Armenia Aims To Firm Up Three-Year Gas Price Deal With Russia By Sep

by Andrew Neff

World Markets Research Centre
Global Insight
August 1, 2008

Armenian Energy and Natural Resources Minister Armen Moysisian told
reporters this week that the government is expecting to sign a new
gas price deal with Russia’s Gazprom in September. Interfax reported
that Gazprom plans to increase its gas export price for Armenia to
$165US per 1,000 cm, up from $110US per 1,000 cm at present. Gazprom
CEO Alexei Miller met with senior Armenian officials in May, with the
two sides agreeing to bring Russian gas prices to Armenia up to the
"European" level by 2011 (seeArmenia: 20 May 2008:). Moysisian told
reporters that Armenia is looking to sign a three-year deal with
Gazprom, although he said that the price has yet to be determined.

Significance:At the moment, Armenia is entirely reliant on Russian
gas imports to meet domestic demand, giving it little leverage in
price negotiations with Gazprom.

However, Armenia, which is also linked to Iran via a new pipeline
and will eventually have the possibility of sourcing gas from Iran,
managed to lock in a bargain price of $110US per 1,000 cm back in
2006 for a three-year period by agreeing to hand over various energy
assets to Russian entities (seeCIS: 7 April 2006:). Armenia is likely
looking to strike a similar deal with the Russian gas giant this
time around in order to keep prices stable–even if higher, at $165US
per 1,000 cm–through the end of 2011. The Russian gas firm may not
be so amenable to a three-year freeze in prices this time, however,
given the lack of assets that Armenia has to offer in exchange, so
a deal under which Russian gas prices to Armenia rise each year over
the next three years is perhaps a more likely outcome.