Turkmenistan is set to boost gas deliveries to China to 40bn cubic metres (cm) in 2012, up from 17bn cm in 2011, and might increase supplies over threefold to reach 65bn cm in the future, according to an agreement closed on November 23 during Turkmen President Gurbanguly Berdymukhamedov's visit to China. The deal puts further question marks over Russia's efforts to sell its gas to China.
The price of the new export volumes will likely remain at current levels of gas supplied to China, which is over $250 per thousand cm, according to business daily Kommersant. The capacity of the Turkmenistan-China gas pipeline would permit an increase to 65bn cm per year by 2015, which would see Turkmenistan selling China the same volume of gas it previously sold to Russia, which used to be the only export route out of the Central Asian state.
For Russia and Gazprom, the deal has plusses and minuses, say analysts, who see a threat to the long-winded talks over a Russia-China gas deal. "With the new volumes supplied from Turkmenistan, a concern arises as to whether China's demand will be able to accommodate an additional 68bn cm from Russia (or even the 30bn cm planned for the first phase), according to China's earlier agreements with Gazprom," write analysts from Alfa Capital.
"We are inclined to treat the news as negative in the short term," they add, "as numerous market participants have had inflated hopes that the Chinese contract would materialize in the near future. We still believe that Gazprom could broker a contract with China, although Gazprom's grip on the negotiations seems to be slipping."
However, the flip side is that with Turkmenistan catering more and more to China, the chances of Turkmen gas flowing westwards to Europe - via the planned Nabucco pipeline that would circumvent Russia - diminish, thus boosting Russia's bargaining position vis-a-vis Europe.
At the same time, the China-Turkmenistan agreement comes only six weeks after Turkmenistan announced that estimated reserves at its main gas field, South Yulotan, have increased yet again. If accurate, the estimated 13-21 trillion cm would make the deposit the world's second largest, and potentially enable the country to compete with Gazprom in both Asia and Europe.
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