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Gazprom relies on Central Asia to meet demand

Gazprom relies on Central Asia to meet demand
Russia is becoming increasingly reliant on its ex-Soviet Central Asian neighbors to meet growing demand for natural gas from European countries, analysts said this week amid fresh signs of strains in the system.

The gas supply shortfalls seen during a cold snap across Europe this week have highlighted a problem analysts have long warned of: the stagnation of Russian efforts to develop the country's own gas fields.

Analysts say that while the Gazprom energy giant controls around a third of the world's gas reserves, it has been slow to move ahead with new projects on Russian territory.

Instead Gazprom has chosen to seek gas from Central Asia, involving it in high-stakes diplomacy as it tries to reconstitute a Soviet-era supply network that has suffered years of neglect.

"Russia's position is very tight," said Chris Weafer, chief strategist with Moscow-based Alfa Bank.

"Russia is unable to increase its exports without cheap gas from Central Asia to compensate for a deficit on its domestic market," Weafer said.

As part of Russia's drive for Central Asian gas, Gazprom's chief executive, Alexei Miller, visited Uzbekistan this week for talks with President Islam Karimov.

The company hopes to open up production at three major gas fields on and around the territory of the depleted Aral Sea, an area known as the Ustyurt plateau, the Kommersant newspaper said this week.

This, Gazprom predicts, would allow a trebling of exports from Uzbekistan to 18 billion cubic meters annually, Kommersant said. Uzbekistan was the Soviet Union's second largest gas producer, but has badly lacked investment.

Meanwhile the president of Turkmenistan - holder of the largest Central Asian reserves of all - was due in Moscow on Sunday for crucial talks on gas supplies with President Vladimir Putin.

Analysts say this diplomacy is partly a consequence of increasing European demand, but also of rising demand on Russia's domestic market.

Domestic consumption has increased rapidly, exceeding 400 billion cubic meters in 2004. Gazprom also hopes to increase sales to Europe - already equal to about a quarter of European Union gas consumption.

Nonetheless, Russia increased gas production by only one percent last year to 640 billion cubic meters and this year plans an increase of only four billion cubic meters, the head of the Russian Energy Agency, Sergei Oganesiyan, said Wednesday.

Moscow has got used to having "a centralized gas transport system that has allowed it to delay investments in its own resources and to make substantial gains" selling on to Western neighbors, said Valery Nesterov, an analyst with investment brokerage Troika Dialog.

Above all, the country Russia is relying on for gas is Turkmenistan, whose gas reserves can be exploited relatively easily.

Moscow in 2003 signed a 25-year agreement with Turkmenistan that potentially gives Russia control of much of the country's gas exports.

Russia hopes to get 30 billion cubic meters of Turkmen gas this year and will also help transit another 40 billion cubic meters of gas on to Ukraine.

However Turkmenistan is reportedly unhappy with a deal agreed earlier this month between Russia and Ukraine ending a "gas price war" that had caused knock-on disruption of supplies to Europe.

Under that deal Russia agreed to sell its own gas to Ukraine at 230 dollars per 1,000 cubic meters - more than four times last year's price - but to soften the blow by also supplying Turkmen gas at the much lower rate of 65 dollars per 1,000 cubic meters.

Turkmen officials have insisted that their country will raise gas export prices in the coming years, leading to a probable further toughening of conditions for Ukraine.

Doubts also remain about how Turkmenistan is going to fulfill a recent promise to raise production to 80 billion cubic meters this year - an increase of 37 percent.