New Pipeline Subverts U.S. Efforts to Diversify Gas Supply

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By Jason Simpkins

Associate Editor

Russia, Turkmenistan and Kazakhstan signed an agreement yesterday (Thursday) to begin construction on a natural gas pipeline along the Caspian Sea.

The move is a huge blow to the United States and Europe, who were encouraging the former Soviet republics to build a pipeline under the Caspian Sea and bypass Russia.

The project had stalled because of a dispute involving the price of gas, but Russia's state-owned energy giant OAO Gazprom finally gave in to Turkmen demands, agreeing to pay $130 per 1,000 cubic meters of natural gas in the first half of 2008, and $150 in the second half.

"We have just signed an extremely important agreement between Russia, Kazakhstan, and Turkmenistan, on building the Caspian pipeline," Russia's President Vladimir Putin announced. "It will become a new, important contribution of our nations into strengthening the European energy security."

What he really seems to mean is that the deal will strengthen his grip on European energy security. Gazprom already supplies 25% of Europe's gas. It also hikes prices and threatens to cut supplies on a fairly routine basis.

In August, Gazprom threatened to cut off gas supplies to Belarus in an attempt to extort payment on a $456 million debt. Belarus eventually acquiesced with a $190 million payment. Two months later, Gazprom threatened to cut supplies to the Ukraine over a $1.3 billion debt.

Prospects for a pipeline under the Caspian Sea, which would act as an alternative, were made bleak by environmental concerns, high costs and territorial and resource disputes among countries in the region.

Russia, Iran, Kazakhstan, Turkmenistan and Azerbaijan failed to agree on a fair allocation of the sea's resources at a summit in Tehran several months ago. In the meantime, Russia and Iran have made it clear that outside powers (i.e. the United States) should not be tempted to intervene in the conflict.

Putin has stressed the point that that all pipeline projects should require approval from all five nations. He has also registered his opposition to U.S.-backed efforts to build pipelines that would avert Russia while delivering Central Asian hydrocarbons to the West.

Turkmenistan has the second largest natural gas reserves in the former Soviet Union. It currently ships gas to Russia through a pipeline that has an annual capacity of 50 billion cubic meters. The new pipeline would have an initial annual capacity of at least 20 billion cubic meters. Completion of the pipeline is expected by 2010.

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