Page 1 of 2 Energy superpower emerges in the Caspian
By M K Bhadrakumar
Turkmenistan knows better than any other country that predators will go to any
extent to take away its valuable possessions. Five successive empires -
Scythian, Parthian, Ywati, Hun and Turkmen - invaded the area to locate the
"Akhal" oasis nestled in the foothills of the Kopet Dag mountains in southern
Turkmenistan, and laid waste everything that came across their way until they
could take away the treasured Akhal-Teke horses as spoils of war.
The ancient race of Akhal-Teke horses, dating to 2,400 BC, were much fancied
for their elegance, strength, stamina and beauty. Alexander the Great
apparently took away with him hundreds of
these horses as prized trophies during his campaign in Central Asia.
So Turkmenistan's collective memory will be stirred by the announcement on
Monday that the country may have in the Yoloten-Osman deposits one of the
world's four or five largest gas fields.
British consultancy firm Gaffney, Cline & Associates (GCA), making the
announcement in Ashgabat regarding the first results of its audit of Turkmen
gas reserves, said its low estimate under the established international and
classification system is that the fields may have a minimum 4 trillion cubic
meters of gas and as much as a staggering 14 trillion cubic meters.
This catapults Yoloten-Osman, in the southeast of the country, to the status of
Turkmenistan's No 1 gas field, overtaking even the fabulous Dowalatabad, whose
reserves it will exceed by at least five times. It should be kept in mind that
many other of Turkmenistan's many gas fields have yet to be fully explored, and
the GCA has just made its initial findings known.
Without doubt, Turkmenistan is closing its gap with Russia and Iran, hitherto
listed as having the world's largest and second-largest gas reserves at 48
trillion cubic meters and 26 billion cubic meters, respectively. If the GCA
results are confirmed, Turkmenistan will have reserves just 20% lower than that
of Russia and outstrip Iran by far.
It seems the late Turkmenistan president Saparmurat Niyazov stands vindicated.
Just before he died in December 2006, Niyazov remarked that Turkmenistan held
reserves that were adequate to export 150 billion cubic meters (BCM) of gas for
the next 250 years. The world, including the then visiting German foreign
minister Frank-Walter Steinmeier, didn't take Niyazov's statement seriously.
In March, Niayov's successor, Gurbanguly Berdimukhamedov, ordered the GCA audit
to clear doubts about Turkmenbashi's controversial claim. In a British
understatement, GCA manager Jim Gillet said in Ashgabat, "Given the huge gas
reserves, it is now clear that whatever the results of any final clarification,
I can confirm that there is more than sufficient gas to fulfill Turkmenistan's
existing contract commitments." Turkmenistan has contracts to supply Russia
with around 50 bcm annually, China with 40 bcm and with Iran 8 bcm.
Without doubt, the maths of energy security is being reset. October 13 will
stand out as a watershed in the race for Caspian energy. Like the shy
Akhal-Teke, Turkmenistan comes from behind and surges ahead on the race tracks,
captivating the world audience, especially the main wagerers - Russian,
European, Chinese and the ubiquitous Americans. For these seasoned hands
betting on the race track, this will also be pari-mutuel wagering, as
the French would say, meaning "among ourselves", with betting against each
other and not against the race track.
Turkmenistan is undoubtedly a vital partner for Russia in gas supplies. The two
countries have an agreement regarding gas prices and the volume of gas supplies
for 2007-2009. Ashgabat has been extracting higher and higher prices from
Russia for its gas supplies. The price was raised to $100 per 1,000 cubic
meters last year from the level of $65. Then it was further raised to $130 for
January-June 2008 and to $150 in the second half of 2008.
Ashgabat has been playing on the nerves of Russian energy giant Gazprom and its
desperate need for Turkmen gas to meet its export obligations in the European
market, which accounts for 70% of the Russian company's total revenue at the
moment. Gazprom sells close to two-thirds of Russia's 550 bcm annual gas
production in the rapidly growing domestic market, which compels it to secure
Turkmen supplies to meet the contracted European commitments.
Russian newspaper Kommersant made an innocuous-sounding reference on Wednesday,
quoting a source in Gazprom to the effect that the Russian monopoly's famous
July 25 agreement with Turkmengaz does not involve Yoloten-Osman. It seems, in
other words, that Russia held in its hands a chimera when it fancied that the
July 25 agreement put Gazprom in complete charge of all of Turkmenistan's
exports. Surely, that is proving to be a misconception of Himalayan
For Russia, arguably, the game now starts all over again. First and foremost,
it is no longer the superpower in the world of natural gas as was widely
regarded until last weekend. Turkmenistan is, unquestionably, also a gas
superpower of comparable muscle power to Russia.
Again, Russia will need to come terms with a "multipolar" world of
gas-producing countries. It needs to revisit its entire strategy toward
consolidating a world gas market. The prospect of a gas cartel - a gas OPEC -
materializing any time soon now recedes into the far background. There will be
disappointment in Tehran that the idea will have to be thrown out of the
window, but a collective sigh of relief can be heard in European capitals.
More important, Russia will have to rework its bonding with its Central Asian
partners. Turkmenistan was a vital link in the Moscow-led energy chain of
Central Asia's leading gas-producing countries - the others being Uzbekistan
and Kazakhstan. Last year, Russia worked out plans - involving Kazakhstan and
Turkmenistan - for a gas pipeline along the Caspian Sea's eastern coast for
handling Turkmenistan's anticipated exports. In September, during Russian Prime
Minister Vladimir Putin's visit to Tashkent, Uzbekistan agreed to the Russian
plan for an expansion of the Central Asian gas pipeline system for handling
anticipated Turkmen gas exports.
These initiatives were predicated on the assumption that Russia must gear up to
handle all of Turkmen gas exports. During last year, Russia gained rights over
the gas exports of Turkmenistan, Kazakhstan and Uzbekistan on the basis of its
offer to make purchases at "European prices". The entire economics and
logistics behind these complicated webs of Russian gas diplomacy in Central
Asia now require updating - and rapid updating since, unlike previously,
Russia's competitors by now know its tactics and work ethics and there is
consequently now no more surprise element.
The immediate Russian concern will be regarding the Nabucco gas pipeline
proposal mooted by the European Union and backed by the United States as an
energy project that would somewhat reduce Europe's dependence on Russian gas
supplies. Nabucco envisages the dispatch of Caspian gas to the European market
via an energy hub in Turkey bypassing Russian territory. Nabucco's viability
depends on access to Turkmen (or Iranian) gas supplies.
With GCA's announcement on Monday, the doubts have been dispelled at least in
one direction - Turkmenistan indeed does have the capacity to feed Nabucco with
all the gas it needs. This comes at an awkward time for Moscow when its rival
project, South Stream, which aims at further tying up the European market with
Russian gas supplies, is struggling to take off.
Nabucco will give South Stream a run for its money. If it materializes, it
could also be a setback for the broader thrust of Russian diplomacy, which in
the past two years has aimed at cultivating the countries in the southern tier
of the European market - Austria, Italy, Greece and the Balkan and Central
European countries. There is already immense pressure from the US on the South
Stream's transit countries to back off from far-reaching energy collaboration
Geopolitics is just one step behind. Russia hoped to temper the eastward
expansion of the North Atlantic Treaty Organization's expansion and the US
designs to roll back the Russian presence in the Black Sea region by working
out a system of energy dependence with the US's allies in the region. Moscow
recently offered a $4 billion loan to Ukraine for establishing two nuclear
power plants in its western region. This is despite the pro-US stance of
Ukrainian President Viktor Yushchenko.
Moscow's strategy was working well. In a telling remark on Tuesday, at a joint
press conference with Georgian President Mikheil Saakashvili, president of the
European Commission Jose Manuel Barroso virtually acknowledged the
effectiveness of the Russian diplomacy in Europe. He said that if the EU is
moving toward resuming negotiations with Russia on a new partnership deal even
in the aftermath of the Caucasus conflict, that was not a "gift" for Russia but
because it was in the interests of Europe. He said EU had economic, financial
and investment interests to safeguard and needed to work out cooperation with
Moscow in maintaining energy security.
"I think it is in the interest of the EU to keep the dialogue with Russia to
promote stability in Europe," Barroso underlined in a virtual snub to the US
doctrine of isolating Russia over the Caucasus crisis.
It is not only with the European countries but also with its partners in the
Commonwealth of Independent States (CIS) that