Europe risks losing Turkmen gas
opportunity By Vladimir Socor
BP's latest annual "Statistical Review of
World Energy" has revealed Turkmenistan's proven
gas reserves as even bigger than previously
assessed. It appraises Turkmenistan's proven
reserves at 24.3 trillion cubic meters as of the
end of 2011, almost double the 13.4 trillion cubic
meters noted a year earlier, and itself an
increase over the previously reported nine
trillion cubic meters in proven reserves. On the
current assessment, Turkmenistan holds 11.7% of
the world’s proven natural gas reserves
From Ashgabat's perspective, European gas
markets must look more lucrative and reliable
compared with Turkmenistan's existing export
markets in China, Russia, and Iran (let alone the
proposed trans-Afghan export route). The westward
direction remains the
only missing direction
for Turkmenistani gas exports.
Turkmenistan has started construction of
the East-West pipeline, to run from its eastern
gas fields to the Caspian coast, there to connect
with a westbound trans-Caspian pipeline. Ashgabat
proposes to deliver 30 billion cubic meters (bcm)
annually through this line, and another 10 bcm
annually from its Caspian offshore fields, for
onward transportation to Europe after 2016.
Turkmenistan plans to finance the overland
pipeline from its own budget, but it is running
into problems with funding and subcontracting some
of the work.
Ashgabat adheres to the
policy of selling its gas at the country's
borders, without becoming involved in
transportation projects beyond its territory.
Accordingly, the European Commission seeks to
coordinate a trans-Caspian transportation
solution, with Azerbaijan as a linchpin.
The trans-Anatolia pipeline to Europe,
recently initiated by Azerbaijan with Turkey, due
on stream by 2016 and scalable up to 30 bcm per
year, opens the way for Turkmenistani gas to
Europe. The line is so designed to accommodate
significant volumes of Turkmenistan's gas.
Without those volumes, the Southern
Corridor to Europe would be stunted, and
Azerbaijan would not significantly advance from
the role of producer to that of a major transit
country for energy supplies to Europe (a role that
Azerbaijan would also bestow on Turkey in this
case).
The US-promoted trans-Afghan
pipeline to Pakistan and India
(Turkmenistan-Afghanistan-Pakistan-India - TAPI)
is an unnecessary political distraction (a
distraction admittedly mitigated by Afghanistan's
disorders). TAPI can work against European
interests if it is sequenced ahead of a
trans-Caspian pipeline bound for Europe. New
production in Turkmenistan can only come on stream
incrementally. Wrong sequencing of pipelines would
be seen as pre-empting new gas production volumes
in favor of TAPI, correspondingly delaying the
availability of export volumes for Europe.
On July 18, European Commission President
Manuel Barroso telephoned Turkmen President
Gurbanguly Berdimuhamedov regarding gas deliveries
via a trans-Caspian gas pipeline and the planned
Southern Corridor to Europe. The Turkmenistani
government made public an unusually detailed
account of their discussion.
Barroso and
Berdimuhamedov reaffirmed the "mutual commitment"
to ensure deliveries of Turkmenistani gas to
Europe and work out the necessary legal and
commercial frameworks. They scheduled a high-level
meeting of producer, transit, and consumer
countries and companies for September in Ashgabat
(apparently enlarging on the tripartite working
group created in 2011 by the European Commission,
Azerbaijan and Turkmenistan).
The
communique paraphrased Berdimuhamedov alluding to
political assurances at the international level
for safe transportation of energy supplies to
markets (the usual hedge vis-a-vis Russia).
Ashgabat's official account added the comment that
"Europe's ever-growing energy requirements, and
Turkmenistan's strategy to diversify its export
routes to international markets, provide the basis
for multiple pipeline projects".
The
Council of the European Union (EU's top foreign
policy authority) at the level of foreign affairs
ministers endorsed the EU-Azerbaijan-Turkmenistan
working group on June 25, and had that communique
hand-delivered to Berdimuhamedow in Ashgabat. The
council's document explicitly links a
trans-Caspian gas pipeline with the Southern
Corridor to Europe.
On July 5, European
Council President Herman van Rompuy held talks
with President Ilham Aliyev in Baku on Azerbaijani
gas supplies, and possible transit of
Turkmenistani gas via trans-Caspian and
trans-Anatolia pipelines to Europe.
According to van Rompuy in Baku, "The EU
regards Azerbaijan as a strategic partner on
energy, a reliable supplier, and in the future a
reliable transit country [for Turkmenistani gas]
... The ongoing negotiations on the Southern
Corridor and on the trans-Caspian pipeline are of
strategic importance to Azerbaijan and the
European Union".
Connecting with European
markets is now a high priority in Turkmenistan's
gas export strategy. This necessitates reaching
Europe through new pipelines, ahead of global
liquefied natural gas (LNG) suppliers that are
also targeting European markets. There is interest
in Europe for Turkmenistan's gas, but the
interested parties must commit to certain purchase
volumes and a transportation solution from
Turkmenistan in a timely manner. Failing this,
Turkmenistan's new production volumes will be
pre-empted by China, Russia or other destinations
for which pipelines are already available or
planned.
However, the EU has yet to commit
initial funding (whether through the European
Commission or the European Investment Bank) to the
proposed trans-Caspian pipeline. Turkmenistan is
building the East-West pipeline on its territory,
aiming to supply the proposed trans-Caspian
pipeline from the country's eastern fields (see
above). Azerbaijan is also covering a large share
of the trans-Anatolia pipeline's construction
costs.
The EU needs to do no less for the
proposed trans-Caspian pipeline. Failing that,
Turkmenistan's offer of 30 bcm annually through
its East-West pipeline may lapse or even shift
northward to Russia, instead of westward to
Europe, if the price becomes attractive.
For its part, Ashgabat needs to enter into
a production sharing agreement with a leading
European producer company or a consortium onshore
in Turkmenistan. Without such an agreement,
European companies would hardly risk multibillion
dollar investments in exploration, development and
transportation.
An onshore production
sharing agreement with champion companies could
bring the more complicated projects on stream
sooner and open the export route to Europe. This
could boost Turkmenistan's relationship with
Europe in all aspects, including a significantly
enhanced Western interest in Turkmenistan's
independence and security.
Vladimir
Socor is a Senior Fellow of the
Washington-based Jamestown Foundation and its
flagship publication, Eurasia Daily Monitor, and
is an internationally recognized expert on the
former Soviet-ruled countries in Eastern Europe,
the South Caucasus and Central Asia. Socor is a
regular guest lecturer at the NATO Defense College
and at Harvard University's National Security
Program's Black Sea Program. He is a Romanian-born
citizen of the United States based in Munich,
Germany.
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