Ukraine continues to probe Turkmenistan for possible gas deal

Dubina and Taruta meeting with Turkmenistan's President - From turkmenistan.gov.tm Yesterday Naftogaz-head Oleg Dubina and his colleague from the Industrial Union of Donbass visited Turkmenistan to discuss joint Ukraine-Turkmen projects with Turkmen President Kurbanguly Berdymukhamedov. As I wrote about before, Naftogaz is continuing to look into the possibility of entering into direct agreements with Central Asian gas producers rather than through a Gazprom-involved intermediary. Despite this goal, work is continuing on nailing down a new supply deal with Gazprom, as Naftogaz submitted a re-worked plan for approval from the Russian side. This draft is expected to be rejected by Gazprom, however, due to significant disagreements over some of the terms (more on this later).

The Turkmenistan trip was headlined by renewed commitments from IUD head Sergei Taruta to invest nearly $300 million in a combined rail/car bridge and an engineering/communications tunnel near Ashgabat. Notably absent from the description of the meeting, however, are any comments from Dubina or talk of energy-sphere cooperation. The IUD (with which Dubina has connections) has been successful in the past in brokering construction and barter deals with Uzbekistan in return for gas supplies, and Ukraine may now be working at strengthening the economic connections between the two countries in an effort to lobby for direct gas sales.

Itera-head Igor Makarov meets with Turkmenistan's President - From turkmenistan.gov.tmWorth noting–and not mentioned in the articles I read about the event–is that the head of the natural gas firm Itera, Igor Makarov, also met with Berdymukhamedov on the same day. I already wrote about the plane trip Dubina, Taruta and Makarov shared–this coordinated visit to Turkmenistan may very well have been one of the results of their conversations aboard the private jet. Makarov mentioned constructing a new 5-star hotel, investing in a chemical plant and, almost as an afterthought, “the possibility of the company’s [Itera’s] involvement in developing the rich oil and gas deposits in the Caspian Sea shelf.”

Naftogaz faces difficulties in gaining a beachhead in Turkmen gas purchases as a contract with Gazprom essentially ties up all of Turkmenistan’s gas exports for the foreseeable future. Besides that, a recently-announced deal between Turkmenistan and China further calls into doubt the availability of any excess Turkmen gas and potentially raises the price Ukraine would have to offer in order to secure them.

The deal has China buying 10 billion cubic meters (bcm) at $195 per thousand cubic meters (mcm) beginning in the 3rd quarter of 2009, before climbing to 30 bcm annually following the completion of a new pipeline that was undertaken by the Chinese last year. Analysts predict the Chinese deal will raise the price Ukraine must pay for Turkmen gas to between $220-260 per mcm for either next year or 2010, well above the average cost of $140 per mcm being charged this year. When adding transportation costs of at least $30 per mcm, this brings the new price close to that being offered by Gazprom for strictly Russian supplies ($320 per mcm).

Cooperating with Itera on new Caspian gas developments could be a way for Ukraine to lessen its dependence on Russian involvement in the gas supply scheme. However, Naftogaz presumably lacks the financial resources for any large-scale investment at this time. (There are projects in Ukraine itself–most notably, on the Black Sea shelf–that could benefit from significant investment but are currently lacking.) It would be quite interesting to know what Dubina actually discussed with Berdymukhamedov…

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