Turkmenistan quietly ended its long term gas supply contract with Russian state controlled gas giant Gazprom this past summer while preparing to ink a larger supply deal with Iraq.
Russian state news agency Tass quoted the executive board chairman of state gas producer Turkmengaz, Maksat Babayev, as saying at the end of last week that the Turkmen company had been unable to negotiate a desired price revision with Gazprom and the contract was automatically terminated.
Babayev said that the contract — signed in 2019 — included an annual price revision clause, allowing termination of the contract if Gazprom and Turkmengaz were unable to agree a price formula for the next delivery period by a deadline of 30 June every year.
He added that Turkmenistan has witnessed rising external demand for its domestically-produced gas. According to the report, “commercial considerations” are now the chief consideration determining Turkmenistan's decisions on supplying gas to foreign buyers, Babayev said.
Under the terminated contract with Gazprom, Turkmengaz was due to supply up to 5.5 billion cubic metres of gas per annum via a legacy network of pipelines running from Turkmenistan across Kazakhstan to Russia.
Following a year of discussions, Turkmenistan in October finalised a deal with Iraq to deliver gas to the Middle East country to support its power generation via a swap arrangement with Iran.
Turkmengaz has committed to deliver up to 20 million cubic metres of gas per day to Iraq during the summer months, although supplies are capped at 10 MMcmd during the winter when Turkmenistan’s domestic consumption increases.
Reports in Ashgabat suggested that the newly agreed delivery volumes to Iraq — that could reach as much as 10 billion cubic metres of gas per annum — may significantly exceed the levels shipped under Turkmengaz’ previous commitments to Russia.
Competition for Chinese market share
Babayev also addressed concerns in Ashgabat regarding growing rivalry between Russia and Turkmenistan for supplying gas to China, describing the two countries' plans to boost pipeline deliveries to the economic powerhouse as “normal market relations and natural competition”.
Competition between Turkmenistan and Russia over Chinese market share has intensified after Gazprom halted gas exports to Europe in 2022 in response to international sanctions against Russia and its corporations following the country’s invasion of Ukraine.
The Russian company at the time said it would focus on securing more gas deliveries to China and Asia to compensate for reduced European shipments.
According to Tass, Babayev said that talks with China National Petroleum Corporation are still underway to agree the price of additional Turkmen gas supplies that will flow via a planned fourth pipeline to China with a capacity of 15 Bcm per annum.
Known as Line D, the pipeline will cross Uzbekistan, Tajikistan and Kyrgyzstan en route to China. The deal between Turkmengaz and CNPC would enable the companies to negotiate arrangements with the transit countries to proceed with the pipeline's construction.
Turkmenistan is currently capable of shipping 40 Bcm of gas via three parallel pipelines – A, B and C - that reach China via Kazakhstan, and are known as the Central Asia–China network.
Meanwhile, Gazprom is due to reach annual maximum contracted capacity of 38 Bcm of gas supplied to China via the Sila Sibiri 1 pipeline from East Siberia in 2025.
It is building another pipeline to supply up to 10 Bcm per annum from Sakhalin Island in Russia's far east.
Additionally, Gazprom has been sending more LNG cargoes to China from its Sakhalin 2 oil and gas project where it now has a 77% interest after acquiring a 27.5% stake in the development previously held by Shell — and subsequently confiscated by the Russian government — earlier this year.