VZCZCXRO4428
RR RUEHAG RUEHAST RUEHBI RUEHCI RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK
RUEHKW RUEHLA RUEHLH RUEHLN RUEHLZ RUEHNEH RUEHNP RUEHPOD RUEHPW
RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHNT #0046 0090908
ZNR UUUUU ZZH
R 091342Z JAN 09
FM AMEMBASSY TASHKENT
TO RUEHC/SECSTATE WASHDC 0233
INFO ALL SOUTH AND CENTRAL ASIA COLLECTIVE
CIS COLLECTIVE
EUROPEAN POLITICAL COLLECTIVE
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RHEHAAA/NSC WASHINGTON DC
RUEAIIA/CIA WASHINGTON DC
RUEHNT/AMEMBASSY TASHKENT
RUEKJCS/SECDEF WASHDC

UNCLAS TASHKENT 000046 
 
SIPDIS 
SENSITIVE 
SBU DELIBERATIVE PROCESS 
DEPT FOR SCA/FO BOB DEUTSCH 
DEPT FOR SCA/CEN 
 
E.O. 12958: N/A 
TAGS: ECON ECIN ENRG EPET KPWR UZ
SUBJECT: UZBEKISTAN:  11TH HOUR AGREEMENT ON GAS TO  KYRGYZSTAN AND 
TAJIKISTAN 
 
REF: a) 08 TASHKENT 1505, b) 09 KYIV 1 
 
¶1. (SBU) SUMMARY.  On December 31 Uzbekistan concluded agreements 
with Kyrgyzstan and Tajikistan to supply natural gas at a price of 
$240 USD per thousand cubic meters in 2009.  A feared New Years 
cutoff of Uzbek natural gas to its neighbors appears to have been 
averted.  END SUMMARY 
 
¶2. (SBU) As expected (ref A) Uzbek-Kyrgyz and Uzbek-Tajik 
negotiations on 2009 natural gas deliveries went down to the end of 
the year wire on December 31.  On the same day that Gazprom 
announced it had reached agreement to purchase Uzbek, Kazakh, and 
Turkmen gas based on "European prices," Uzbekistan announced that 
it would sell gas to both Kyrgyzstan and Tajikistan at a fixed 
price of ($240/1000 cubic meters).  The agreement calls for the 
sale of 550 million cubic meters of gas to Tajikistan and 650 
million cubic meters to Kyrgyzstan. 
 
COMMENT 
------- 
 
¶3. (SBU) All sides can by rights declare a degree of victory in 
this eleventh hour agreement.  ($240/1000 cubic meters) is less 
than the $300 demanded by Uzbekistan in early December, but it is 
more than a 50 percent increase over the ($145/1000 cubic meters) 
that Kyrgyzstan and Tajikistan paid in 2008. 
 
¶4. (SBU) Gazprom will be buying gas from Uzbekistan and 
Turkmenistan "based" on European prices, not "at" European prices. 
According to a January 4 statement by Gazprom's Aleksey Miller, the 
price at which Gazprom is now selling gas to Central European 
countries is ($450/1000 cubic meters).  Initial announcements 
concerning Gazprom's deal with Uzbekistan and Turkmenistan indicate 
a significantly lower starting price of ($340/1000 cubic meters). 
By way of comparison, the price of natural gas for residential 
residents in the U.S. in October 2008 was significantly higher at 
($15.23/1000 cubic feet) or ($538/1000 cubic meters). 
 
¶5. (SBU) The price that European countries pay for natural gas from 
Gazprom is indexed to the price of oil with a six to nine month 
time lag.  Based on energy equivalence, a single barrel of oil is 
equivalent to 155 cubic meters of natural gas.  As of early January 
oil is selling at $48 per barrel.  The equivalent energy cost of 
natural gas is ($308/1000 cubic meters).  The ($450/1000 cubic 
meters) that Gazprom charges its European customers today is 
overpriced given today's oil market and can be expected to fall. 
If oil prices rise later in the year, then Gazprom's price to its 
European customers will, with a lag, also rise.  The price that 
Gazprom pays to Uzbekistan and Turkmenistan will, presumably, 
fluctuate in a similar manner, albeit at a lower level. 
 
¶6. (SBU) Although some analysts believe Uzbekistan's fixed price 
contracts with Kyrgyzstan and Tajikistan will serve to cushion 
falling prices in its sales to Russia, we do not agree for the 
reason that the volumes are not comparable.  Whereas Uzbekistan 
sells 12-14 billion cubic meters to Gazprom, its combined 2009 
sales to Kyrgyzstan and Tajikistan will amount to only 1.2 billion 
cubic meters.  Thus we believe that ($240/1000 cubic meters) is a 
benchmark that Uzbekistan has set for its dealings with Gazprom 
throughout 2009.  It is also close to the $250 USD per thousand 
cubic meters that Gazprom offered Ukraine at the end of December 
(ref B).  We expect Uzbekistan will try to coordinate gas pricing 
policy with Turkmenistan during the upcoming Uzbek-Turkmen summit 
in Tashkent in February. 
BUTCHER 
 
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