Russia boosts energy dominance with Uzbek gas deal

MOSCOW, Sept 2 Tue Sep 2, 2008 10:03am EDT

MOSCOW, Sept 2 (Reuters) - Prime Minister Vladimir Putin clinched an outline deal with Uzbekistan on Tuesday to build a new pipeline to boost Central Asian gas exports to Russia, part of a strategy to strengthen Moscow's regional energy dominance.

Russia wants former Soviet republics to channel more of their oil and gas via its territory, while Europe would like them to bypass Russia in order to reduce its own energy dependence on an increasingly assertive Moscow.

The issue was dramatically highlighted last month when Russia fought a war against Georgia, which hosts the only oil and gas pipelines bringing supplies westwards from the Caspian Sea without crossing Russia.

Uzbekistan -- located in former Soviet Central Asia, which Moscow still sees as part of its sphere of influence -- is one of the countries at the heart of this geopolitical struggle, which involves not just Russia and the West, but also China.

"An agreement has been reached on the start of practical work to build a new gas pipeline system on the territory of Uzbekistan to provide for the growing export potential of Turkmenistan and Uzbekistan," Putin said.

"We see that the potential for such partnership is growing. We have a mutual interest in the realisation of this project," he was quoted as saying by Russian news agencies.

THREAT TO EU PROJECT

The new pipeline will increase gas exports from Uzbekistan and Turkmenistan, which both use Soviet-era pipelines operated by Russian gas export monopoly Gazprom (GAZP.MM).

Gazprom said in a statement an agreement on building a new pipeline and on the price formula for Uzbek gas had been reached. It gave no further details.

Uzbek President Islam Karimov said the proposed pipeline, with a capacity of 26-30 billion cubic metres (bcm), would be built alongside the two existing Soviet-era pipelines, known as Central Asia-Centre and Central Asia-Bukhara-Ural.

A spokesman for Putin confirmed that agreement had been reached with Uzbekistan to work out the details for building the new pipeline.

If built, the new pipeline could be a threat to a rival European Union project, known as the Nabucco Gas Pipeline, which plans to pump gas from Central Asia to Europe starting in 2013.

Nabucco, operated by a consortium led by Austrian group OMV (OMVV.VI), was proposed by the EU partly as a means to ease its reliance on Gazprom supplies.

GAS POLITICS

Central Asian states are trying to delicately balance the interests of major powers -- such as China, Russia, the European Union and United States -- in the scramble for gas supplies.

Russian-Uzbek bilateral trade totalled more than $4 billion in 2007 and firms such as LUKOIL (LKOH.MM), Russia's second-biggest oil company, have major interests in the country. Putin also said military cooperation would be widened.

Karimov said suggestions Uzbekistan was against the pipeline were being invented in the interests of foreign powers.

"Some sort of talk and speculation has appeared that Uzbekistan is against this pipeline going across its territory," he was quoted by Russian news agencies as saying.

"I must underline that we are intent on cooperation and prepared to provide our territory (for the pipeline)," he said.

Karimov said that if Turkmenistan, Central Asia's biggest gas producer, boosted production, new capacity would be needed.

Uzbekistan and Turkmenistan teamed up earlier this year to start charging Gazprom more for their supplies from next year, seeking to bring prices closer to European levels.

China, seeking to consolidate significant economic interests in Central Asia, has also been trying to secure more gas from the region to feed its booming economy.

Uzbekistan this year started building its part of a pipeline that will link Turkmen, Uzbek and Kazakh natural gas deposits with the Chinese market.

(Editing by Mark Trevelyan)

FILED UNDER:

Track China's Leaders