Caspian Center for Energy and Environment Policy Brief (CCEE) | March 2015 | No.13
Background
Control over the transportation of energy resources from Central Asia to Europe is a crucial determinant in Russia’s energy and pipeline policies. Russia’s pipeline policies have long been designed to ensure energy power via control of regional transportation infrastructure. This strategy blocks strategic pipeline projects seeking to bypass Russia’s territory in the east-west direction from the Caspian Basin, and focuses on re-exporting natural gas from Central Asian producers and maintaining strategic grip over the natural gas deliveries to the European markets. From the early 1990s, Russia, as a key importer of Central Asian gas, took control over the Central Asia-Center gas pipeline system. It bought and resold huge volumes of natural gas from Turkmenistan and Uzbekistan to the Europe, enjoying a monopoly in the European energy market and monopsony in Central Asian. However, starting from 2009 Gazprom drastically reduced natural gas supplies from Turkmenistan and Uzbekistan. In 2008 the company bought approximately 40 bcm of natural gas from Turkmenistan, and almost 15 bcm from Uzbekistan; by 2014 the total volumes of exported gas from these countries had decreased to 10 bcm and 4.5 bcm respectively.
Despite the significance of the region for Russia’s energy security, Gazprom has continued cutting back on purchases. During the Investor Day held by Gazprom in Hong Kong in February 2015, the company Deputy Chairman Alexander Medvedev announced that Gazprom plans to reduce the volume of gas purchases from Uzbekistan and Turkmenistan down to 10 billion cubic meters in 2015. The company plans to reduce Turkmen gas purchases from 10 bcm to 4 bcm, and Uzbek gas purchases from 4.5 bcm to 1 bcm. This decision did not come as a surprise, as in October 2014, Gazprom’s Marketing and Trading Director Pavel Oderov announced company’s plan to continue reducing volumes of imported gas, as part of the company’s revenue maximization policy through optimization of domestic production. So the key questions at this point are: why is Gazprom continuing to cut back on purchases from Central Asia? Which factors have affected this decision? What are the implications of the decision for regional producers?
The key argument presented by Gazprom officials is based on increasing domestic production. But this reasoning is somewhat problematic, since it fails to address the evident impact of other, more important factors, including the escalation of the Ukrainian crisis and shifting market dynamics.
* Sevinj Mammadova is a Ph.D. candidate in the Program, “Caspian Region Environmental and Energy Studies” at the Free University of Berlin, Germany. Her research interests includes regional security and cooperation in the South Caucasus, pipeline politics and energy security in the Caspian Sea region.
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