Nicholas Watson in Prague -

The true extent of Turkmenistan's gas reserves, long considered a state secret by the former Soviet's state's authoritarian regime, have become a little clearer after UK-based international advisory firm Gaffney Cline & Associates presented the first reserves estimates of the Osman-South Yoloton gasfield in Turkmenistan. While the new large reserve figures have western policymakers and pundits drooling at the mouth, it's doubtful whether the West can really benefit directly from this new gas.

According to Turkmen state media, speaking at a meeting of cabinet ministers in Ashgabat on October 13, Gaffney representatives put the Osman-South Yoloton field's low reserves estimate at 4 trillion cubic metres (cm), the best estimate at 6 trillion cm and the high estimate at 14 trillion cm, making it by far the country's largest gasfield and, at the best estimate, rank it among the world's top five gasfields. Not only does that figure substantially exceed the reserve estimate of 4 trillion cm for Russia's giant Shtokman gasfield, but it's onshore, not in the harsh Barents Sea. It also makes the previous best estimate of the country's reserves found in the BP Statistical Review of World Energy of 2.67 trillion cm irrelevant.

Gaffney also released results for the Yashlar field, located next to the Osman-South Yoloton field, which put reserves estimates at 0.25 trillion cm (low estimate), 0.675 trillion cm (best estimate) and 1.5 trillion cm (high estimate). Gaffney, as is its policy, refused to comment on its work when contacted, and so the world has been forced to rely on the veracity of those reports from the state-controlled media

While Gaffney said that it will need more information to refine its study, the firm reportedly stated that "regardless of the outcome... more than sufficient gas is available to fulfil all the [country's export] contracts." That's crucial, because the new administration of President Gurbanguly Berdymukhammedov has continued the rather bizarre policy of the previous one, headed by the unhinged Saparmurat Niyazov who died in mysterious circumstances at the end of 2006, whereby it would sign new export contacts without providing any apparent evidence they could be met.

Official statistics shows that Turkmenistan produced 72bn cm of gas last year. Of that, around 50bn cm was exported to Russia under a 25-year contract with Russia's gas monopoly Gazprom that was signed in 2003. A smaller amount of around 8bn cm was sent to neighbouring Iran through a small pipeline connecting the countries, though last winter saw a price dispute between the two that resulted in a temporary supply cut. The two sides are in talks about a new gas import deal, though after having previously said that a signing of the new pricing agreement was expected after the end of the Muslim holy month of Ramadan in late September, Reza Kasaizadeh, managing director of the National Iranian Gas Export Company (NIGEC), was forced to admit on October 20 that the deal would be signed by early. The rest of the gas was consumed domestically.

However, many experts doubt that production can rise fast enough if the country is to meet these export agreements.

Meeting expectations

On August 29, President Berdymukhammedov told visiting Chinese President Hu Jintao that his country would provide 40bn cubic metres a year (cm/y) of gas to China once a planned 7,000-kilometre pipeline connecting the countries is operational, up from a previously agreed 30bn cm/y. Under the deal, China could start imports by late 2009.

On July 15, official media reported that the government is ready to start building a Moscow-backed Caspian Sea gas pipeline in order to ensure its launch in March 2010. The new Caspian-shore pipeline, slated to have an initial capacity of 10bn cm that will rise to 30bn cm by 2015, will follow the route of the existing western branch of the Central Asia-Centre (CAC) gas pipeline, the main export system for Central Asian gas. Russia, Kazakhstan and Turkmenistan agreed on the pipeline project in May 2007, but progress has been slow. "The new pipeline, expected to come on stream in late March 2010, will follow the Caspian Sea coastal line, like the existing one," said state newspaper Neitralny Turkmenistan, adding that the authorities have already mapped out details of the pipeline's route and other technicalities.

Then there is the Turkmenistan-Afghanistan-Pakistan-India gas pipeline. This will have a planned capacity of 33bn cm/y. Finally, the EU has been trying to wheedle a gas supply agreement out of Turkmenistan to help fill its ambitious Nabucco gas pipeline, which will transport 30bn cm/y of Caspian, Central Asian and possibly Middle-Eastern gas direct to Europe, avoiding Russia territory. The EU's energy commissioner, Andris Piebalgs, was present at a May 26 ceremony to lay a foundation stone of a gas compressor station at the Dovletabad gasfield.

To meet all these export commitments, Turkmenistan's government has outlined hugely ambitious production targets. From this year's estimated gas production of 80bn cm, the government is forecasting a rise to 120bn cm/y by 2010, 150bn cm/y by 2015 and 250bn cm/y by 2030. To put that in perspective, Troika Dialog's Kingsmill Bond says that if the Turkmen government's ambitions come to fruition, the country will see the largest increase of gas production of any of the CIS countries. "This will bring per capita gas production to higher than that in Saudi Arabia and almost level with the UAE," he says.

Gaffney noted that the South Yoloten-Osman gasfield could optimally be developed through successive phases of 10bn cm in annual gas production, rising to 70bn cm per year. While the upgrade of the country's gas reserves by Gaffney certainly indicates that output volumes will be increased substantially in the longer term, it won't be enough in the medium term. Considering all these export contracts - China (40bn cm), Russia (80bn cm), Iran (8bn cm) and the EU (10bn cm), Business Monitor International calculates that Turkmenistan would need to be producing at least 159.9bn cm by 2009/10, assuming domestic consumption remains unchanged at 21.9bn cm. "However, even Turkmenistan's own highly ambitious production targets do not forecast such high levels, with 150bn cm not forecast to be reached until 2015. It therefore seems very unlikely that Turkmenistan will be able to fulfil its contracts to China, Russia and Iran in the medium term," BMI says.

Kissing Turkmen gas

Such arguments haven't dimmed the enthusiasm in some quarters of the West that greeted the reports about Gaffney's findings. "The implications of the audit results are momentous for European and trans-Atlantic energy security," that unrepentant neoconservative think-tank The Jamestown Foundation declared. "Brussels and Washington can encourage Western companies to become involved in developing South Yoloten-Osman, Yaslar, and other Turkmen gas fields, with westbound pipeline outlets via Azerbaijan to Europe. This could significantly counterbalance Russian Gazprom's dominance in European markets."

Such siren voices about Europe's over-dependence on Russian gas have been receiving a warmer hearing since Moscow began unashamedly using its oil and gas exports as geopolitical tools to slap down perceived enemies and reward friends. Last year, Russia accounted for 38% of EU gas imports, and 33% of its oil imports, making it the EU's single-largest gas-supply source. And it has more gas to sell to Europe - up to 250bn cm/y by 2020, says Gazprom, assuming two proposed pipelines, Nord Stream and South Stream, are completed.

One of the EU's principal schemes for enhancing the continent's energy security is to reduce its dependence on Russia by building pipelines like Nabucco that will avoid Russian soil.

Nabucco will aggregate gas supplies from some combination of various gas producers in the Caspian region, Middle East and North Africa, and then ship it 3,300 km from the Georgia-Turkey border or the Iran-Turkey border - possibly both - to Baumgarten in Austria, passing through Turkey, Bulgaria, Romania and Hungary on the way.

Initial flows through Nabucco, possibly starting in 2013, would come from Azerbaijan, through the 692-km South Caucasus Pipeline. But these volumes will account for only about 8bn cm/y of Nabucco's total planned capacity of 31bn cm/y. Getting Turkmen supplies, therefore, would give the ambitious project a good shot in the arm. "The Nabucco pipeline is supposed to be filled from various sources - one source is not enough. Resources should above all come from Azerbaijan. The gas pipelines from Turkmenistan and Iran have not yet been built. The important question arises: when can the gas pipelines be built? A pipeline from Turkmenistan could be built in the next several years. But the question is whether the country will be able to ensure the planned amounts of gas volumes by that time," says Roland Goetz, an energy expert at Germany's Institute for International and Security Affairs.

The problem is that Russia and China will do their utmost to secure the gas ahead of the West, making "all other countries of third importance," says Goetz. "I think that one should expect an increase in supplies in the direction of Europe starting from 2015 - in the beginning the question will be first about Turkey."

Martha Olcott, a Central Asian expert at the Carnegie Endowment for International Peace think-tank, reckons that Western-owned projects in Turkmenistan will always be more limited because transiting the oil and gas westwards is just that much more problematic, given it will necessitate a pipeline that runs under the Caspian Sea. "The undersea trans-Caspian pipeline is a political hot potato for Russian-Turkmen relations and still limited in capacity, shipping through Iran is still not feasible for obvious reasons, and there's no serious commercial interest yet in a trans-Afghan pipeline because the internal stability in Afghanistan is deteriorating," says Olcott. "China has already negotiated pipeline rights and Russia has pipeline routes established."

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