Gazprom agreed on November 27th to hike its price for Turkmenistan's gas: from USD 100 per cubic meter (cum) to USD 130 starting January of 2008. In July of 2008, Gazprom will start paying USD 150 per cum, through December, when the price will undoubtedly change again.
This is a long overdue for Turkmenistan, and puts the Ukraine into an immediate price-hike situation. We should expect a little drama in January, with a Belarusian pipeline crisis this past January and a Ukraine crisis the year before. Ukraine has always had subsidized prices from Gazprom, but on the back of Turkmenistan's non-competitive price negotiations with the Russian monopoly.
Doing the Math:
The current market price for natural gas in the U.S., according to the USDOE's Energy Information Administration, is USD 6.07 per million cubic foot; at the various major U.S. spot markets, it's higher: somewhere between USD 7 and USD 9. Using conversions (1 cubic meter =35.315 cubic feet) we get a prices something like this:
Current Gazprom price for Turkmenistan's gas: USD 100/cu m x 1 cu m/35.315 cu ft = USD 2.83/cu ft
January price: 130/35.315 = USD 3.68
July price: 150/35.315 = USD 4.245
Turkmenistan's price/market price (using USD 7, because it's low to middle)
2.83/7 = 40.4% of market price.
Ukraine
Ukraine is paying, according to Mr. Mityayev, about USD 30-35 more per cu meter than Turkmenistan's Gazprom price–less than a dollar more per cubic foot. 3.83/7 = 54.7% of market price in the United States.
Political economy
Once you look at this, it surely seems that Gazprom is not the enemy to European and Ukrainian gas supply, does it? More like Gazprom is Turkmenistan's enemy to prosperity, or–playing hardball for Ukraine. But of course it's more complicated than that: Gazprom completes Russia's dollar diplomacy with Ukraine and with Turkmenistan, essentially doling out favors such as price hikes to Turkmenistan and the hammer on Ukraine, which is living if not exactly a charmed life, an opportunity to grow its industry on a borrowed power structure–to which it is ultimately beholden. Beware deep discounts, my friends and neighbors.
Russia is also backing up its relations with Ukraine with increased bilateral trade, which grew 40% on Non-Gas items between January and September, to USD 280 million. Russia's assiduous courting of Turkmenistan has brought dollars to this impoverished state, the most critical of all its needs. New pipeline infrastructure may also be in the offing.
The Trans-Caspian gas line, which would link to Azerbaijan and ultimately European/Western gas markets may still be in negotiation, but has been delayed for awhile. Not only does it mean competition for natural resources, but it has the potential to change some power structures in the Former Soviet Union. It also has the ability to make Turkmenistan more of an international player–less at the mercy of one monopoly buyer. For this reason, the U.S. and the EU and the oil majors have reasons to keep this long-standing idea in mind–and the implications of it as well.
Photos: trashcities.org; amazon.com
