Ruminations on Russia

MSM was concerned when the Turkmenbashi finally shuffled that there would be another tussle between Russia and the US for control of Turkmenistan's gas.  Whilst that balance-of-power struggle may/is still be going on behind the scenes, Turkmenistan's gas is still routinely transiting Russia on its way to Ukraine for one blindingly obvious reason; it has nowhere else to go - hence the title of the post.  Gas transportation relies on fixed infrastructure (pipelines).  Marginally less important, Turkmenbashi's successor is Kremlin-friendly, or not unfriendly.  It could have been nasty if the US had managed to install a friendly puppet; I am not quite sure how Russia would have squared its need for Turkmenistan's gas with its need to ensure that it keeps flowing north and nowhere else.

This is a reality born of fixed infrastructure and European energy demand.  As much as Turkmenistan may want to have alternate routes to sell its gas; east to China, south through Afghanistan and Pakistan (clearly one of the world's more stable regions) or south west across the Caspian and over Central Asia's San Andreas fault, the only pipelines that work today (and even then at 60% of design capacity) pass through Kazakhstan and enter southern Russia.  So as much as Cheney et al would like to ensure that Russia cannot control Turkmenistan's gas there is no other option today, and the only one even vaguely likely in the future will be a Kazakh pipe going to China.  Which really does not help the US efforts at world domination at all.

Turkmenistan's gas is officially sold to Ukraine (each molecule is tagged as it crosses the border in to Russia to make sure that it ends up in Ukraine); more importantly it forms a significant part of Russia's gas supply balance.  Broadly speaking there are three demands on Russia's gas in reverse order of profitability for GAZP; Russia, the near abroad (ex-FSU) and Europe.  Re-ordering the list in terms of GAZP's obligations would result in Europe and Russia sharing first place and the FSU coming in a very distant third.  Except, as we have come to learn, the export pipelines, before Schroeder's pipeline,  still have to pass through Ukraine and Belarus who have a nasty habit of taking what they need before allowing the balance to make it to Europe.  Thus, if history were to repeat itself, if Turkmenistan's gas does not come north there will not be enough gas for Ukraine, which will probably means there is not enough gas for Europe.  Meanwhile, Russia will still have access to enough gas to fire its electricity generators, steel and aluminum plants creating an ever more economically powerful Russia.

The above graph, which is built on UBS data with some personal tinkering, shows expected gas supply from Russia, Central Asia and Independents (Novatek, LUKoil, TNK-BP etc) in BCM p.a.  There is a large and increasing requirement for Turkmenistan, Kazakhstan and Independents to equalize the demand / supply equation.  Hence the change to domestic Russian pricing at the end of last year.  For each of the three supply components a worryingly large chunk of 2010-2015 supply falls in to "yet-to-be-discovered" or incredibly technical mega-projects whose real and official start dates may be as much as 5 years apart.

Hyper-expensive pipelines across opium-growing Afghanistan or linking with the gas version of the Baku-Ceyhan pipeline are never going to happen.  For which Europe should be very pleased.

Here is the link which started me thinking; RIA Novosti - Opinion & analysis - Fight for Turkmen gas called off:

Technorati Tags: Energy, FSU, Gas, GAZP, Russia, Turkmenistan