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Price hikes in natural gas coming from Central Asia will hit European economies hard but will give Central Asian states large amounts of their own cash for the first time. (With Stratfor map)

Russian natural gas behemoth Gazprom announced July 9 that the price at which Russia sells natural gas to Europe will quickly rise to $500 per thousand cubic meters (tcm). It attributed the staggeringly high price on a hike in prices from Central Asia, which supplies some of the natural gas Russia sends to Europe. The high prices will most likely cripple many European consumers and continue the flow of cash going to Moscow, but the rise in prices from Central Asian states like Turkmenistan and Kazakhstan will give those countries their own cash — and lots of it — for the first time in their histories.

Russia has continually raised natural gas prices to Europe (which depends on Russia for one-quarter of its natural gas) from $113 per tcm in 2003 to approximately $430 per tcm currently. Russia depends on natural gas from Turkmenistan and Kazakhstan to help fill its orders for Europe, just as the two Central Asian states are dependent solely on Russia to export their vast energy resources. Turkmenistan and Kazakhstan hold some of the world’s largest energy reserves; Kazakhstan is estimated to have 40 billion barrels of oil and 3 trillion cubic meters of natural gas, and Turkmenistan is estimated to have 2 billion to 6 billion barrels of oil and 3 trillion cubic meters of natural gas. Uzbekistan also holds significant reserves but is not seeing the large influx of cash that Kazakhstan and Turkmenistan are — though once the energy connections being constructed between Central Asia and China are complete, expect Uzbekistan to follow suit.

In short, Kazakhstan and Turkmenistan are among the top 12 countries with natural gas reserves, most of which have not really been tapped. Together, the two nations currently export approximately 65 billion cubic meters (bcm) annually, though this amount is supposed to reach 85 bcm in 2009. Either way, they are still barely tapping their natural gas reserves.

Turkmenistan and Kazakhstan continued in the Soviet tradition of giving the Russians natural gas at below-market rates until this past year, when they finally started to realize what enormous potential cash wealth they had been missing out on. In 2006, Turkmenistan and Kazakhstan sold Russia natural gas for roughly $44 per tcm, though Moscow was selling it to Europe for $295 per tcm. In December 2007, the Turkmen government finally informed Russia that it would be raising its price to $130 per tcm in the first half of 2008, and then $180 per tcm for the second half of the year. Kazakhstan (and to some degree Uzbekistan) quickly jumped on board behind Turkmenistan and also raised its price. This has spurred Russia to pass on the increase to Europe.