New Pipeline, Old Horizons?
Authorities want capacity to shift gas to market from giant field, but many proposed export routes currently look less than viable.
Plans to build a new gas pipeline linking the resource-rich east of Turkmenistan with the west have renewed the debate about the country’s future export options.
An official recently said the pipeline would give Turkmenistan the option of exporting in any of four separate directions.
But analysts say logistical and above all political considerations mean Turkmenistan is likely to remain dependent on Russia as an export route for some time to come, with only China coming in as a significant new purchaser.
After the Turkmen government put the pipeline construction work out to tender, it said more than 70 foreign companies had expressed an interest. The deadline for bids was June 27.
Already a major producer of natural gas, Turkmenistan is anticipating a substantial rise in output thanks to the South Yolotan-Osman field, where an independent British audit published last year described a deposit ranging between estimates of four and 14 trillion cubic metres, with a best guess of six trillion. RFE/RL quoted an official from Gaffney, Cline and Associates, the British firm which conducted the study, as saying the midway figure would make South Yolotan-Osman “approximately the fourth or fifth largest gas field in the world«.
Although the Turkmen authorities have long spoken of plans to hike export volumes, the prospect of massive new reserves is now starting to make decisions on export routes a priority, experts say.
At the moment, the vast majority of Turkmen gas exports – some 50 billion cu m of total production of 70 billion cu m in 2008 – go to Russia. This uses two branches of the Central Asia-Centre, CAC, pipeline network, of which the main one runs from eastern parts of the country via Uzbekistan and Kazakstan. A western branch of CAC skirts the Caspian Sea, running from western Turkmenistan through Kazakstan to Russia. CAC pipeline is owned and operated by Gazprom, the Russian giant gas producer and trader.
The other working pipeline runs south to Iran, again from western Turkmenistan, with a throughput of around eight billion cu m a year.
According to an energy analyst based in Turkmenistan, who asked to remain anonymous, once gas from South Yolotan arrives in western Turkmenistan via the new domestic pipeline, it could go south to Iran, west across the Caspian Sea, or north to Russia as is now the case – assuming the pipeline infrastructure is in place for some or all these variants.
One reason for building a pipeline from east to west Turkmenistan could simply be to feed the existing Iranian and CAC routes.
However, when Dovlet Atabaev, European mission head of the Turkmen presidential agency for energy resources, addressed an energy conference in Paris on May 29, he made it clear the intention was to anticipate other export opportunities by making it easier to move gas around the country.
“The East-West [pipeline] can provide stability for deliveries of Turkmen gas in four directions – Russia, Iran, China and if the TAPI [Trans-Afghanistan Pipeline] project is implemented, going through Pakistan and India,” he said.
Foreign ministers from India, Pakistan, Afghanistan and Turkmenistan signed a framework agreement on construction and contractual issues when they met in April to discuss the TAPI project.
Although the agreement speaks of a construction start date of 2010, energy experts interviewed by IWPR said that despite huge demand for energy in Pakistan and India, the trans-Afghan route looks uncertain, because of the continual warfare in that country since the pipeline was conceived in the Nineties. That suggests that international financial institutions will be reluctant to underwrite such a high-risk venture.
As for expanding export capacity to Iran, Rovshan Ibrahimov, head of the international relations department at Qafqaz University in Baku, says this route is less than promising.
“Iran is not an ideal option for Turkmenistan, as it is viewed as a pariah state by the international community,” he said. “Developing relations with such a state could have adverse consequences for Turkmenistan.”
In addition, the energy expert in Turkmenistan noted that Ashgabat has had its differences with Tehran over gas prices, just as it has with Moscow.
The westward direction of the new internal pipeline leads inevitable to speculation about the Trans-Caspian Gas Pipeline, TCGP, a western-backed route which would run on the Caspian Sea floor to Azerbaijan, from where it would link up with the proposed Nabucco pipeline, running from Turkey to Austria via southeast Europe.
Because it would skirt Russia, Moscow would most likely put pressure on regional states not to be part of the TCGP project.
“Implementing this project would require the support of western countries, above all the United States,” said Ibrahimov.
One major objection that the Russians could bring into play is that ownership of the Caspian remains under dispute, 17 years after the fall of the Soviet Union. Iran, in particular, wants to divide the sea by a different method from the one favoured by most of the former Soviet states, as it lays claims to a larger slice of the waters, seabed and any oil and gas deposits located there.
“Russia, Iran and Kazakstan will not agree to any project in the Caspian basin without this issue being resolved, and Azerbaijan is very likely to take the same position,” said Annadurdy Khadjiev, a Turkmen economist based in Bulgaria.
The Chinese pipeline, which will run east via Uzbekistan and Kazakstan, is expected to be ready by the end of this year, with a capacity of 40 billion cu m a year.
The energy based in Turkmenistan said this route offered the most realistic alternative to Russia.
“China is a large and fairly wealthy country with the capacity to invest in building things like this long [7,000-kilometre] pipeline,” he said.
Beijing has demonstrated its interest in Turkmen gas by announcing plans to invest three billion US dollars in South Yolotan-Osman, as Turkmen state media reported on June 6.
With many obstacles in the way the other alternatives – with the possible exception of the Chinese one – Russia looks set to remain a key player in the Turkmen gas export market.
To head off further progress on TCGP negotiations, Moscow has proposed an expansion of CAC. To expand capacity, the western branch would be expanded and an additional pipeline laid alongside it.
Plans for Gazprom to acquire exclusive rights to build the new pipeline were thrown in doubt when Turkmen president Gurbanguly Berdymuhammedov confounded expectations by failing to sign an agreement when he visited Moscow in March.
Already arguing about the gas price level for 2009 in a world environment of low demand, Moscow and Ashgabat rowed over Gazprom’s decision in April to cut the amount of gas coming through CAC. Turkmen officials said the reduced flow was the cause of an explosion in the pipeline.
In a statement on June 1, Gazprom's deputy board chairman Valery Golubev said market conditions had changed, and Ukraine – which takes most of the Turkmen gas his company buys – had cut its consumption by half.
»Since Europe is no longer buying gas at [earlier high] prices, we... cannot sell your gas at your price," said Golubev.
According to some analysts, the dispute has prompted Turkmenistan to focus more on alternative routes which would bypass Russia and loosen that country’s grip on its gas exports.
“Berdymuhammedov understands that the time has come to weaken Russia’s influence,” said Alexei Malashenko of the Carnegie Endowment, a think-tank in Moscow. “Ashgabat’s main act is to put up resistance to Gazprom. There is a serious political game going on, with unforeseeable consequences.”
However, others believe that – with the possible exception of the Chinese pipeline – talking about alternative routes is by and large a useful way of driving a hard bargain with the Russians
The Turkmenistan-based expert said the ongoing disputes with Moscow did not mean the two states were falling out, merely that each was trying to secure the best possible terms.
“If Ashgabat starts taking steps to implement other projects, then Russia won’t be able to dictate terms and will become more compliant on prices and on compensation for pipeline blasts,” he said.
The analyst said Moscow might win not only the CAC extension contract, but also the bid for the internal, east-to-west pipeline.
“One cannot rule that Russia will offer Turkmenistan good terms for building the east-west pipeline, offer higher prices for gas than Iran or Turkey, and thus maintain its position in the region, and also its influence over the Berdymuhamedov administration.”
Malashenko, too, argues that Ashgabat would be wise to avoid alienating Russia even if it pursues alternative projects.
“In any case, if they fall out with anyone [future partners], they will come back to Russia,” he said.
As the Turkmenistan-based energy expert put it, “The game continues.”