Turkmenbashi Demanding Higher Gas Prices.

Rumors are flying that the Turkmen president, Saparmurat Niyazov, yesterday demanded a big price increase for the gas that Gazprom buys from Turkmenistan and re-sells to Ukraine. Yesterday Gazprom’s chief executive, Alexey Miller, met with the Turkmen president, and President Yushchenko separately spoke with Niyazov by telephone. According to a Russian newspaper, citing unnamed sources, the Turkmenbashi demanded an increase of the price at the Turkmen border from the USD 65/tcm that Gazprom currently pays to USD 110-125. Alexander Ryazanov, another Gazprom executive, said yesterday that the 30 bcm of Turkmen gas that Gazprom had contracted for this year at the USD 65 price would run out around October, and he suggested Niyazov might compromise. According to the newspaper, Niyazov rejected Yushchenko’s suggestion that Ukraine buy 11 bcm “directly”. Concorde Capital: As usual, the Turkmenbashi is playing Ukraine and Russia off each other to get a higher price. He warned earlier this year that he wanted to increase prices to USD 100 by this autumn. If Russia and Ukraine presented a common front against the Turkmenbashi’s price demands, which they have good reason to do, he would have little bargaining power. We think Gazprom will resist giving the Turkmenbashi such a big increase because Gazprom would prefer to keep the maximum leverage for itself. In the worst case scenario, if Niyazov gets the full increase he is demanding, Gazprom would probably transfer the price increase directly onto Ukraine’s shoulders. That would bring the price at the Ukraine border from the current USD 95 up to USD 140-155 and prices for Ukrainian industry up to USD 180-200, 8-21% above our forecast for 2H06 (see our report of June 5, 2006). Until we see more concrete news we stand by our forecast.