Competing Visions for Turkmen Gas

The legal status of the Caspian Sea continues to divide energy analysts' views on the future of Turkmenistan's gas production.  A senior Turkmen official who refused to be identified by name said the country plans to begin production next year in the Galkynysh (South Iolotan) field, the second largest gas field in the world.  "Right now, three gas-processing plants are being built, and two of them are certain to be ready in January or February," he said.  Such plans again raises the question as to who will buy the oil.  The Turkmen official said the government was holding out for some long-term agreements.  "We would like to receive guarantees on transit and purchase (volumes).  We need to come to a principle agreement on this."

In the West, the United States, Turkey and the European Union appear united that the energy should flow toward the Atlantic.  Patricia Flor, EU representative for Central Asia, urged Turkmenistan "to reach agreement with EU energy companies on a commercial contract."  Such contracts would require the construction of the Trans-Caspian Pipeline (TCP).  Turkey has thrown its support solidly behind this.  On September 3, 2012, Turkish Energy and Natural Resources Minister Taner Yildiz announced that Turkey intended to import and transport Turkmenistan's gas through the proposed TCP and TANAP pipelines.  Turkmenistan President Berdymuhamedov repeated his country's interest in selling to Europe through the TCP.

Russia, however, continues to oppose construction of the TCP.  According to the Russian envoy to the European Union, Vladimir Chizhov, in 2007 the presidents of the five littoral states of the Caspian Sea adopted a binding resolution at the Second Caspian Summit that all major decisions dealing with that body of water would require the consensus of all. The United States disagrees.  Lynne Tracy, deputy assistant secretary of state for South and Central Asian Affairs, said that if Turkmenistan and Azerbaijan agree on a pipeline that crosses only their territorial waters, "no other country has veto power over that decision."

Looking at the controversy and other factors, the energy consultants Wood Mackenzie conclude that Turkmen energy will go to China instead of Europe.  In a Reuters report, WoodMac's senior gas supply analyst is quoted as saying "The practicalities of the project are challenging and without any significant progress in the last decade, the proposed pipeline has been overtaken by competing projects....We forecast that China will have around 50 bcm of gas demand in 2020 that needs to be satisfied by additional imports, and Central Asan gas could play a key role in meeting this demand."

China has another advantage that might prevent the TCP from being constructed:  it finances pipelines headed East and there does not appear to be a white knight on the TCP horizon.