November 26, 2010
A recent series of statements and concrete actions by leaders from Ashgabat shows a clear willingness and desire to implement the “European direction” as a component of the country’s international gas export policy. Technical obstacles are mainly solved, and the only remaining political obstacle appears to be Europe’s difficulty in concentrating its attention to take the necessary steps from its own side. The last chance for this seemingly will begin to expire early next year.
In the last years of Saparmurad Niyazov’s presidency of Turkmenistan, in the middle of the past decade, his country was exporting as much as 40-50 billion cubic meters per year (bcm/y) of natural gas to Russia. Since his death at the end of 2006, his successor, Gurbanguly Berdimuhamedov, has been moving decisively to reorient the country’s international economic policy. Until the opening of a gas pipeline to China last year with a planned final-stage volume of 30 bcm/y, the only other export direction for the country’s gas was to Iran, where a small pipeline took about 2-6 bcm/y (the volume varying widely from year to year, usually at the low end) to the latter country’s northeast exclusively for domestic consumption.
In December 2007, Russia, Turkmenistan, and Kazakhstan signed a draft agreement for refurbishing and reconstruction of the Caspian Coastal Pipeline (CCP, also called “Prikaspiiskii” or “pre-Caspian”), part of the western branch of the Soviet-era Central Asia-Center pipeline, which historically took Central Asian gas to Russia. The state (or para-statal) enterprises Gazprom, Turkmengaz, and KazMunaiGaz were to make arrangements for carrying out the work on their respective national territories. The subsequent crash of world energy prices, however, meant that Gazprom had less available investment capital and thus less interest in doing the agreed work. At nearly the same time, the outbreak of the global financial crisis entailed an economic recession that depressed European demand for gas from Russia by nearly 30 percent.
As a result, Russia became less dependent upon imports from Turkmenistan and tried to renegotiate lower the price for Ashgabat’s gas. Relations between Turkmenistan and Moscow further worsened dramatically after an explosion on the Central Asia-Center-4 gas pipeline in April 2009, for which Turkmenistan blamed Gazprom. During the months-long closure of the pipeline Russian imports declined to near-zero. Moreover, considered as an “act of God” (force majeure), the pipeline explosion relieved Gazprom of the obligation to purchase large volumes of contracted gas from Turkmenistan, for which the Russian firm had no evident buyer. Nor have quantities rebounded: Russia, which bought 40 bcm of gas from Turkmenistan in 2008, will be buying a maximum of only 10 bcm this year.
Against that background Russia’s president Dmitry Medvedev visited Ashgabat at the end of last month, and also had the opportunity to meet Berdimuhamedov again briefly at the Caspian littoral heads-of-state summit held in Baku last weekend. At the Ashgabat meeting, the plans for the renovated CCP were finally officially shelved, as it became clear that Gazprom had no intention to execute its part of the bargain. This also followed Ashgabat’s decision six months ago, after considering 70 international responses to a tender offer including one from Gazprom, to reconstruct the so-called “East-West Pipeline” running across the southern part of the country using its own national resources. Gazprom had stated its willingness to help on the condition that it would receive the gas across the border in Russia.
Turkmenistan was officially miffed, and not for the first time, at the spin that Russian reports put on the bilateral meeting: an unnamed Russian official (widely believed to be Deputy Prime Minister Igor Sechin on the basis of his previous public comments) was quoted as saying that there is no demand for Ashgabat’s gas in Europe. Turkmenistan’s official reply rejected that proposition as well as the contention that Gazprom was being actively considered for participation in the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline project, which has recently received renewed diplomatic momentum not only from Turkmenistan but also from Pakistan and the Asian Development Bank.
On November 18, in a statement to the press following the third heads-of-state summit of Caspian littoral countries in Baku, the deputy chairman of Turkmenistan’s cabinet of ministers, Baymyrad Hojamuhamedov, said that his country’s president had proposed there that an agreement between “any two of the five countries on the Caspian” should suffice to lay an undersea pipeline, and that “the majority” had agreed. This is a signal from Ashgabat that it is ready to supply gas to the EU through the Nabucco pipeline, the principal participating firms of which have postponed their final investment decision from autumn 2010 to the first quarter of 2011. Both Turkmenistan and Azerbaijan have stated that their disagreement over delimitation of offshore natural-resources sectors under the Caspian Sea is no longer an obstacle to cooperation on a pipeline (or any other means of transit) for natural gas from the eastern to the western shore.
At an international oil and gas forum in Ashgabat held only days after the multilateral Baku summit, Hojamuhamedov further publicly announced that Turkmenistan would provide gas for the Nabucco project. He had earlier specifically pointed to the East-West Pipeline’s capacity of 30 bcm/y as being complementary to Nabucco’s requirements, and he has even suggested a total of 40 bcm/y could be found. There is an existing Memorandum of Understanding between Turkmenistan and the EU, first discussed when Berdimuhamedov visited Brussels in November 2007 and then formalized in an agreement signed April 2008 with the EU’s then-commissioner for external relations (and European Neighborhood Policy) Benita Ferrero-Waldner, for 10 bcm/y in the first instance. While the interconnection of Turkmenistani and Azerbaijani offshore rigs in the Caspian Sea has always been a possibility for realizing this intention, now it also happens that the Malaysian state oil company Petronas will be producing 5 bcm/y from an offshore Caspian block next year and at present has nowhere to ship it.
Meanwhile, it has been announced that a European consortium headed by the Italian firm ENI seeks to negotiate a project to build a fleet of at least four tankers to ship 3-4 bcm/y of compressed natural gas (CNG) across the Caspian Sea to Azerbaijan, where it could enter the pipeline network to Turkey. CNG technology has never been used over long maritime distances, so the costs would be difficult to estimate and certainly non-competitive with an undersea pipeline; but according to the announcement by Turkmenistan’s honorary consul to the EU, the feasibility study has been completed, and the conclusions on necessary commercial conditions have been finalized.
Russia has more or less come to terms with the fact that it will no longer have monopsonistic control of Turkmenistan’s exports but still strongly prefers that Ashgabat’s gas should go anywhere but Europe. However, it is clear that Berdimuhamedov is following his own path. It remains for the EU to come through with the necessary conditions and guarantees to make possible, finally, a trans-Caspian link. The European Parliament’s postponement of a vote approving for the new Partnership and Cooperation Agreement (PCA) with Turkmenistan does not have to be reversed for the implementation of concrete energy relations with Ashgabat, but it sends a bad signal; it results from Russia’s lobbying in Brussels, including through third parties. With the final investment decision for Nabucco already postponed from this autumn to the end of March 2011, Europe may well be facing its last chance to diversify its energy dependence in the direction of the Caspian Sea basin.
First published in Central Asia – Caucasus Analyst [Institute for Security and Development Policy, Stockholm], Vol. 12, No. 22 (24 November 2010): 3-5.