seeking to break Russia’s current stranglehold over regional export routes.
Gazprom officials have indicated they do not intend to absorb all of the shock of the higher costs, but will pass along some of the added expense to its own consumers. On March 14, Gazprom CEO Alexei Miller announced that the gas price for European customers could reach $400/tcm by the end of 2008. Earlier estimates for late 2008 had pegged the price at $310/tcm.



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