After months of Kremlin political pressure, Russian giant Gazprom finally signs first Central Asia deal

Russian state-controlled Gazprom has signed its first natural gas supply deal in Central Asia after months of political efforts by Moscow to persuade Uzbekistan and Kazakhstan to buy Russian volumes.

According to the agreement signed last week in St Petersburg, from 1 October Gazprom will deliver 9 million cubic metres per day of gas, the Uzbek Energy Ministry said.

The deal will run for two years, with the volume capped at 2.8 billion cubic metres per annum.

Due to its decision to reduce pipeline supplies to Europe last year, Gazprom is estimated to have lost about 100 Bcm per annum of gas exports.

To enable Uzbek gas deliveries, Gazprom has also signed a transit agreement with Kazakhstan’s state gas pipeline operator, QazaqGaz, the Kazakh company said.

The Uzbek ministry said the deal is between Gazprom’s export arm, Gazprom Export, and Uzbekistan state gas distributor Uzgastrade.

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Uzbek President Shavkat Mirziyoyev created Uzgastrade by a special decree in June last year to serve as a monopoly operator in buying natural gas from the country’s producers and selling it to consumers.

Pricing issue

The ministry has assured that gas from Gazprom will be bought at “market prices that are seen in the [Central Asia] region and at the domestic market in Uzbekistan”.

Gas tariffs in Uzbekistan are regulated by the authorities, with prices for the country’s industrial consumers upped to between $104 and $120 per thousand cubic metres from 1 April this year.

Gazprom confirmed the supply agreement with Uzbekistan in a separate statement, but has not commented on the price arrangements for the deal.

Last year, Gazprom delivered about 243 Bcm of gas to Russian domestic customers, with its revenues from such sales reaching almost 1.1 trillion rubles ($13.06 billion), translating into an average Russian market price of $60 per thousand cubic metres of gas.

However, the supply of about 101 Bcm of gas to export markets, mainly to Europe, generated revenues of over 7.3 trillion rubles last year, according to Gazprom, implying an average export price of $970 per thousand cubic metres.

Mikhail Krutikhin, a partner with Moscow-based energy consultancy RusEnergy, said that Gazprom is “unlikely to reap any good profits” from the Uzbek deal that “will not replace lost European sales”.

“It is possible that Moscow seeks to increase Uzbek and Kazakh dependence on Russian gas supplies while these two countries have to fulfil their own gas delivery obligations to China,” he said.

For more than 50 years, gas produced in Central Asia, has been flowing to Russia via the Central Asia-Centre trunkline consisting of four parallel lines passing through Kazakhstan and then splitting to reach Uzbekistan and Turkmenistan.

However, the new supplies will be sent by reversing a line that heads from Russia via Kazakhstan to Uzbekistan, according to the Uzbek Energy Ministry.

The reversal will entail building a new gas meter and about 22 kilometres of new trunklines in Uzbekistan. Additionally, upgrades will be required to an estimated 56 kilometres of gas pipelines and at more than 10 pumping stations, the ministry said.

Uzbekistan has been experiencing gas shortages mainly during the winter, when demand for office and home heating rises quickly as temperatures fall sharply.

Additionally, gas consumption has risen following the opening of a 4 Bcm per annum gas-to-liquids plant to supply synthetic fuels, and since new gas-fired power stations have been built.