Russia gambles on gas prices

Published: Tuesday 15 April 2008

A landmark deal reached between Russia's state-controlled gas monopoly Gazprom and three energy-rich Central Asian nations is likely to affect European consumers.

On March 11, Gazprom agreed with heads of the gas companies from Kazakhstan, Uzbekistan and Turkmenistan that starting in 2009, it will pay "European market prices" for Central Asian natural gas.

A statement issued by Gazprom said the deal was "based upon the interests of the national economies and considering the international commitments with regard to the energy supply reliability and continuity".

The brief statement, though did not specify a price, given the market conditions, Kazakhstan, Turkmenistan and Uzbekistan can expect to receive about us $200- us $300 per 1,000 cubic metres of gas next year. At present Gazprom pays up to us $180 for Central Asian gas.

Meanwhile, officials of Gazprom have indicated that the company is likely to pass on the higher costs to its European consumers. Gazprom after purchasing natural gas from the Central Asian nations resells it to western European nations. Just a few days after the deal, the chief executive officer of Gazprom announced that the gas price for European customers could reach us $400 by the end of 2008. Earlier it had pegged the price at us $310.

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