The gas-rich Central Asian country is making deals wherever it can in order to break Moscow's lock on its energy exports
Turkmenistan is leveraging its energy resources and central location as it tries to break Russian control over its energy exports.
With the European Union to the west and the booming Indian and Chinese economies to the east, Turkmenistan and its large natural-gas reserves are becoming increasingly important pieces in the Central Asian energy equation. For now, the country has little choice but to continue its close energy ties with Moscow, but a new pipeline deal with China confirms that it is now trading in a bigger market. On the broader Eurasian scene, some observers believe, Turkmenistan is becoming an important player in a "new Great Game" pitting Russia against not the West, but China.
RULES OF THE GAME
Turkmen President Gurbanguly Berdymukhammedov openly states that the country is seeking new export routes and keeping all existing projects in consideration. In recent meetings with his Afghan and Chinese counterparts and in visits by Russian and U.S. officials to Ashgabat, energy was a top agenda item. Turkmenistan and foreign governments are considering at least four pipeline projects that bypass Russia.
If Turkmenistan's goal is energy independence, however, it will face stiff resistance from Russia, which until now has been able to bargain for low prices and advantageous transport deals from Central Asian gas and oil producers. Russia buys more than three-fourths of Turkmenistan's annual production of natural gas at a bargain price.
In its Central Asian energy policy, "Russia is trying to control not only the reserves, but trying to control the infrastructure -- pipelines, pumping stations, terminals," Robert Corzine, a Caspian energy analyst, said.
Under the late dictator Saparmurat Niyazov, who died in December, Turkmenistan proved to be an unreliable partner for foreign investors.
"Niyazov had a strange personality," Corzine said, recalling how a proposed Trans-Caspian Gas Pipeline pushed by the European Union and the United States since the mid-1990s almost came to a standstill because of the late president's whim. His government at times canceled licenses and contracts with foreign firms and had their assets seized, as in the case of the Argentinean Bridas Corp. Stymied by the poor prospects, big energy firms Royal Dutch Shell and ExxonMobil left the country.
The investment climate looks markedly brighter under the new leader -- or at least its perception is changing. Western and Russian energy companies Chevron, Total, TNK-BP, Burren, Itera, and Rosneft have recently been seeking investment opportunities in the Turkmen hydrocarbon sector.
The new atmosphere also shows in the intensified dialogue between the West and Turkmen authorities on energy. The U.S. State Department's point man on regional energy issues, Steven Mann, a former ambassador to Ashgabat, has visited the country several times this year, and his State Department colleague responsible for South and Central Asian affairs, Evan Feigenbaum, met with Berdymukhammedov in June. On that occasion the Turkmen leader indicated his interest in diversifying gas export routes, saying his country "follows the principle of a multivector energy transport policy, and considers the trans-Caspian gas pipeline as one of such transport routes." That pipeline would deliver 30 billion cubic meters of Turkmen gas to Europe via other pipes in the Caucasus and the Nabucco pipeline into southeastern Europe.
RUSSIA'S HAND ON THE PUMP
If Turkmenistan does develop a "multivector" energy policy, the most likely loser is Russia, which now controls almost all exports of Turkmen gas, buying 50 billion cubic meters of the country's annual production of 65 billion. In the short run, though, most or all available Turkmen gas will continue to be pumped to Russia, because Turkmenistan has a contract with Russian state-controlled Gazprom to increase its exports up to 90 billion cubic meters a year until 2028, and because the only existing pipeline with the capacity to pump large amounts of Turkmen gas abroad leads into Gazprom's system via Uzbekistan and Kazakhstan.
In May, all four countries agreed to upgrade the 30-year-old pipeline, known as Central Asia -- Center. Russia, Kazakhstan, and Turkmenistan also made plans for a new pipe to run along the Caspian coast line into Russia.
Many media reports portrayed these deals as a major blow to Europe's and Washington's hopes to weaken the Russian stranglehold on Central Asian energy exports. Some energy experts differ. One, John Roberts of Platts Energy Services, says the Trans-Caspian pipeline would not be jeopardized because the Russian-Kazakh-Turkmen pipe would have a capacity of just 10 billion cubic meters and would not tap the major existing fields, leaving plenty to ship west bypassing Russia.
By expanding into new export markets, Turkmenistan hopes to gain leverage in setting gas prices, something it can hardly do now with so much of its export capacity flowing through Russian pipes. The country's vulnerability to outside control of its gas became clear in 1997 when Moscow stopped importing Turkmen gas in a pricing row. Faced with a serious revenue shortfall, Ashgabat gave in to Russia's demand for a new gas agreement at a lower price.
By the end of 2006 Turkmenistan managed to raise the price Russia pays from $55 to $100 per 1,000 cubic meters. Yet, this price is still a bargain for Russia, which itself charges foreign buyers $250 to $300.
In New York for the opening of the UN General Assembly in September, Berdymukhammedov reiterated his country's interest in diversifying its energy export markets and admitted that talks with Russia on gas prices had been "tense."
Roberts claims that Turkmenistan will send gas in any direction provided that "interested parties built a pipeline to its border."
And the Chinese are planning to do it. During Niyazov's presidency, Turkmen and Chinese leaders agreed to build a pipeline that would pump 30 billion cubic meters of gas to China annually starting from 2009.
Analysts question whether the project makes sense financially for either party, but at least for the Turkmens it is the political coup that seems to matter most.
"The project is realistic [for Beijing] since the Chinese get contracts for development of the required gas supplies and guarantees that other resources can be tapped if these prove insufficient," Roberts said.
During Berdymukhamedov's July visit to China, he and Chinese leader Hu Jintao signed an agreement allowing the China National Petroleum Corp. to begin producing gas on the southern bank of the Amu Darya river, pumping it to China via the new pipeline set to become operational in 2009.
In early September the two countries reportedly agreed on the price for the gas. The figure was not disclosed.
China's growing inroads into Central Asian energy production have some analysts concerned about the effect on energy markets and regional security. After all, argues Julian Lee, a senior analyst from the Center for Global Energy Studies, "The gas that goes from Turkmenistan to Russia will eventually end up in Europe, either directly or by displacing domestic gas in the Russian market and freeing up more Russian gas for export to Europe." But China's strategy is completely different, Corzine says, judging by the way it deals with its oil acquisitions. "China tends to capture oil when it moves into a country. In other words, the oil that is produced goes directly to China and not to the broad international market, which is the ultimate guarantor of energy security."
But Turkmenistan is keeping other options open as well. During a recent visit of Afghan President Hamid Karzai to Ashgabad, the main agenda topic was yet another proposed pipeline, this one to send up to 30 billion cubic meters a year across Afghanistan to India and Pakistan. Impoverished Afghanistan will benefit from transit fees and investment into the pipeline construction, bringing badly needed jobs.
Turkmenistan is already supplying gas to Iran via the 200-kilometer Korpeje -- Kurt Kuy pipeline, the country's only gas export route that bypasses Russia. In July, Turkmenistan, Iran, and Turkey signed a memorandum of understanding on a new pipeline to supply Turkey with Turkmen and Iranian gas.
WILL THE PUMP RUN DRY?
As Turkmenistan expands its energy horizons in all directions, a crucial question arises: does the country have the gas reserves to meet its promises and potential agreements?
There has been no open independent audit of Turkmen gas reserves. BP puts Turkmenistan's proven gas reserves at 2.9 trillion cubic meters -- in the same ballpark as major producers Norway and Kazakhstan, although still far behind Iran and Russia.
Former leader Niyazov boasted of up to 24 trillion cubic meters of gas reserves, a highly unrealistic number, analysts say, even with the announced discoveries of two large fields, South Yolotan and Osman, in 2006 and 2007. Nevertheless, the new fields show that Turkmenistan may have enough reserves to keep the world powers' interest.
Turkmenistan has agreements for 120 billion cubic meters per year by 2010 -- 90 billion to Gazprom and 30 billion to China, according to Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies.
"Just on the basis of reserves, the country can certainly fulfill" these agreements, Stern said.
And new or underexploited fields keep coming into production. The proposed Trans-Afghan pipeline is slated to pump gas from the Dauletabad field, estimated to contain at least 700 billion cubic meters of gas, and the Shatlyk field in the Amu Darya River basin holds a reported 1 trillion cubic meters. Another huge gas field with a reported 1.7 trillion cubic meters, Sag Kenar, will be tapped by the China National Petroleum Corp. according to the July agreement between the Turkmen and Chinese leaders.
If these fields are as big as Turkmen officials claim, Turkmenistan may be able to satisfy all the contracts and agreements currently in play, pumping gas to Russia, China, Iran, and possibly across the Caspian and into Afghanistan. It's a prospect that may make Moscow sweat.