In mid-August, BP-Azerbaijan announced that oil from Turkmenistan is now entering the Baku-Tbilisi-Ceyhan (BTC) pipeline in Azerbaijan and will constitute between four and five percent of its present throughput of 800,000 barrels per day (bpd), which is being upgraded to 1.2 million bpd with a view towards eventual inclusion of oil from Kazakhstan’s offshore Tengiz field. These practical steps of cooperation with Azerbaijan, combined with the mid-August announcement in Ashgabat of new directions in Turkmenistan gas exports policy, point the way towards a European direction for future Turkmenistani production, not forgetting China and the possibility of South Asia, while Iran is given only marginal reference and Russia is ignored.

Background to Turkmenistan gas exports

The ongoing energy debacle between Russia and Turkmenistan followed the April 2009 visit of Turkmenistan’s president Gurbanguly Berdimuhamedow to Moscow, where he shocked his hosts by declining to sign agreements finalizing arrangements for bilateral cooperation on refurbishing and reconstructing the Turkmenistani segment of the Caspian Coastal Pipeline (CCP, also called “Prikaspiiskii” and sometimes “Pre-Caspian”), which runs through Kazakhstan into Russia.

A trilateral agreement had been signed in 2007, but it had reserved to each of the three participating countries full autonomy and responsibility for carrying out the works on its own national territory. The original negotiations had begun under Berdimuhamedow’s predecessor Saparmurad Niyazov, on the basis of the latter’s original idea. They evolved so as to include important contracts to Russian companies for the work in Turkmenistan, partly in return for which these companies preferred to reserve control over the gas in the pipelines.

One month following Berdimuhamedow’s “April surprise” presented to Moscow, there was an explosion on Turkmenistan’s territory in a pipeline that was taking gas to Russia. Moscow blamed Ashgabad for the allegedly low technical expertise of its engineering personnel; Ashgabad returned the compliment by insisting that the Russian side had closed the valves on its side of the border with only two days’ notice. Proper procedure requires a week: Turkmenistan had been unable to decrease production volume and shut the valves on its side within the two-day interval, so the gas built up and the pipe exploded.

Moscow rejoined that the poor maintenance of Turkmenistan’s pipeline over many years was not its responsibility, but that it would be pleased to persuade its national companies to execute the repair work under certain conditions. In December 2009, an agreement in principle was announced in Ashgabad between presidents Berdimuhamedow and Dimitry Medvedev of Russia, according to which the two countries would cooperate in refurbishing and renovating a separate but related pipeline, the “East-West Pipeline” that crosses the southern region of the country to terminate not far from its Caspian Sea coast.

Implications for Turkmenistan gas exports

In May 2010, however, following a review of more than 70 international replies to a tender offer for that work, Berdimuhamedow announced that Turkmenistan had decided to execute itself the refurbishment and renovation of the East-West Pipeline. This pipeline could have fed the CCP that Russia wanted to help reconstruct, but now the gas that it will carry is free for Turkmenistan gas exports in other directions. Whether coincidence or not, the designed capacity for the East-West Pipeline project is 30 billion cubic meters per year (bcm/y), which happens to be the minimum volume required to make an undersea gas pipeline to Azerbaijan a commercial possibility.

Against that background come the new plans announced in mid-August in Ashgabat for further diversification of Turkmenistan gas exports. While not failing to mention its existing partner China (to which Turkmenistan opened in January this year the first segment of a planned 40 bcm/y gas pipeline), and with which it is negotiating a US$ 4.1 billion soft loan for follow-on development of the South Yolotan field feeding that pipeline, Turkmenistan announced further diversification plans including unprecedented levels of cooperation with new and old Western partners. Berdimuhamedow announced in particular that bids for exploration and development of offshore resources (specifically, Blocks 9 and 20) would be preferentially considered not just from the United Arab Emirates firm Mudabala but also from three American firms: ConocoPhillips, TX Oil, and Chevron. Other American, British, and French firms are also in talks over offshore concessions. The Italian firm Eni was given an onshore concession: the first Western company to obtain one. (Only one other foreign company has achieved this, and it is Chinese.)

Turkmenistan has acknowledged that the oil it is now sending to Azerbaijan comes from its offshore Cheleken field and is destined for Europe. Separately, a Baku-based expert revealed that Turkmenistan was by mid-August unloading nearly 17,500 bpd, and that this volume would double by early September at the latest. Turkmenistan had bought two tankers from a Russian shipyard for this purpose, with a third soon to be delivered. One may then calculate a volume averaging out to 26,500 bpd, already more than three per cent of BTC’s current (reduced) stated throughput. Azerbaijan’s state oil company SOCAR confirmed increased volumes at the end of last week, giving an equivalent figure of “up to” nearly 45,000 bpd, or four per cent of the to-be-expanded throughput. It also projected a year-end total of over eight million barrels from Turkmenistan. Bearing in mind that these Turkmenistan gas exports started only in mid-year, the figures are in line with the aforementioned official projections.

In May this year, Berdimuhamedow made his first visit to New Delhi, where he discussed concrete possibilities for the realization of the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline. In September he will hold similar discussions with Afghanistan’s president Hamid Karzai in New York in the margins of the UN General Assembly meeting. In his sensational Ashgabat announcement in August on future Turkmenistan gas exports directions, Berdimuhamedow barely mentioned Iran and was entirely silent on Russia.

Conclusion: What future for Turkmenistan gas exports?

Turkmenistan’s practical cooperation with Azerbaijan is most significant in view of the two countries’ well-known territorial dispute in the Caspian Sea that has blocked such cooperation up until now. The fact that the current production is earmarked for Europe, even if it is oil and the quantity is now relatively small, is likewise not negligible. Four decades ago, after all, the process of establishing diplomatic relations between Washington and Beijing was informally inaugurated through a series of ping-pong matches.

Underlining this significance is the fact that two of the companies pre-selected by Ashgabad for offshore gas exploration, ConocoPhillips and Mudabala, have already been cooperating for almost two years with KazMunaiGaz in the exploration and development of the “N” Block (for “Nursultan”) in offshore Kazakhstan, not far from the port of Aqtau. This city is also the planned terminus of a gas pipeline beginning in the country’s northwest at Eskene, where it is projected that associated gas from the offshore Kashagan field in the northern Caspian will be brought onshore.

Although none of the companies mentioned is a stakeholder in the planned Nabucco pipeline, the German firm RWE is such a stake-holder and was granted a concession for exploration and development of gas resources in Turkmenistan’s offshore earlier this year. The ineluctable pattern manifests the progressive establishment of political preconditions for Azerbaijan-Turkmenistan cooperation in Turkmenistan gas exports to Europe and technical preconditions for an undersea pipeline via Kazakhstan’s offshore, if this is necessary to obviate a settlement of the other two countries’ bilateral territorial disagreement.

[First published in Central Asia – Caucasus Analyst, vol. 12, no. 16 (1 September 2010): 10–12.]