Since the January 2009 gas crisis, top-level Russian officials have been suggesting that the Energy Charter Treaty should be reviewed. The Treaty was signed in 1994, but never ratified, by Russia. Russian gas giant Gazprom repeatedly invoked the Treaty’s incompatibility with its own interests and often claimed that it should be amended. One of the main dilemmas for Gazprom has always been the question of transit: how to ensure a reliable gas transit through Belarus and Ukraine on the one hand, while preserving a monopoly on the gas transit from Central Asia on the other?...

Key Issues:

• Central Asia is beginning to see a genuine move away from barter deals towards commercial deals in accordance with market forces.

• Contrary to much perceived wisdom, in Central Asia it is Gazprom, Russia’s natural gas export monopoly, that is leading the way in the movement towards market forces.

• Central Asian natural gas and oil will to some extent be able to satisfy European demand, but available reserves and infrastructure will be insufficient to allow Central Asia to replace other gas and oil regions as primary suppliers to European markets.

• Russian and Central Asian oil prices have already reached international levels, and the gas prices are moving in the direction of European levels.

• However, transportation bottlenecks remain and infrastructure often remains insufficient for Central Asian gas, and to some extent oil, exports even to gain available market share in European markets. For exports elsewhere, such as to China or India, transportation bottlenecks still pose even greater problems.

• Kazakhstan was expected to become a net exporter of natural gas in 2008. Although crude oil has been very important to the country’s economy, Kazakhstan must still import oil products for its own needs due to a lack of refinery capacity. Kazakhstan has since 2001-2002 quietly taken steps to reverse the large-scale privatisation of oil assets undertaken in the mid-1990s, and the Kazakhstani state is reasserting its dominant position versus the commercial actors.

• Uzbekistan is self-sufficient in natural gas production but again needs to import oil. Even so, the country has great potential as an oil and natural gas exporter.

• Turkmenistan already exports substantial volumes of both natural gas and oil. However, Turkmenistan has concluded so many agreements to export natural gas that the country will not be able to fulfil all export obligations.

• Azerbaijan, in comparison, became a net exporter of natural gas in 2007 and is an established oil exporter. Crude oil has indeed been spectacularly important to the country’s economy.