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Russia's Gazprom settles Ukraine gas row, but profits could dip

The energy giant agreed Tuesday to pay 'European prices' for Central Asian gas, where it has long enjoyed below-market rates.

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It's been an important week for Russian energy giant Gazprom's bid to strengthen its hold on oil and gas markets.

After withholding 50 percent of Ukraine's gas supplies in a brief dispute last week, Gazprom on Thursday struck a deal that cuts out middlemen and gives it more access to the ex-Soviet country's industrial gas customers. But while putting the squeeze on Ukraine, Gazprom also felt new pressure from increasingly bold Central Asian states, whose energy resources are being sought by the US, Europe, and China, as well as Russia.

Facing the heightened competition, Gazprom agreed to pay European prices for gas from key energy partners Turkmenistan, Uzbekistan, and Kazakhstan. Although it could result in lower revenues for Gazprom, experts say Russia has effectively bought control of Central Asian exports.

"Russia will maintain its control on gas supplies even though its profit will go down," says Sergey Smirnov, energy expert from the Expert Kazakhstan journal. "All other alternative routes that are on paper today become unreal."

The deal is likely to affect Europe most, which analysts say will face higher prices. In addition, the European Union is likely to find less receptivity now from Central Asian states for a proposed Trans-Caspian pipeline that would diversify energy supplies from Russia.


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