Asian gas pipe to bypass Europe

04.09.2008 (17:40) | RBC

Russia will take part in the construction of a new gas pipeline in Uzbekistan, with a capacity of up to 30 billion cubic meters.

The agreement was reached during Russian Prime Minister Vladimir Putin’s meeting with Uzbek President Islam Karimov. The parties also agreed on the price formula for Uzbek gas purchased by Gazprom. Uzbekistan’s decision ruins alternative gas pipeline projects promoted by the EU and Europe, experts say. In return, Gazprom will have to pay some $300 per 1,000 cubic meters of Uzbek gas next year.

Putin told reporters after his meeting with Karimov that an agreement had been reached to begin the construction of a new gas pipeline in Uzbekistan in order to support the growing export potential of Uzbekistan and Turkmenistan. The new pipe will run parallel to the pipelines Central Asia – Center and Central Asia – Urals.

Karimov said the capacity of the new pipeline will be 26-30 billion cubic meters of gas. He added that the scale of the project would depend on the countries interested in it. “There are some rumors and speculations that Uzbekistan does not want the pipeline to be laid across our republic. I must assure you that we are prepared for cooperation, and are ready to provide our territory,” Karimov stressed. According to Gazprom officials, the pipeline will be based on a joint venture of Uzbekneftegaz and Gazprom.

Putin also said that an agreement had also been reached on the price formula for Uzbek gas bought by Gazprom. He noted that the price of Uzbek gas would be revised regularly in accordance with the elements of the European gas formula, including gasoline and fuel oil.

At the beginning of this year Uzbekistan, Kazakhstan and Turkmenistan warned Russia that they would only sell their gas at European prices. Gazprom accepted the key terms offered by the Central Asian suppliers.

It is necessary to expand the capacity of Central Asian gas pipelines, believes Alexander Nazarov, senior analyst at IFC Metropol. Indeed, Russia plans to bring its gas imports from Central Asia from the current level of 60 billion cubic meters to 66 billion cubic meters in 2010 and to 70 billion cubic meters by 2013. As for gas price terms, Nazarov described them as disadvantageous for Gazprom. “Buying Central Asian gas at European prices is bad for the Russian gas monopoly, which has to increase sales while losing in profit margins. Gazprom is doing it with the sole goal of remaining a monopoly supplier of Asian gas to Europe,” Nazarov reckons. He expects Uzbek gas to trade at between $270 and $300 per 1,000 cubic meters in 2009.

Following Georgia’s attack on South Ossetia, Europe buried its hopes for alternative gas pipelines from Central Asia, says Sergei Pravosudov, Director of the National Energy Institute. Apparently, no one will build a gas pipeline through the unstable Georgia and Turkey. Russia used an opportunity to strengthen its position in the region and agreed with Uzbekistan to build a new pipeline. “The former Soviet republics will have to buy gas at world prices. The only way to get a discount is to offer Gazprom to buy into their national gas pipeline networks,” Pravosudov said.

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