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Analysis: Gazprom moves in on Kyrgyzstan

By JOHN C.K. DALY, UPI International Correspondent   |   Oct. 2, 2008 at 4:54 PM   |   Comments

WASHINGTON, Oct. 2 (UPI) -- If there's one easy target for American consumers to revile, it's energy cartels, with OPEC having been the media's favorite whipping boy for years as the dark force perceived to be behind high oil prices. For Europeans, the focus is somewhat different, as Russia's state monopoly Gazprom increasingly consolidates its position as Europe's major supplier of natural gas, leaving Washington increasingly to mutter about the European Union's dependency upon Russia, which currently supplies about 25 percent of the European Union's natural gas imports.

On June 27 Gazprom Chief Executive Officer Alexei Miller told reporters he intends to make the firm the world's largest company within a decade, when its capitalization is projected to reach $1 trillion. If anything, Miller may be too modest in his fiscal projections, as Gazprom either has direct control of or access to an astounding nearly 30 trillion cubic meters of hydrocarbon reserves, a third of global natural gas reserves. Gazprom currently extracts 550 billion cubic meters of natural gas annually and exports around 150 billion cubic meters to 28 countries in Europe and the former Soviet Union.

In order to squeeze out foreign competitors, Gazprom is now offering former Soviet republics in the Caucasus and Central Asia near-market prices for its future natural gas production, undercutting the West's major trump card in negotiations -- higher prices. Gazprom, however, is not a charity, and it is slowly raising prices to former Soviet republics importing natural gas to near global prices as well.

Among the most vulnerable to Gazprom's policies is Kyrgyzstan, which is largely bereft of hydrocarbon resources, largely relying instead on its water resources to generate electricity. Unfortunately for Kyrgyzstan, its increasing reliance on hydroelectric power has forced it to increase its water discharges in the colder winter months, irritating downstream nations Uzbekistan, Kazakhstan and Turkmenistan, which rely on regularized water flows during the spring and summer to irrigate their agricultural and cotton production. The upcoming winter has forced officials in Bishkek to predict massive energy shortages, but Gazprom is kindly stepping in to aid the beleaguered Kyrgyz government.

Briefing Kyrgyz journalists during their press tour of Russia, Valery Golubev, Gazprom executive board deputy chairman, informed them that Gazprom intends to build an underground gas storage in the south of Kyrgyzstan. Referring directly to the incipient energy crisis, Golubev said: "Therefore, collecting gas in summer will allow it to be supplied quite reliably in winter. Nevertheless, we hope that within some period of time, we will manage to find, by joint efforts, those volumes of gas which will meet Kyrgyzstan's demand for natural gas. One's own gas will always be cheaper than that which suppliers are offering."

The key phrase here is "one's own gas." The Kyrgyz government and Gazprom in 2003 signed an agreement on cooperating in prospecting for natural gas and developing Kyrgyz natural gas deposits. If Gazprom's previous negotiating tactics are anything to go by, they will drive a hard bargain indeed with Kyrgyzstan on both ownership and prices. The reality, however, is that Gazprom holds all the cards in the negotiations, and Bishkek is essentially going to have to accept whatever terms it is offered.

The stark figures say it all -- according to the CIA, while Kyrgyzstan's proven natural gas reserves were estimated in January 2006 at 5.4 billion cubic meters, annual production was a paltry 28.8 million cubic meters, while consumption stood at 709.7 million cubic meters, causing imports to rise to 680.9 million cubic meters. While Kyrgyzstan might hope for succor from its Central Asian neighbors, the ongoing wrangle over an equitable division of water from the Syr Darya river, which arises in Kyrgyzstan's Tien Shan mountains, has caused its downstream neighbors to play hardball on energy import prices.

Like its neighbor Tajikistan, which controls the headwaters of the Amu Darya river, Kyrgyzstan is attempting to revise the regional perception of water as a gift from Allah to be equitably shared to instead be a commodity that can be bought and sold, like other energy resources such as oil and natural gas.

Needless to say, Kyrgyzstan's and Tajikistan's downstream neighbors Uzbekistan, Kazakhstan and Turkmenistan are resisting this interpretation, particularly Uzbekistan, whose massive cotton and agricultural irrigation production consumes more than 50 percent of the Amu and Syr Darya's outflow.

The issue was dormant during Soviet times, as Moscow decreed that water flows be regulated to downstream states to ensure agricultural production, while the downstream states in turn would supply Kyrgyzstan and Tajikistan with fuel imports for the winter months. After independence, the Central Asian governments recognized the necessity of resolving the issue and in 1993 the Kazakh, Kyrgyz, Tajik, Turkmen and Uzbek presidents established the Interstate Commission for Water Coordination to harmonize their water policies. While the ICWC has since held 50 meetings, however, little has been accomplished, and each nation increasingly has developed nationalist policies, often to the detriment of its neighbors.

Tashkent's counterargument to Kyrgyzstan is that the two rivers should be declared international waterways, at which point a host of United Nations and other agreements would come into force, but Uzbekistan's position on the issue up to now has found no support among its neighbors. Accordingly, Uzbekistan is proposing to sell Kyrgyzstan natural gas for the upcoming winter for $300 per thousand cubic meters, a market price that has produced sticker shock in Bishkek, which is already warning residents of possible winter electricity blackouts of up to 10 hours per day.

Accordingly, whatever Gazprom proposes is likely to be accepted by the Kyrgyz government. Washington government officials decrying Gazprom's growing influence over Europe might take a moment to cast their gaze eastward, as another struggling Central Asian democracy, in the absence of significant Western aid, is forced into closer relations with Moscow. In this particular energy sideshow of the "Great Game," Western players have left Kyrgyzstan to its own devices.

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