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weekend, it is apparent that the great game over Caspian energy has taken a
dramatic turn. In the geopolitics of energy security, nothing like this has
happened before. The United States has suffered a huge defeat in the race
for Caspian gas. The question now is how much longer Washington could afford
to keep Iran out of the energy market. 

Gazprom, Russia's energy leviathan, signed two major agreements in Ashgabat
on Friday outlining a new scheme for purchase of Turkmen gas. The first one
elaborates the price formation principles that will be guiding the Russian
gas purchase from Turkmenistan during the next 20-year period. The second
agreement is a unique one, making Gazprom the donor for local Turkmen energy
projects. In essence, the two agreements ensure that Russia will keep
control over Turkmen gas exports. 

The new pricing principle lays out that starting from next year, Russia has
agreed to pay to Turkmenistan a base gas purchasing price that is a mix of
the average wholesale price in Europe and Ukraine. In effect, as compared to
the current price of US$140 per thousand cubic meters of Turkmen gas, from
2009 onward Russia will be paying $225-295 under the new formula. This works
out to an additional annual payment of something like $9.4 billion to $12.4
billion. But the transition to market principles of pricing will take place
within the framework of a long-term contract running up to the year 2028. 

The second agreement stipulates that Gazprom will finance and build gas
transportation facilities and develop gas fields in Turkmenistan. Experts
have estimated that Gazprom will finance Turkmen projects costing $4-6
billion. Gazprom chief Alexei Miller said, "We have reached agreement
regarding Gazprom financing and building the new main gas pipelines from the
east of the country, developing gas fields and boosting the capacity of the
Turkmen sector of the Caspian gas pipeline to 30 billion cubic meters."
Interestingly, Gazprom will provide financing in the form of 0% credits for
these local projects. The net gain for Turkmenistan is estimated to be in
the region of $240-480 million.