Turkmen death puts gas supplies in turmoil

One analyst says situation could become 'a nightmare' as country, which supplies huge amounts of energy to Europe, struggles to fill leadership void.

December 21 2006: 10:25 AM EST

MOSCOW (Reuters) -- The death of Turkmen leader Saparmurat Niyazov on Thursday plunges Europe's energy security into doubt, with the prospect of a struggle for power raising the specter of a new gas crisis.

The self-styled "Turkmenbashi" or "Head of the Turkmen" left no designated successor to lead the autocratic state, which had planned to step up its gas exports to help Russian gas monopoly Gazprom meet a quarter of Europe's needs.

"I expect there will be a massive fight for power now in Turkmenistan and it's likely to take place between pro-U.S. and pro-Russian forces," said a Russian gas industry source, who declined to be named.

"Gas will become the main coin of exchange and the key asset to get hold of. There shouldn't be any short-term problems with supplies to Russia and onward but in the mid-term it could become a nightmare.

"During talks with Turkmenistan on gas supplies the only person making decisions was Turkmenbashi. Other people were completely irrelevant."

Turkmenistan has stepped into the breach left by a row between Ukraine and Russia a year ago, and Gazprom now funnels Turkmen gas directly to Ukraine, forcing the Central Asian state to accept the low price demanded in Kiev.

"If Niyazov's death results in political instability and social unrest, this may lead to the gas supply from Turkmenistan to (gas supply agent) RosUkrEnergo and Ukraine being disrupted," analysts from Deutsche UFG said in written research.

In that case, Ukraine would have to turn once again to Gazprom to cover its 41 billion cubic meters from Turkmenistan, they said, reopening the wounds of January's gas crisis, when Gazprom shocked Europe by cutting gas supplies to Ukraine and gas transit to the European Union.

"We also anticipate that Gazprom will enter into difficult negotiations with its customers, who may experience problems -- directly or indirectly -- as a result of potential political infighting in Turkmenistan," said Deutsche UFG.

Gazprom declined to comment on Niyazov's death.

Several analysts said even if the initial period is stable, the longer-term development of Turkmenistan, which Niyazov ruled with an iron grip and a cult of personality for 20 years, is murky at best.

"Let us hope that their policy will become more predictable, that a chance will appear to establish more constructive relationships with them and the country will become more open for foreign investment," said Valery Nesterov, an energy analyst at Troika Dialog brokerage in Moscow.

After the bubble bursts
Although Turkmenistan this year has sent around 40 bcm through Gazprom's pipelines to Ukraine, the Russian company hopes to raise Turkmen imports to 60-70 bcm in 2007 and 70-80 bcm annually from 2009 to 2028 to shore up its own reserves.

For comparison, in 2005 Germany consumed 86 bcm and the United States 633 bcm.

As well as supplying Ukraine, Turkmenbashi was planning a gas pipeline via Afghanistan and Pakistan to India and another pipeline to China, marrying Beijing's desire to secure energy reserves with the advantage of diversifying away from Europe.

Turkmenistan has 2.9 trillion cubic meters of gas reserves according to the BP Statistical Review of World Energy, but experts say the true figure may be higher, since information is sketchy and Soviet-era audit methods make comparisons difficult.

Turkmenbashi himself said last month his country had a 7-trillion cubic meter field and told parliament in October that foreign experts had estimated Turkmenistan's total hydrocarbon resources at the equivalent of 45.44 tcm, according to a transcript obtained by Reuters.

Even if those figures turn out to be fantasies, Turkmenistan remains the home of Central Asia's biggest gas reserves and one of the world's biggest gas powers.

Michael Cotter, U.S. ambassador to Ashgabat from 1995 to 1998, said there was a danger that any collective leadership following Turkmenbashi would be unstable, but Turkmenbashi's circle was likely to work to keep the gas flowing.

"Most of the people around him are going to be survivors and they understand what brings prosperity," he told Reuters by phone.

"I think the gas will continue to flow, at least in the interim period, how ever long that might be, six months or longer. I can't see the oil or gas being disrupted. Gazprom wouldn't let that happen."

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