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Turkmenistan in fix as Russia ends purchases.

The headache of planning Turkmenistan's next moves will rest partly with a newly structured Turkmen national oil and gas company set up under the overall leadership of veteran energy supremo Yashgeldy Kakayev

Despite holding the world's fourth-largest natural gas reserves, Turkmenistan's vulnerability as a land-locked state with dwindling export options has been exposed by Russia's New Year decision to end its purchases of Turkmen gas. The move leaves Turkmenistan with just two customers -- China and Iran -- and places greater emphasis on its efforts to push forward two key pipeline projects -- the Turkmenistan-Afghanistan-Pakistan-India (Tapi) pipeline and the trans-Caspian pipeline to supply Europe -- both of which have limited chances of success.

The headache of planning Turkmenistan's next moves will rest partly with a newly structured Turkmen national oil and gas company set up under the overall leadership of veteran energy supremo Yashgeldy Kakayev, according to an order signed by President Gurbanguly Berdimuhammedov.

State-owned Turkmengas was reported in the official Turkmen media as saying that Russia's Gazprom Export had informed it about the "suspension" of gas purchases from Turkmenistan. In a surprisingly conciliatory statement, Turkmengas noted the "decision is guided by the changing international gas market conditions, as well as certain economic and financial problems facing Gazprom Export."

Turkmen industry sources say the move was not wholly unexpected, as Gazprom purchases have dropped steadily from 45 billion cubic meters per year in 2008. "It was worst last year when they promised to keep it at the same level of 10 bcm but then cut it to 4 bcm. To go from 4 bcm to nothing is not so bad," one source said, adding that the Russian side had also withheld full payment on the grounds that it would pay the European price minus the cost of transporting it to the European market -- a move that reportedly prompted each side to consider legal action against the other. Analysts commented that it ironically appeared to be the reverse of Moscow's situation in Ukraine, where Kiev has halted imports of Russian gas, and both sides are locked in arbitration (related).

Potentially rubbing salt into the Turkmen wound, Gazprom said it would continue to purchase Uzbek gas, although analysts pointed out that Russian producer Lukoil, as well as Gazprom, have upstream interests in Uzbekistan, whereas the Russian presence in Turkmenistan is negligible -- if not downright unwelcome. "Uzbekistan is our reliable gas partner, and we will continue to develop the mutually beneficial cooperation," Gazprom boss Alexei Miller said.

With Gazprom having spoiled Russia's relations with Ashkhabad, Igor Sechin, president of Russia's state-controlled oil giant Rosneft, was drafted in to represent Moscow on a purely political level at the recent launch of Turkmenistan's East-West gas pipeline, even though the company concedes it has no interests in the Turkmen industry.

The ending of the Russian gas purchases from Turkmenistan essentially removes one of the key commercial arguments against a trans-Caspian pipeline, as Ashkhabad had long feared that Moscow could pull the plug on imports if it pressed ahead with the project. But Moscow remains strongly opposed to a trans-Caspian pipeline, and Turkmenistan will be mindful of Russia's political and military might in the region.

Turkmenistan's efforts to monetize its vast stranded gas reserves will turn towards converting its gas into liquid products like synthetic crude oil and gasoline and petrochemicals. "This will be the main focus for the next year or two," one Turkmen industry source tells Nefte Compass. Japanese companies will be key to this programme as they bring attractive financing packages, although the Turkmen side is said to have complained that they then jack up the costs of the projects. Any delays in moving ahead with proposals will probably be felt most keenly by the Japanese companies' Turkish partners, which need to boost their order books after Russia placed sanctions on Turkish businesses (NC Dec.31'15).

Going forward, the country's upstream and downstream objectives will be guided by the new Turkmen National Oil and Gas Co., a joint stock company reportedly named locally as Turkmen Milli Nebitgaz Kompaniyasy.

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Publication:Oil & Gas News
Geographic Code:4EXRU
Date:May 30, 2016
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