Tuesday, November 16, 2010

Turkmen Gas Leaving Russian Orbit

While Russian economic diplomacy continues to concentrate on maintaining a monopoly on the delivery of Central Asian gas, Turkmenistan has begun shipping its resources to the East, West and South. In 2008, Turkmenistan and Russia were involved in a dispute over gas deliveries and pricing. Russia halted its import of gas in April 2009, and a mysterious pipeline explosion further interrupted Turkmen gas deliveries to that country. When the deliveries resumed, it was at a significantly lower level (from 40 bcm to 10 bcm per year.)

Things have changed, and Turkmenistan doesn't need the Russian market the way they did two years ago. In December 2009, Chinese President Hu Jintao turned a wheel that opened a 1,100 mile pipeline that will link the Middle Kingdom to Turkmen gas supplies. The pipeline is supposed to be at full capacity by 2013, and will be delivering 40 bcm a year to China. This represents half the current Chinese demand for natural gas. The BBC notes that "The new pipeline also breaks Russia's long-standing stranglehold on Turkmenistan's vast gas supplies." (BBC News, "Turmkenistan-China gas link opens", 14 December 2009) The effect has been almost instantaneous: even though there is an agreement for China to begin purchases of Russian gas in 2015, the two sides have been unable to agree upon a price.

America's Central Asian energy czar, Richard Morningstar, acknowledged that the gas will probably not be flowing west. "Turkmenistan...is unlikely in the short term...Turkmenistan, for its own political reasons, is going to be very slow in making a determination to ship gas across the Caspian." The gas is destined for China, however, and not for the proposed Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, because of the political and security risks to the route. Morningstar doubted that any international oil company would be interested in investing in such a route. (www.eurasianet.org/print/62188, 19 October 2010) Russia Deputy Prime Minister Igor Sechin, nevertheless, said that Moscow is prepared to participate in the development in the pipeline as developer, financier, or as member of a consortium of construction contractors. (www.eurasianet.org/print/62237, 25 October 2010).

With a delivery system in place, the Chinese National Petroleum Corporation discovered a large gas field on the right bank of the Amu Darya river in Turkmenistan, which increases the amount of gas available for export to China. (www.oilandgaseurasia.com/news/p/0/news/8887, 28 September 2010). President Berdymukhamedov of Turkmenistan took note of the development and commented that Turkmenisan could quadruple its natural gas exports over the next 20 years, and was prepared to meet demand from Europe. Turkmenistan believes its reserves are estimated at 24.6 trillion cubic meters, triple the previous estimate. (oilprice.com/energy/natural-gas/turkmenistans-major-natural-gas-find, 8 October 2010)

Such activities were bound to cause a reaction. On October 21-22, Russian President Demitry Medvedyev paid a state visit to Ashgabat. The results were dismal from the Russian viewpoint. On the sidelines of the talks, Deputy Prime Minister Sechin commented it was unlikely Turkmenistan could sell gas without crossing Russian territory. In reaction, the Turkmen foreign ministry said they viewed such comments as interference in the normal course of international energy relations. (OilPrice.com, "Turkmenistan Takes Sides in Pipeline Supply Competition," 28 October 2010)

When the Russian press tried to put a good face on the summit meeting, the Turkmen MFA said the Russian spin was unsubstantiated, completely groundless and counterproductive. It said that Turkmenistan valued European companies because they were reliable partners whose actions were governed by economic and commercial logic (an obvious reply to the 2008-2009 disputes with Gazprom). It also rejected Russian overtures to be involved in the TAPI pipeline project. ("Russia's Message to Turkmenistan: Export Your Gas Anywhere Except Europe," Eurasia Daily Moniotr 7/196, 29 October 2010)

Despite the frigid reaction to Russia, President Berdymukhamedov still refuses to commit to the Nabucco pipeline. It has been hard for Western companies to work in the country, and ExxonMobil pulled out in 2002 (although they have recently reopened their offices there).

While countries in the Caucasus are moving to appease Russia for their own reasons, it seems obvious that Turkmenistan is continuing to pull away from Moscow's orbit. The pipeline to China gives Turkmenistan some breathing room to explore other energy export options.

Dr. James J. Coyle is available to speak to your organization or at your event. Please contact him at jimcoyle@verizon.net.