Russian state-owned natural gas company Gazprom has announced the cessation of purchasing agreements with Turkmenistan for its primary export, a huge blow to Turkmenistan’s economy. The decision, according to a statement from Turkmengaz, was a result of “changing conjunctures on the international gas market, as well as particular economic and financial issues arising at Gazprom Export.” Some six months ago, Gazprom filed a lawsuit against Turkmengaz with the Arbitration Institute of Stockholm Chamber of Commerce, demanding a review of prices set in the contract – a move that Gazprom has been making every year since the onset of 2008 financial crisis.
Gas deliveries from Turkmenistan utilize a common structure of gas, oil, or rail market deliveries known as a “take-or-pay contract,” meaning that the full price is paid upon delivery or a smaller penalty price must be paid if the full payment is not received. Since the gas cannot be returned to the supplier, it compensates the supplier for the risk of its delivery. A similar structure is utilized by Gazprom with its Ukrainian counterpart Naftogaz.
However, Turkmenistan has turned its hopes more to China in recent years, with the construction of Line D of its Central Asia pipeline – despite this, Russia also has its eyes set on China as a potential customer for its vast reserves, emphasizing its “Power of Siberia” pipeline project.
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