Gazprom was busy in December, lining up purchases of gas from its southern neighbours for 2010, after cutting back dramatically on the volume of imports in 2009 in the face of falling demand for its gas both at home and in Europe. By the end of the year, Gazprom had restored its supply contract with Turkmenistan, increased the volume of planned gas purchases from Uzbekistan and sealed a new supply deal with Azerbaijan.

After a year that saw Gazprom suspend its gas imports from Turkmenistan in the face of falling demand both at home and in its key European markets, the company was busy in December finalising its gas purchase arrangements for 2010. Gazprom delegations visited both Turkmenistan and Uzbekistan to finalise gas sales and purchase agreements for 2010, but the aggregate volume of Central Asian gas that Russia will buy in 2010 is expected to be only around half the amount it imported in 2008.

On the 22nd of December, Gazprom and Turkmengaz signed amendments and supplements to their long-term gas sale and purchase contract in the presence of the presidents of Russia and Turkmenistan. Under the terms of this new agreement, Russia would resume imports of gas from Turkmenistan from the beginning of January 2010, with a maximum volume of 30 bcm/yr and at prices related to those charged by Gazprom to its European customers.

The agreement marks the resumption of gas trade between the two countries after an explosion on the Central Asia-Centre pipeline system in April 2009: although the line was quickly repaired, Gazprom refused to resume purchases of gas from Turkmenistan under the terms of the contract it had signed with Turkmengaz the previous year. Gazprom's Deputy CEO Alexander Medvedev was quoted as saying that ‘for the first time in the history of Russian-Turkmen relations, gas supplies will be determined on the basis of a price formula, which is in full agreement with the conditions of the European gas market.'

Long-term deals

However, similar statements accompanied the signing of a long-term gas supply deal between the two countries in 2008, when it was announced that prices would be determined by a formula related to Gazprom's sale prices in Europe.

Less than a week later, Gazprom signed a deal with Uzbekneftegaz to increase the volume of gas that Russia would buy from Uzbekistan in 2010 from 11.25 bcm to 15.5 bcm. Once again, the price paid by Gazprom is to be calculated by a formula related to European gas prices. With Kazakhstan's gas sales to Gazprom expected to remain around the 9-10 bcm/yr of recent years, Russia's gas imports from Central Asia are expected to be around 33 bcm in 2010, roughly half the volume imported in 2008.

According to a report published by the Russian newspaper Vedomosti, Gazprom does not intend to increase its imports of Central Asian gas much during the 2010-2012 period. According to the report, published before the recent agreements with Turkmenistan and Uzbekistan, Gazprom plans to import 32.8 bcm from Central Asia in 2010, 33.9 bcm in 2011 and 37.9 bcm in 2012, with deliveries from Turkmenistan bearing the brunt of the cut.

Although the recent deal with Turkmenistan mentioned a potential volume of 30 bcm/yr and the long-term framework agreement signed by the two countries in 2007 included a volume of 70 bcm/yr, it is thought likely that the actual volume of gas deliveries from Turkmenistan to Russia in 2010 will only be 10-11 bcm, with Vedomosti reporting that Gazprom wants to take ‘not more than 10.5 bcm/yr' from Turkmenistan

Ties with China

Turkmenistan has begun gas exports to China through the newly completed Central Asia-China pipeline, which will move 30-40 bcm/yr when it reaches full capacity, and is in the process of building a second pipeline to Iran to raise its southern export capacity to 20 bcm/yr. The diversification of the country's gas exports means that its gas relationship with Russia is unlikely ever to be fully restored to its previous level.

Turkmenistan's dependence on the Russian gas export route has been broken forever.While Central Asia is diversifying away from Russia, Azerbaijan is looking the other way, seeing exports to Russia as a way of diversifying its own gas exports. The two countries signed a deal last year under which Gazprom would import 0.5 bcm of gas from Azerbaijan through existing infrastructure in 2010, again priced quarterly using a formula based on European prices. On the 26th of December, Rovnag Abdullayev, President of Socar, said that Azerbaijan would double the volume of planned gas exports to Russia to 1 bcm in 2010. Azerbaijan is still struggling to reach an agreement with Turkey over the price of gas delivered under phase 1 of the Shah Deniz project and the terms of transit for gas from the project's second phase.

Adding the Azerbaijani gas to the Central Asian volumes, Gazprom's imports from its southern neighbours are likely to be around 37 bcm/yr in 2010 and are planned to remain at similar levels for the next three years, reflecting the weaker demand for Gazprom's gas both at home and in its key export markets.

Julian Lee is Senior Energy Analyst, Centre for Global Energy Studies. Specialist in oil market analysis, Russia, the Caspian Sea and West Africa, producing major studies on the oil and gas industries of these regions. Julian is also Deputy Editor of the Global Oil Report. Julian holds an MSc degree in operational Research from the London School of Economics.