Last week's two summits, in Turkmenistan and Poland, yielded far more modest dividends for business than for politics. In Krakow, the presidents of five countries managed to come to an agreement on the start of the Odessa-Gdansk pipeline project, but they made no progress on setting a guaranteed oil flow-through volume. Meanwhile, in the Turkmen port of Turkmenbashi Russian President Vladimir Putin convinced his Kazakh and Turkmen partners to begin work on a Caspian shore gas pipeline, but he failed to get them to entirely reject the idea of a trans-Caspian pipeline. "The pipeline war" will continue to occupy the agenda at a minimum of two upcoming summits: in Turkmenistan in September and in Lithuania in October.
The political outcome of the proceedings of these two energy summits will become apparent only after the EU-Russia summit on May 17-18 in Samara, where the European Union will choose which of the two energy policies in the region to support. But the talks last week also had a commercial angle as well, and it was in these waters that the summits foundered.
Lock, Stock, and Two Pipelines
Of the three main questions concerning pipelines – both a Caspian shoreline and trans-Caspian pipeline, as well as a capacity boost for the Caspian Pipeline Consortium (KTK) – that were featured on the business agenda for the summit in Central Asia, Vladimir Putin, Kazakh President Nursultan Nazarbayev, and Turkmen President Gurbanguly Berdymukhammedov succeeded in laying to rest only one.
In the final drafts of documents from the meeting, the three leaders agreed to prepare a multilateral agreement and commercial contract for the creation of a consortium to manage the Caspian shoreline pipeline before the next summit in Turkmenistan in September 2007. According to Russian Industry and Energy Minister Viktor Khristenko, the three sides will draw up documents for a larger-scale project than was earlier planned: the Caspian shoreline project (currently named the Central Asia–Center 4 gas pipeline) is slated to be expanded from its current carrying capacity of 1-2 billion cubic meters a year to 10 billion cubic meters within the next five to seven years. In addition, the existing Central Asia–Center 3 (SATs-3) pipeline, which delivers gas from Turkmenistan to Russia via Uzbekistan and Kazakhstan, will have its yearly capacity boosted by 20 billion cubic meters. By 2014, Russia can count on an increase in the flow of gas from Central Asia to Russia to the tune of 60-90 billion cubic meters per year.
However, none of the sides have commented yet on how and who will be selling an additional 30 billion cubic meters of gas produced by Turkmenistan, Kazakhstan, and Uzbekistan (Uzbek President Islom Karimov signed the declaration from the Turkmenistan summit ahead of time, during his May 9 meeting with Mr. Khristenko). Gazprom has not guaranteed that volume. During the first meeting of the summit, which took place between Vladimir Putin and Nursultan Nazarbayev in Kazakhstan, it was agreed that the 15 billion cubic meters of gas that will be refined by Kazakhstan's Orenburg gas refinery annually from gas condensate extracted from the Karachagansky gas reserves in Kazakhstan will be sold in Europe by Kazrosgas, a joint partnership between Gazprom and Kazmunaigaz.
It is possible that the September meeting in Turkmenistan will see demands from Berdymukhammedov and Nazarbayev that Putin create a joint company to operate the new pipeline. With regard to the expansion of SATs-3, Gazprom has so far managed only to confirm plans to renovate the system of gas pipelines in Central Asia. A similar project was signed off on in 2004 by Turkmenistan, Uzbekistan, and Kazakhstan, but problems with Turkmenistan and Uzbekistan have meant that the project hardly got off the ground. Given Gazprom's monopoly on the export of gas to the EU, Russia's partners will clearly have some concessions to demand from the Russian gas giant in September.
Compounding these difficulties, Vladimir Putin failed in Turkmenistan to get his partners to reject a possible trans-Caspian pipeline project. On Saturday, the presidents of Turkmenistan and Kazakhstan clearly stated that the project, which is loudly opposed by Gazprom (since the pipeline will bypass Russia and could come under the control of the European-controlled Nabucco project, which carries gas from Azerbaijan and possibly from Turkmenistan and Iran in the future), is still on the table for discussion. In addition, the Turkmen and Kazakh portions of the Caspian shoreline pipeline could end up being incorporated into a trans-Caspian pipeline.
Finally, the participants in the Central Asian summit were unable to decide whether the current carrying capacity of the KTK pipelines will be increased from 32 million tons to 67 million tons. Nursultan Nazabayev has previously suggested that Russia, which owns a 24% stake in the consortium, should support the expansion, but the answer from Vladimir Putin was noncommittal. Kazakhstan has also de facto made its approval of the project conditional on its inclusion in the Russian Burgas-Alexandroupolis pipeline project, threatening that otherwise Kazakh oil will flow through the Odessa-Gdansk pipeline to Poland, bypassing Russia.
The outcome of the Krakow summit was also a letdown for the majority of its participants. Azerbaijan and Kazakhstan agreed in Krakow to participate only in a working group on the completion of the existing Odessa-Brody pipeline from Ukraine to a Polish refinery in Plotsk and onward to the Rafineria Gdanska refinery. But the Odessa-Gdansk consortium will not become a reality until at least October 2007, when it will be discussed at the summit in Vilnius. Before then, Kazakhstan and Azerbaijan could promise their oil to the Baku-Tbilisi-Ceyhan, Burgas-Alexandropoulis, Odessa-Brody, or KTK pipelines, meaning that the participation of these countries in the Odessa-Gdansk pipeline project is not a foregone conclusion.
Nevertheless, the meetings last week in Ashgabat, Astana, Krakow, and Turkmenbashi, which together featured in one way or another the participation of nine countries, did produce some winners. Negotiations concerning which projects will be supported by transnational oil companies will be carried out chiefly by Azerbaijan, Kazakhstan, and Turkmenistan. Unlike Vladimir Putin, Islom Karimov, and four out of the five participants in the Krakow summit, who only managed to hold their positions, new prospects for talks with Chevron, Exxon Mobil, BP, and Eni have opened up for Messrs Nazabayev and Berdymukhammedov on the hot topic of who will win the right to extract the oil and gas from the Caspian region.
