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

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"High import prices can force Russia to raise export of its own gas," says Mikhail Krutikhin of Russian Energy, a consultancy firm in Moscow.

Ukraine, particularly, may be in the worst situation as most of its imported gas comes through Russia from Turkmenistan, which is likely to raise its gas prices from the current $130 to $150 per 1,000 cubic meters (tcm) to $250 to $350 tcm.

Russia's role as sole exporter

Because all operational pipelines in Central Asia date to the Soviet era, all gas exports go through Russia. Russia has effectively used this position to dictate prices to ex-Soviet states. Just two years ago Russia was buying Turkmen gas at $65 per tcm and sold it to European countries at $250 to 300 per tcm.

Such price inequalities drove Central Asian nations to seek alternative gas export routes – a task not difficult when China and the West were looking to diversify energy supplies away from Russia and the Middle East.

In the past few years, the United States and EU intensified their attempts to convince Central Asian states to deliver its gas straight to Europe via a Trans-Caspian pipeline, bypassing Russia. High-profile US delegations and EU energy officials became frequent visitors to Ashgabat, the capital of Turkmenistan, which claims it has up to 24 trillion cubic meters of gas reserves, though no independent assessment is available.

Europe, which worries that its dependence on Russia's energy supplies can be used by Moscow for political purposes, hopes to receive up to 30 billion cubic meters (bcm) of Turkmen gas annually if the project is implemented. It would be transported from the Caspian region, where Turkmenistan claims the largest gas reserves, to Turkey and then Europe via the proposed Nabucco pipeline. Only one link in the planned route is complete – the Baku-Tbilisi-Erzrum line, which runs from Azerbaijan to Turkey. All other routes exist only on paper.

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