Gazprom ends Turkmen gas contract and strengthens Beijing’s hand

GazpromTurkmengazTurkmen gas contract:  Gazprom has officially informed Turkmengaz that Russia will no longer be buying gas from the former Soviet satellite state, in a move that is bound to increase Turkmenistan’s dependence on China as an export market for its hydrocarbons. Gazprom’s decision appears to be the final move in a 7-year dispute which began in 2009 when Turkmenistan blamed Moscow for an explosion on the main export pipeline to Russia, with the authorities in Ashgabat suspecting that it was in retaliation to its decision to build an export pipeline to China.

Russian gas pipeline explosion 2009

Russian gas pipeline explosion 2009

That explosion also coincided with a drop in demand for gas after the 2008 financial crash which saw Gazprom begin campaigning for a price reductions and which ended up with Gazprom filing a suit in in the Stockholm arbitration court in June 2015.
At around 4bcm a year, the volumes involved are commercially insignificant and represent less than half that which Gazprom bought from Turkmenistan in 2014 – and a tenth of the total 10 years ago. 
Without Russia as a client, however, Turmengaz is now almost entirely reliant on China for its gas exports and its bargaining hand in negotiations with Beijing has therefore been considerably weakened. 
Luca Anceschi, lecturer in Central Asian studies at the University of Glasgow, said the amount of gas Gazprom had been buying was virtually irrelevant but that the contract had been vital for Turkmenistan. “It showed China they had other options,” he said.
For its part, with domestic demand falling, Gazprom no longer needs Turkmen gas, and there has been a growing conviction in Moscow that the contract was simply not worth the trouble any more.