GAZPROM AS A TRANSNATIONAL CORPORATION AND CENTRAL ASIA Part Two
Abstract
Russia is also actively cooperating in the oil and gas industry with Kyrgyzstan. This cooperation is mainly expressed in an agreement between the Kyrgyzstan government and the Russian company Gazprom on the exploration and development of gas fields over a span of 25 years.
At the beginning of 2004, Uzbekistan insisted on entering a new gas contract with Kyrgyzstan, but its conditions were tougher and less advantageous for the latter. The price of gas remained the same—42 dollars per 1,000 cubic meters, but in so doing Uzbekistan insisted on it being paid in full in hard currency, and not 50% in currency and 50% in goods as before. Taking into account its large foreign debt and state budget deficit, this contract was extremely disadvantageous for Kyrgyzstan.
Since there was no other alternative Kyrgyzstan was forced to agree to essentially any conditions Uzbekistan put forward. This situation prompted the Kyrgyz leadership to look for alternative sources of gas supplies. For example, in May 2003, an Agreement on Cooperation in the Gas Sphere between Gazprom and the Kyrgyz Government for twenty-five years was signed. Gas is delivered via the existing major gas pipelines. Apparently, Gazprom is planning to deliver some of the gas it purchases in Uzbekistan and Turkmenistan to Kyrgyzstan.
According to the same agreement, Gazprom will participate in reconstructing and building major gas pipelines, compressor stations, and other infrastructure facilities in Kyrgyzstan’s gas complex.
hat is more, the agreement presupposes joint operation of the existing gas pipelines with the prospect of transiting gas through Kyrgyzstan to other countries. Gazprom is planning to invest in geological exploration in the republic.
In Kyrgyzstan, Gazprom plans to participate in privatizing this republic’s gas-distributing networks (they are currently controlled by the state Kyrgyzgaz company). In so doing, some of the shares might be transferred to Russia for settling Bishkek’s foreign debt. What is more, Kyrgyzstan, which is currently supplied with Uzbek gas, is hoping to import gas from other countries as well, relying on Gazprom’s help. It should be added that the Russian gas concern is currently engaged in exploring gas fields in Kyrgyzstan itself.
It is known that Gazprom and the PRC have been working on the possibility of delivering Russian gas to China for several years now. One of the issues being discussed at the talks is the export route Russian gas should take. One alternative is for it to pass through Kyrgyzstan.
Gazprom’s debut as a gas supplier to Kyrgyzstan helped Uzbekistan and Kyrgyzstan to bring their positions at the talks on delimitation of the state border between the two republics into greater balance with each other. What is more, Uzbekistan’s position has become more vulnerable. Signing of the agreement between Gazprom and Kyrgyzstan led in the short term to Tashkent losing a lever of pressure on Bishkek with respect to settling territorial disputes. What is more, if Gazprom delivers gas to Kyrgyzstan, Uzbekistan might face water supply problems.1
There are several reasons why it is more advantageous for Uzbekistan to sell gas previously meant for Kyrgyzstan to Gazprom: Gazprom is a much more reliable partner than Kyrgyzstan, since it al-ways pays for the deliveries of Uzbek gas on time and in full; and the price at which Gazprom buys Uzbek gas is the same as the price Uzbekistan sells it to Kyrgyzstan. Uzbekistan’s cooperation with Gazprom is much more important for the republic, since the volume of Uzbek gas deliveries to Kyrgyzstan is insignificant—0.6 bcm annually.
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However, Uzbekistan in no way reacted to the agreement signed between Gazprom and Kyrgyzstan. Taking into account the fact that just six months earlier, in December 2003, an agreement was signed between the Uzbekneftegaz Pet-rochemical Company and OAO Gazprom on long-term purchases of gas in Uzbekistan for 2003-2012, joint implementa-tion of projects in gas production (development of the Shakhpakhty field), and reconstruction and development of the re-public’s gas transport system, it can be presumed that the conditions of the agreement signed with Kyrgyzstan were agreed upon in advance with the Uzbek leadership.
See: D. Faizullaev, “Turkmenistan: strategiia i taktika osvoeniia gazovykh resursov,” Azia i Afrika, No. 1, 2005,pp. 21-25.
See: Ph. Andrews-Speed, Xuanli Liao, R. Dannreuther, “The Strategic Implications of China’s Energy Needs,”Adeplhi Paper 34, Oxford University Press, Oxford, New York, 2002, 115 pp.
See: B.D. Cole, Oil for the Lamps of China—Beijing’s 21st-Century Search for Energy, NDU, Washington, D.C.,2003.
See: D. Faizullaev, “Rossiisko-kitaiskoe sotrudnichestvo v gazovoi otrasli,” Azia i Afrika, No. 5, 2006, pp. 14-19.
At present, the EU is importing 40% of the gas it consumes, whereby more than 25% of all the gas it imports is of Russian (to be more precise, pseudo-Russian by means of re-exporting Central Asian gas) origin. It is forecast that in the next few years, the demand for gas in the region will grow, in particular due to thermal power stations transferring to this type of energy. An increase in demand under conditions of a reduction in its own production due to the exhaustion of proven reserves of gas will lead to Europe’s dependence on gas imports significantly rising. The forecasted increase in demand in Western Europe until 2025 amounts to an average of 2.4% a year, and by 2025 demand could reach 730 bcm compared with 420 bcm in 2001. The share of import in so doing will increase from 40% to 70%. In this way, objective conditions are being created for reinforcing Gazprom’s presence on the European market. For the future, the volume of Russian gas sales under current long-term agreements is determined at 2,0 tcm, which is approximately 7% of the company’s proven reserves.
azprom’s annual minimum contract delivery volumes to Europe (without extending the current contracts) will reach 146 bcm by 2008, and the maximum volumes could amount to 178 bcm.
See: I. Tomberg, “Proekt Severo-Evropeiskogo gazoprovoda v geopoliticheskom kontekste,” Mezhdunarodnaia zhizn, No. 1-2, 2006, pp. 216-224.
Approximately 81% of Gazprom’s proven reserves are in seven gigantic fields: Urengoi, Yamburg, Zapoliarny,Astrakhan, Kharasavei, Bovanenkovskiy, and Stockman. The latter three have still not been developed, the Urengoi has been developed by 60%, and the Astrakhan has limitations for environmental reasons (the local plant cannot cope with the sul-fur discharge from the gas). Independent analysts confirm the presence of a systemic problem in the monopoly due to sig-nificant exhaustion of the existing reserves. It is forecast that the ratio of production and export growth could create cer-tain difficulties for Gazprom as early as 2006-2007, since there are no serious prerequisites for a significant increase in the rates of its own production.
In 2005, Gazprom purchased around 19 bcm of gas in Turkmenistan, Uzbekistan, and Kazakhstan. In 2006,purchases were planned for 25.8 bcm. Gazprom plans to purchase 9 bcm of gas in Uzbekistan in 2006 at 60 dollars per 1,000 cubic meters and a stipulated transit price through Uzbekistan of 1.1 dollars per 1,000 cubic meters 100 km. There are plans in the future to increase the import of gas from Uzbekistan to 17-18 bcm a year by means of developing three gas fields in Uzbekistan—Urga, Kuanysh, and the group of Akchalak fields. The total volume of the company’s invest-ments in Uzbekistan is expected to be around 1.5 billion dollars. Beginning in 2007, Gazprom will purchase all the gas intended for export from Turkmenistan. The conditions of a long-term agreement envisage purchasing 60-70 bcm in 2007-2008 and 70-80 bcm in 2009-2010. But Turkmenistan’s constant statements on raising prices and the five-year agreement signed with Uzbekistan make it understood that export from Turkmenistan in the next five years will remain at the previous level of up to 36 bcm.
In October 2005, AO Tbilgazi was declared bankrupt by the city court. The enterprise is subsidized by the Tbilisi Mayor’s Office, which owns 96% of the AO’s shares. AO Tbilgazi’s debts for natural gas consumed in past years amounts to approximately $5 million to Gazprom alone. Its directors say the reason for Tbilgazi’s arduous financial situation is the enormous (up to 60-70%) losses of blue fuel in the gas networks, as well as the low collection of subscriber payments due to the mass falsifications of gas meter indications. Local experts add the company’s bad management and internal corrup-tion to these reasons.
In 2005, gas went to the population of Tbilisi for 0.265 lari ($1 = 1.79 lari) per cm. OAO Gazprom signed a con-tract to deliver 920 cm of gas to AO Tbilgazi in 2006 at $110 per 1,000 cm. According to experts’ estimates, the new price will reach 0.30-0.35 lari per cm for the capital’s consumers.
At present, all gas deliveries to Georgia are carried out via the Makat-Northern Caucasus gas pipeline. Gas consumption by Georgia amounts to 4.7 mcm a day in the summer and up to 7 mcm in the winter. The share of natu-ral gas in Georgia’s energy balance amounts to approximately 24%. The country’s need for gas in 2006 is estimated at 2.25 bcm.
The main consumers of Chinese oil refining and petrochemical products at present are Korea, Japan, Taiwan, the U.S., and Saudi Arabia. Russia also belongs to the top ten importers, purchasing 753,000 tons of these products in 2004.
In correspondence with Russia’s Energy Strategy until 2020, there are plans to increase oil production to 445-490 million tons in 2010 and to 450-520 million tons in 2020.
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