Azeri, Turkmen heads meet for first time in 12 years

By Lada Yevgrashina

BAKU, May 19 (Reuters) - The leaders of Azerbaijan and Turkmenistan met for the first time in 12 years on Monday, boosting Europe's hopes of a new route for Central Asian gas that bypasses Russia.

Turkmenistan -- a sprawling, windswept desert nation which borders Iran and Afghanistan -- and Azerbaijan are central to the European Union's plans to reduce its energy reliance on Russia which supplies a quarter of Europe's needs.

Europe wants to pump Central Asian gas along a pipeline that crosses the Caucasus to its cities but it needs more supply.

The Azeri and Turkmen leaders agreed to develop a transport corridor on Monday and to discuss their own Caspian Sea oil field disputes, but they played down the significance.

"We have to put effort into creating international transport corridors which are not competitors to one another," Turkmenistan's President Kurbanguly Berdymukhamedov said.

During the winter of 2006, Moscow reduced gas supplies to Europe because of a transit price dispute with Ukraine -- through which around 80 percent of its gas travels -- worrying European leaders about their dependency on Russia for energy.

Turkmenistan's previous leader isolated the country but Berdymukhamedov, president since 2007, has tried to mend ties with neighbours.

DIVERSIFICATION

Both the Azeri and Turkmen leaders said they wanted to improve relations -- a natural move, analysts said.

"These talks should be productive for both countries," said Alexei Malashenko at the Carnegie Moscow Center think tank.

"It's part of the diversification. The era of Russia's monopoly on Turkmenistan's gas is over."

The vast majority of Turkmenistan's gas currently travels north to Europe through Russia's network of pipes.

In April the EU announced a gas deal with Turkmenistan as part of a plan to source its energy from more countries.

Baku hosts the start of a gas pipeline -- the South Caucasus Pipeline -- which pumps gas to Turkey where it is transported further on to Europe.

But a major issue is how to transport Turkmen gas to the start of the pipeline, either by ferrying it across the Caspian Sea or by building a new pipeline from Turkmenistan to Azerbaijan along the seabed -- both expensive options.

And Turkmenistan -- which some analysts have estimated could hold one of the world's biggest gas reserves -- has also made recent deals with Russia, said Artyom Konchin, an analyst at the Moscow-based bank UniCredit.

"It's not just about gas supplies, it's also about Russia's strong position in the region," he said.

Last year the Central Asian states agreed to build a new pipeline to pump gas north to Russia.

Instead, Konchin said the main benefit for Turkmenistan from the talks with Azerbaijan would be in an improved position in future negotiations with Russia over transit routes.

The Azeri and Turkmen presidents also discussed disputed oilfields in the Caspian Sea along with other trade and diplomatic links between the two countries. (Writing and reporting by James Kilner in Moscow; editing by James Jukwey)