Recent progress towards agreement on the possibilities for constructing a Trans-Caspian Gas Pipeline (TCGP), in the context of the European Union’s Southern Corridor Program, has drawn attention away from moves towards the elaboration of smaller-scale projects for the trans-Caspian transit of Turkmenistan compressed gas (CNG, compressed natural gas) to Azerbaijan.

Grand pipeline projects vs. Turkmenistan compressed gas

Italian firm Eni began talking up such projects in late 2009, several months before a very public disagreement between its chief, Paolo Scaroni, and the head of Russian gas company Gazprom, Alexei Miller, over the possibilities for cooperation between Russia’s South Stream and the European Nabucco pipeline projects. Both seek to transit natural gas from the Black Sea’s eastern shore to its westerns shore, where it could enter directly into the distribution networks of the European Union’s member states.

After that disagreement, arrangements were made for EDF of France to enter the South Stream project by purchasing 10-20% from out of the 50% of the project owned by Eni. This transfer of shares was to have been consummated by the end of last year, but it remains still up in the air. Gazprom’s Miller now exudes confidence that it will take place before the end of 2011, while the Wintershall subsidiary of Germany’s BASF has denied that it was considering joining South Stream despite being in unspecified talks with Gazprom. Most recently, and contradictorily, Russian president Vladimir Putin has suggested replacing the Kremlin’s long-touted South Stream project either in whole or in part with a CNG link.

When Scaroni was in Azerbaijan last year, he discussed with government officials Baku’s plans to produce 1-2 billion cubic meters per year (bcm/y) of CNG for export to Bulgaria via the terminal in Kulevi, Georgia, owned by the State Oil Company of the Azerbaijan Republic (SOCAR). This project was raised at the Batumi energy conference almost a year ago, along with the AGRI (Azerbaijan-Georgia-Romania Interconnector) project for LNG.

That occasion provided an opportunity to discuss also Eni’s plans to export 2-3 bcm/y from Turkmenistan’s offshore associated gas production, much of which would come from Eni’s own Burun field in the Nebit Dag area, which it acquired at the end of 2007 when it took over Burren Energy. In the longer run, Eni hopes to expand the CNG project to include at least some of the Petronas offshore production of 8-10 bcm/y by the middle of the decade.

Liquefied natural gas vs. Turkmenistan compressed gas

CNG tankers are more expensive than tankers for liquefied natural gas (LNG) but they do not require the expensive gasification and de-gasification infrastructure that LNG does. Exploratory studies of the possible application of CNG technology to the trans-Caspian transport of Turkmenistan’s gas to Azerbaijan, carried out in the final years of the decade just ended, evaluated it as being 1.6 times as expensive as an undersea pipeline and two-thirds as expensive as LNG, but only for volumes close to 30 bcm/y.

These cost figures are disputed and may not apply to smaller-scale projects. In particular, construction costs for the vessels themselves are likely to be elevated above normal levels due to the need to transport materials to either Baku or the port city of Turkmenbashi for the actual fabrication of the ships. Pipelines consequently emerge once more as the most economic and commercial solution.

At least in the beginning, none of that Turkmenistani offshore production would be dedicated for either South Stream or Nabucco; rather, it would be added to quantities already transited through the South Caucasus Pipeline (SCP, also BTE for Baku-Tbilisi-Erzurum) into Turkey, which also handles Azerbaijan’s production from its own offshore Shah Deniz deposit. It is likely that another line will have to be built to double the SCP’s current capacity of 8 bcm/y in view of the agreements between Azerbaijan and Turkey over volumes that the former will export to the latter, not to mention the increasing estimates of Azerbaijan’s offshore natural gas reserves and production later in the decade and out to mid-century.

With Turkmenistan consistently stating that it can feed 10 bcm/y into Nabucco in the medium term from the Dauletabad field, which could actually supply 30-40 bcm/y in the longer term in view of the near-disappearance of the country’s energy trade with Russia, which used to be its major buyer, it is clear that all the smaller projects enumerated in this article are simply not enough to satisfy demand for transportation of Ashgabat’s gas.

The Kremlin basically admitted this month through Putin that South Stream is essentially a zombie project. Also it is increasingly clear that even Nabucco’s supply and sales contracts expected between now and the end of the year will be insufficient to capture the gas that Turkmenistan has on offer in the long term. Consequently, the only rational strategy is to ignore dilatory advice about Russian gas (arriving through nonexistent pipelines from western Siberia) jump-starting the EU’s Southern Gas Corridor.

Turkmenistan compressed gas and the Caspian Development Corporation

What is necessary is to put finally into effect the EU summit-level political decision to make organizational design plans for establishing the Caspian Development Corporation (CDC). The whole of Russia’s diplomatic offensive against the EU’s Third Energy Package is directed, among other things, against the CDC, which could rapidly facilitate the follow-through of Nabucco’s consummation by implementing of the White Stream natural gas pipeline project under the Black Sea from Georgia to Romania.

This is the only plan on tap that is capable of transiting the full volumes that Ashgabat wishes to send to Europe. The Turkmenistani leadership is waiting for the EU’s practical, not merely diplomatic, commitment to this project. It will then take the necessary political decision to realize it, but not before such concrete measures are demonstrated that will guarantee Ashgabat against the political risk of disappointing Moscow.

[First published in Asia Times Online.]