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Friday, June 23, 2006

Anybody got a giant ROLAIDS? Russia faces massive gas attack!

Russia is now facing a two-front gas attack. On the West, as Moscow News reports:

Yulia Tymoshenko, who is set to return as Ukraine’s Prime Minister, called on Thursday, June 22, for a radical review of Kiev’s current gas deal with Russia. She said that the Russian gas supplies are far too expensive and that the contract infringes on Ukraine’s national interests. “I think all issues on gas supplies to Ukraine now require further deep revision and review,” she told reporters minutes after three liberal parties overcame differences and agreed to form a coalition government. As MosNews has reported, Ukraine imports most of its gas from Russia and clashes frequently with its vast neighbor on prices. In January 2006 the two engaged in a price row which culminated in a brief cut-off of gas supplies to Europe, before Kiev accepted a nearly twofold increase in prices. Russia, which delivers up to 80 percent of its gas to Europe via pipelines across Ukraine, has suffered a blow to its reputation as a reliable supplier as a result of this argument. “Certainly, all new relations with Russia, Turkmenistan, Uzbekistan and Kazakhstan should be built on a friendly basis,” Tymoshenko said, quoted by the Reuters. But her stance on gas looks set to further strain ties with Moscow, as Russia has said it wants to increase the gas prices. Ukraine pays now $95 per 1,000 cubic meters of natural gas compared with $50 previously. Tymoshenko has repeatedly said the prices should be lower. But Russia’s gas giant Gazprom has said it wants to raise prices again later this year and plans another round of talks for July. Gazprom finds itself between the devil and the deep blue sea. On the one hand, Ukraine refuses to pay a higher price for the gas it receives and has shown that it won’t bulge at taking the Russian gas going to Europe if Russia turns off its supplies. On the other hand, Turkmenistan, which delivers the vast majority of gas that goes to Ukraine, has said this week that it wants to almost double the price of the gas it sells to Gazprom. Turkmen Foreign Ministry has already released a statement saying that if Gazprom does not agree to raising the price from $65 to $100 per 1,000 cubic meters, the Central Asian state will simply turn off the supply altogether. If Gazprom agrees to Turkmenistan’s conditions, it will have to raise prices for Ukraine, because otherwise it will be working at a loss. The situation is made more difficult because for now Gazprom has no alternative export routes to Europe. The Russian gas monopoly began construction of the North European Gas Pipeline which is set to bypass all transit countries, but it won’t be completed for another few years. For now Russia and Gazprom has to come to amends with Ukraine or risk disruptions to their European-bound deliveries. Europe gets around a quarter of its gas from Russia.

On the East, as People's Daily Online reports:

Turkmenistan raised the stakes in its gas pricing dispute with Russia yesterday by threatening to cut supplies altogether if Gazprom did not raise the purchase price by more than a half.
The price Turkmenistan charges Gazprom is of vital importance to Ukraine, which buys most of its supplies in Central Asia from the Russian state monopoly. The Turkmen foreign ministry said in a statement that it now wanted Gazprom whose CEO Alexei Miller was in Ashgabat earlier this week to pay US$100 per 1,000 cubic metres of natural gas instead of the current US$65. "If such a contract is not signed with Gazprom over the next month and a half ... then Turkmenistan would stop gas supplies," the statement said. Gazprom was not available for comment. A source close to Miller's negotiations with Turkmen President Saparmurat Niyazov said Miller had asked for a break in talks for consultations with top Russian officials. It was unclear when talks with Niyazov were to resume. Turkmenistan's threats echoed a move by Gazprom at the beginning of the year when the world's No 1 gas company briefly cut gas exports to Ukraine the main transit route for Russian supplies to Europe due to a row between the two. Under Turkmenistan's current agreement with Russia, Central Asia's top natural gas producer was due to export 30 billion cubic metres of gas at a price of US$65 per 1,000 cubic metres in the first half of 2006. "The Turkmen side asked to set the price of US$100 per 1,000 cubic metres from the second half of the 2006, which is a normal price. But the Russian side asked for US$65," the foreign ministry said. "Turkmenistan categorically rejected this request. That is why the contract (for the second half) was not signed." Turkmenistan currently produces about 60 billion cubic metres of natural gas a year and exports two-thirds of that, mainly to Gazprom. A small part of its exports goes to neighbouring Iran. Turkmenistan and Gazprom have discussed raising annual shipments to 50 billion cubic metres over the next three years, and Gazprom seeks to eventually raise Turkmen purchases to 80 billion cubic metres.

On the latter story, Kommersant crowed that Russia was getting its just desserts: "Turkmenistan has apparently adopted the ultimatum methods of Gazprom to hike gas prices."

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