World's Energy

May 29, 2009 (Reuters by Simon Shuster and Marat Gurt) - MOSCOW/ASHGABAT, Turkmenistan threatened to take Russia to court over last month's gas pipeline explosion, RIA news agency reported, escalating a dispute that has severed a vital energy link through Russia to Europe. Turkmenistan blames Russia for blowing up the pipeline, which carries more than half of its most valuable export, by cutting the gas flows without enough warning. "When you shut off the flows, you get what is called a vacuum-bomb effect," Odek Odekov, head of Turkmen state geological institute Turkmengeologia, told reporters during an energy conference in Paris, RIA reported. "The system has to be prepared for a shut-off three days in advance, and Russia did it in the course of one day," he said. Russia's gas export monopoly Gazprom denies any wrongdoing and it has said it hopes to resolve the issue through talks. The company has avoided making detailed public statements on the matter. The two sides are now discussing the payment of damages for the incident and may take the case to international courts of arbitration if they cannot settle it on their own, the news agency reported Odekov as saying, without giving a direct quote. Gazprom, which controls the trunk pipelines, declined to comment on Odekov's remarks. Turkmen government officials in Ashgabat declined to elaborate. Odekov said Turkmenistan has been forced to shut off 195 gas production fields as 92 percent of its exports to Russia remained suspended, Platts news agency reported. The rest is flowing through another link via Kazakhstan to Russia. Every month, Turkmenistan is therefore losing between $800 million and $1 billion per month in export revenues, said Mikhail Korchemkin, director of East European Gas Analysis. "Turkmenistan has every right to demand this money," he said. U.S. PUSHES FOR BYPASSING RUSSIA Due a sharp drop in demand for gas in Europe, Russia no longer needs to buy Turkmen gas, because it can meet European demand more profitably by selling its own. For the short term, therefore, analysts said the explosion played into Russia's hands by halting imports from Turkmenistan. Korchemkin estimated that Gazprom is getting an additional $330-450 million per month in net profits out of this situation, while the Russian budget is getting an extra $300-400 million in customs duties. In the longer term, however, Moscow will have to deal with the anger of an important energy partner, which has begun looking to the West for other consumers and pipeline routes. In Ashgabat on Thursday, a top U.S. trade official voiced renewed support for two pipeline projects that would bypass Russia to bring Turkmen gas directly to Europe. "Alternate export routes such as Nabucco or the trans-Caspian pipeline will enhance Turkmenistan's independence and sovereignty by strengthening the country's ability to reach consumers," the U.S. Secretary of State's Special Envoy for Eurasian Energy Richard Morningstar told Reuters ahead of a meeting with Turkmen President Kurbanguly Berdymukhamedov. After the row with Russia, Berdymukhamedov has spoken out about the need to diversify gas exports. Russia, keen to maintain control over the region's gas flows, is ploughing ahead with its own pipeline project in the region, South Stream. "But South Stream does not open any new markets for Turkmenistan, because Russia would remain its only consumer. Nabucco, however, opens up all of Europe," Korchemkin said.