TURKMENISTAN - Export To Europe.

Because of falling demand for gas in Ukraine, however, NU wants to export to Europe any Turkmen gas which it cannot use and is being stored in an underground facility. NU is in talks with Gazprom on this as, under a June 2000 agreement, it is not allowed to export gas without the consent of the Russian giant.

The 2000 agreement was signed after Gazprom accused Ukraine of illegally re-exporting Russian gas moving through its territory on route to Europe. (See survey of Russia in the current volume's Nos. 7-11).

The Russian Market: Gazprom needs to import large volumes of gas from Turkmenistan. From Gazprom's standpoint, it is cheaper to import Central Asian gas into Russia than develop some of its huge fields in very remote Arctic areas that have no infrastructure.

Under a 25-year agreement signed in April 2003, Gazprom will buy 2 TCM of Turkmen gas until 2018. In 2004, the first year of delivery, it is purchasing 5 BCM. The volume will rise to 6 BCM in 2005 and to 10 BCM in 2006. It is to increase to 60-70 BCM in 2007. It should average between 70-80 BCM/year from 2009 to 2018.

However, Gazprom and Turkmenistan have only been able to agree on the price for deliveries in 2004-06, which is $44/000 CM. For deliveries from 2007, the price is to be tied to the international value of fuel oil, under a formula yet to be negotiated.

For more than two years, Gazprom's CEO Alexei Miller had been unsuccessfully trying to win a long-term gas supply agreement with Turkmenistan bypassing Itera. The main problem for debt-ridden Gazprom was the low price that it offered to Ashgabat.

Gazprom was in 2002 said to have offered to pay between $32-$33/000 CM on the Turkmen-Uzbek border. President Niyazov was insisting on $45/000 CM and a formula whereby the price was to be reviewed annually.

The then Turkmen oil, gas and natural resources minister, Kurbannazar Nazarov, said it cost between $37-38 to produce and deliver 1,000 CM of gas to the border. This was because Turkmenistan had invested around $1 bn to upgrade its gas transportation system, Nazarov said. Moreover, he added, Russia sold its gas on European markets a three times thas price (see background in Vol. 59, No. 17).

The 25-year contract is part of "An agreement on Strategic Co-operation in Energy", which had been negotiated between Russia and Turkmenistan for more than three years.

Among other things, this provides for Gazprom assistance in re-construction and modernisation of old gas pipelines and building of new ones, joint exploration in Turkmenistan's sector of the Caspian Sea, and raising the capacity of the Central Asia-Centre pipeline to 70 BCM/year.

Exports To Iran: Inaugurated on Dec. 29, 1997 by President Niyazov and visit-ing Iranian President Khatami, the 200-km gas pipeline from Turkmenistan's west coast to northern Iran is to deliver at least 7 BCM in 2004, with Tehran having requested 8 BCM for this year. The pipeline's capacity has reached 13 BCM/year.

Actual Turkmen supplies in recent years fell short of the targets, causing blackouts in northern Iran during winter. Ashgabat occasionally receives Iranian crude oil in return for the gas supplied through the pipeline. But there are problems with this system as the two sides have disagreed on the price of gas and Turkmen payments for Ashgabat's share of the pipeline cost.

The pipeline, which cost about $190m, feeds the 1,760 MW power station at Neka, a port town on Iran's Caspian coast, and supplies industries in nearby areas. Because of unusually cold weather, in the winter months demand for gas in northern Iran rises by 35-50%.

About 80% financed and built by Iran, the pipeline begins from south-west Turkmenistan's giant Korpedzhe gas field. The line ends at Iran's north-eastern town of Kurt-Kui, after passing to the Neka power station. The partially developed Korpedzhe has sufficient reserves of gas to double the pipeline's capacity and supply northern Iran for many years.

Under a long-term contract signed in 1996 by TurkmenGaz and NIOC's gas unit NIGC, supplies to the Iranian side are to rise to 8 BCM/y as from 2006. It was agreed that by then Korpedzhe would have been developed on a large scale. In 1998, Turkmenistan supplied northern Iran with 1.8 BCM. This was decreased to less than 2 BCM in 1999, compared to a 4 BCM target, and rose to 4 BCM in 2000. In 2001 supplies reached about 4.6 BCM. They rose to 6 BCM in 2002 and 6.5 BCM in 2003.

In March 2000, the two countries started negotiating a bigger deal for annual sales of 13 BCM/year, but the talks soon were suspended. At the time, Ashgabat's oil and gas ministry said it was considering construction of a 60-km pipeline from Seraghs, a town in eastern Turkmenistan across the border, to northern Iran in order to increase gas exports to 30 BCM/year, with most of the gas to be supplied by pipeline to Pakistan and India (see below). Total of France has expressed an interest in conducting a feasibility study for the project.