July 9, 2010
Turkmenistan has broken Russia’s stranglehold on its gas exports by opening a pipeline through Uzbekistan and Kazakhstan to China. The country’s president Gurbanguly Berdimuhamedov has just made his first trip to New Delhi where the Turkmenistan-Afghanistan-Pakistan-India natural gas pipeline project was discussed. Earlier this year a short pipeline was opened in order to increase exports to Iran, and gas is in the process of being identified for eventual export to Europe via a Trans-Caspian Gas Pipeline and the EU’s Southern Corridor. The era of Russian control over the country’s exports is over, and Ashgabat is taking care to make certain that it is not squeezed between Moscow and Beijing.
Under the regime of Turkmenistan’s former president Saparmurad Niyazov, the country’s gas production for international export was dedicated nearly entirely to Russia and Gazprom. Besides being consumed domestically in Russia, it was also exported through Ukraine to Europe. Turkmenistan’s exports to Russia declined throughout the 1990s, but Niyazov did not show any practical interest in further diversification of its exports, despite its near-total dependence on the Russian pipeline system and the low prices that Moscow’s monopsony enabled it to impose on the gas trade with Ashgabat. Indeed, he signed long-term contracts for the delivery of large quantities even exceeding the volumes that it was believed, at the time, the country was capable of producing.
The one exception was a relatively small-quantity pipeline to Iran. In 1997, Turkmenistan cooperated in the construction of the 120-mile Korpeje-Kordkuy pipeline to northeastern Iran, linking the Korpeje field north of Okarem in western Turkmenistan to Kordkuy in Iran. However, it rarely functioned at its design capacity of 8 billion cubic meters per year (bcm/y), and Turkmenistan frequently falsified export statistics (although this may have originally started at lower levels in order to escape administrative punishments for not fulfilling planned quotas). After Berdimuhamedov succeeded to the presidency, these problems appear to have been ameliorated. At the beginning of this year a second pipeline was opened between the two countries with the goal of expanding Turkmenistan’s exports to 20 bcm/y.
Towards the end of the 1990s, negotiations with two American companies concerning the construction of a Trans-Caspian Gas Pipeline (TCGP) foundered over Niyazov’s insistence on leading the Turkmenistani delegation to the negotiations, his lack of expertise in understanding the myriad technical problems involved, and his posing of unacceptable conditions to his interlocutors. At the same time, the Shah Deniz deposit offshore from Azerbaijan was discovered to have large quantities of natural gas instead of the oil that had been expected, and Azerbaijan’s then-president Heydar Aliev decided to build the South Caucasus Pipeline (SCP, also BTE for Baku-Tbilisi-Erzurum) for exporting Shah Deniz gas without waiting to resolve complicated issues with Turkmenistan, including delimitation of subsea natural resource rights sectors under the Caspian Sea.
In 2003, Niyazov suggested to then-president Vladimir Putin of Russia to refurbish and reconstruct the Caspian Coastal Pipeline (CCP, “Prikaspiiskii” and sometimes, erroneously, “Pre-Caspian”) running through Kazakhstan between the two countries, but a trilateral agreement was not signed until 2007. By then Berdimuhamedov had succeeded Niyazov in the office of the president in Ashgabat.
The signature and ratification of implementing documents were continuously delayed, but in April 2009 Berdimuhamedov visited Moscow with the purpose, according to Russian media, of once and for all finalizing the necessary arrangements. However, to the surprise and shock of his hosts, he returned to Ashgabat without signing anything. The next month, in May 2009, an explosion occurred in the gas pipeline on Turkmenistan’s territory, and mutual accusations flowed. Moscow blamed a poor level of technical expertise among Turkmenistan’s industrial workers, while Ashgabat insisted that they had been given insufficient notice of the closure of valves on the Russian side: only a day or two rather than the necessary week.
Underlying all these recriminations was the fact that the British firm Gaffney Cline had been conducting an audit of Turkmenistan’s gas reserves according to international standards and verified the existence of enormous new fields. All of a sudden, the international market prices that Russia had guaranteed to Turkmenistan were no longer a good deal for Gazprom. Not only had general demand decreased because of the global slowdown; Gazprom also no longer had all of Turkmenistan’s production locked up in existing contracts. The pipeline explosion effectively permitted a cancellation of those contracts.
At the same time, the Turkmenistan-China pipeline project (which equally breaks the Russian monopsony) was coming to fruition. Niyazov had signed the framework agreement for this with China’s president Hu Jintao in April 2006 in Beijing. Originally planned as an add-on to a Kazakhstan-China gas pipeline, it will supply 30 bcm/y from Turkmenistan, and will later be expanded to 40 bcm/y and possibly more. The route will include refurbishing and expanding the Bukhara-Tashkent pipeline inside Uzbekistan and the construction eastward through Almaty to the Chinese border, where a second West-East Gas Pipeline will take the gas from Xinjiang to the coast. It is already operating at the initially planned 10 bcm/y volume, which will progressively be ramped up. The gas for the pipeline to China will come from a deposit that does not even belong to the new ones verified by Gaffney Cline, the Bagtiyarlyk fields estimated by Chinese geologists to contain 1.6 trillion cubic meters of gas altogether, and which Chinese firms will participate in developing within the framework of a production sharing agreement.
Last month, Berdimuhamedov made his first visit to New Delhi to discuss general bilateral relations, including the long-planned Turkmenistan-Afghanistan-Pakistan-India (TAPI) natural gas pipeline project. No progress was made, but an intergovernmental economic commission was established and energy questions will figure in its mandate, as India declared its interest in implementing the project without delay. India has also brought up the possibility of gas swaps from Iran, specifically from the South Pars deposit that figured in the defunct Iran-Pakistan-India (IPI) project in return for increased Turkmenistani exports to northeastern Iran. However, Iran needs those imports for domestic consumption, and moreover suspended all oil swaps with foreign partners just two weeks ago. So it is unlikely that the swap scheme will be implemented, all the more so in view of the inability of Iran and India to agree over prices, quantities, and quality of gas in the negotiations over the IPI project.
Not only is the project to refurbish the Caspian Coastal Pipeline dead, but also Turkmenistan announced two months ago that it will rebuild the East-West Pipeline within the country using national resources and without contracting the work to any foreign entity. Over seventy international companies had responded to a tender for the work before Ashgabat made this announcement. Gazprom was only one of them, and had wished to own the gas in the pipeline as a condition for completing the work. This will now not be the case.
Originally intended to feed the Caspian Coastal Pipeline, the East-West Pipeline terminates not far from Turkmenistan’s coast on the Caspian Sea. Ashgabat has announced that the volume of the reconstructed East-West Pipeline will be 30 bcm/y, which the author’s sources inform is the minimum volume necessary to make an undersea gas pipeline to Azerbaijan economically viable. The gas will come from the South Yolotan field, which Gaffney Cline estimates to hold between four and 14 trillion cubic meters, and most likely six trillion.
Moreover, the German company RWE, which is a Nabucco shareholder, is reported to have detected gas in one of the offshore blocks that it is exploring. Also the United Arab Emirates (UAE) has been exploring for oil for a decade through the Dubai-based Dragon Oil. It therefore has good chances to win exploration rights for offshore gas blocks and, as a 20 percent shareholder in the Austrian company OMV, which leads the Nabucco project, will find an easy export route for any gas that it discovers.
First published in Central Asia – Caucasus Analyst (ISDP, Stockholm), vol. 12, no. 13 (8 July 2010): 10–12. Reproduced by permission. Further analysis at the author's home blog.Author : Robert Cutler