“Gas War” lessons

Ruslan Iskanderov

Widely monitored unprecedented gas conflict between Ukraine and Russia, resulting in grave energy crises in Europe, has become not only one of the most acute crises in the relations of the two former USSR states. It appeared to be an alarming sing for CIS countries, political ideology of which is primarily oriented on West European values. And economic interests above all are lying in the most receptive and solvent European market.

Harsh and sometimes even rude comments of Ukrainian and Russian politicians, (“stealing”, in respond “gas blackmailing”) illustrate us more and more clear the reality of a new still shaping policy between CIS states – policy of rough economic and political mercantilism, that promises great changes for our peoples and states.

This gas conflict has proved only one plain truth that is perfectly illustrated by famous folk wisdom as “Might is right”, “What can mouse do against the cat?, etc. No matter how hard Ukraine tried, it had to give up under the pressure of the European Union and the logic of catastrophic development of the situation in the country. It was forced to agree on international monitoring of gas transiting within its territory. In addition today’s gas costs for Ukraine are much higher than used to be. A gas pipeline within own territory is obviously a convincing argument, but life has proved that main trumps anyway remain within the countries that produce and possess gas.

For example, Kazakhstan is the kind of country. For this reason it cares of the further development of the relations in gas sphere within Post-Soviet area. This greatly influences uninterrupted supply of Kazakh gas to the world market as well as successful development of Kazakh economy.

Kazakhstan takes the 15th position in the world and the 4th among CIS states in gas reserves. According to international expert agencies, today these reserves are assessed as approximately 3,3 trillion cubic meters. So there is plenty of gas in Kazakhstan and there is no problem to cover the needs of our country.

Nevertheless, north and west of the country are splashing in gas, meanwhile south and east  lack of it. Only recently, people of several southern regions have been provided with gas for the first time for last seven years since the crises of 1999. «Kaztransgas» spent 272 million tenge to reconstruct natural-gas network in Merken, Maktaaral and other districts of Zhambyl region. And during ceremonial opening of this gas pipeline many citizens simply cried of joy: finally the civilization came into their houses!

Within last years about 20 billion cubic meters of gas have been produced in the country annually. Internal needs are covered with about 6,5 - 6,7 billions. So Kazakhstan should export the remaining part, so much as today’s economic situation and external market costs are more than favorable. It is especially marked in Europe, where the gas consumption increases greatly in comparison with other energy types. In addition, European countries are ready to pay maximum for gas. By the way the strict unwillingness of Ukraine to pay the same costs as Europe invoked the very Russian-Ukrainian gas conflict. Estimates illustrate that gas demands of European market will increase twice by 2010 – up to 427 billion cubic meters a year. And Kazakhstan export potential, as supposed, 40-45 billion cubic meter annually can be highly in demand if … If only Kazakhstan keeps its traditionally friendly relations with Russia, and jointly deals with all the issues of gas transporting to European market. Transition to market principles of gas prices formation and transit costs, expansive growth of Central-Asia gas prices for consumers this year – these are steps in the right direction.

Today there are two ways for Kazakh gas heading West: North-West – using the operating major pipeline through Russia (Central Asia – Center, Orenburg - Novopskov) and the pipeline “Soyuz”. But these pipelines today face serious difficulties, the major of which is their undercapacity. Today it serves for Kazakh, Uzbekistani, Turkmen gas, and not even mentioning huge quantity of Russian gas. This issue makes Russia the most significant and important gas market “player” that frequently presses Central Asian states in the context of gas export and gas prices.

This situation has been lasting for many years, and considering growing gas demand of world markets, it becomes more depressing for economics of Central Asian countries. Any prospective investor of Kazakh gas field immediately quires: how should gas be then transported? Russian monopolism in this sphere is able to freeze enthusiasm of even the richest investor that is used to adequate traditional competition. And there is no such money to build a new pipeline even within state funds…

For several years there has been an idea of a South-West pipeline construction, through Caspian offshore area or along its southern cost, through Iran and Turkey to Western countries. This pipeline is the most significant part of European Union sponsored  Transport Corridor Europe-Caucasus-Asia. But this project has been searching for firm financial ground for years: the pipeline costs are huge, and political risks are pretty great.

There are projects of an eastern pipeline construction – the pipeline to China. At the moment the Chinese are seriously involved into project designing of leading of Kazakh gas to their gas pipeline Xinjiang - Shanghai. This is an important direction, nevertheless today Chinese market is less profitable than European one, and all profits and losses here should be precisely assessed.

So for Kazakhstan it will more profitable to continue its gas cooperation with Russia that will be dominating in the sphere of gas transporting for a long time. Simultaneously, Kazakhstan should develop its internal gas pipelines network, for the strongly desired blue fire could light houses of all Kazakh people.

Translated from  Gazeta.kz