Clare Nuttall in Almaty -
After relations with Russia cooled, formerly isolationist Turkmenistan has been making overtures to other potential buyers of its enormous gas reserves. Moscow, though, is fighting back to extend its hold over the Central Asian region's energy reserves and infrastructure against competition from China and Europe.
The already strained relationship between Russia and Turkmenistan worsened in April when Ashgabat blamed an explosion on the Central Asia Centre (CAC) pipeline on Gazprom. The Russian gas producer, faced with falling demand from Europe and at home, had reduced its imports of natural gas from Turkmenistan at short notice, which apparently led to a dangerous build-up of pressure in the pipeline. According to Turkmen sources, this forced the closure of 195 wells while repairs were carried out.
Following the incident, Ashgabat very publicly increased its efforts to secure alternative markets. Turkmen President Gurbanguly Berdymukhamedov expressed an interest in the Nabucco pipeline that is being pushed by the EU to supply Europe with Caspian and Middle Eastern gas. In June, Turkmenistan signed an agreement with RWE, a member of the consortium that's building the Nabucco pipeline, giving the German energy company exploration and development rights to a block in the Caspian Sea."
It is not yet certain that the ambitious and expensive Nabucco project, which will bypass Russian territory, will ever get built. However, Mikhail Korchemkin, executive director of East European Gas Analysis, is confident that Turkmenistan will participate if it does. "When President Berdymukhamedov said about exporting gas to all markets, he meant no exceptions," Korchemkin tells bne. "Turkmenistan will supply gas to Europe via the Nabucco pipeline for two reasons. First, Europe will continue to pay the highest prices, making it the most attractive gas market in the long run. Second, Nabucco is the shortest route from Turkmenistan to the EU."
To the east, the 7,000-kilometre Central Asia-China pipeline is already set to change the dynamics of energy politics in the region, providing Central Asian gas exporters with an alternative to the main route to Europe via Russia, and putting them in a stronger bargaining position. Under an agreement signed between the two countries in 2007, China will buy 30bn cm of gas a year from Turkmenistan for 30 years.
Turkmenistan also plans to start building a new branch of its pipeline to Iran in December, more than doubling annual export capacity from 8bn cm a year to 20bn cm. Ashgabat is also in ongoing talks over the long-mooted TAPI (Turkmenistan-Afghanistan-Pakistan-India) pipeline, which would allow it to export to South Asian countries, where demand for gas is growing rapidly. "I have no reason to doubt the plans of the new leadership of Turkmenistan. It has huge reserves and fulfils its pipeline plans much faster than any other country," says Korchemkin.
"After the new pipeline to China is filled, there will be enough gas in Turkmenistan to fill up two or three more pipelines," he says, referring to an audit carried out by British consultancy Gaffney Cline & Associates in 2008 that revealed Turkmenistan's gas reserves to be almost as large as Russia's.
Despite the new schemes, Russia is expected to remain the primary buyer of Central Asian gas, and Moscow is seeking to increase the capacity of its existing import network. However, Alfa Bank writes in a recent note that, "an agreement between Russia and Turkmenistan on increasing the capacity of gas pipelines between the countries is still far from being reached... If there is no material progress in negotiations with Russia any time soon, Turkmenistan could end up supporting the Nabucco pipeline."
Central Asian gas is highly important to Moscow. At 47.5 trillion cm, Russia's own natural gas reserves are the world's largest, but it's running out of easily accessible gas, and developing fields in its far north and east is proving costly. Russia is, therefore, seeking to increase its hold over energy resources in the Central Asian region to supplement its domestic production. Lukoil has made a major commitment to the gas sector in Uzbekistan, confirming plans to invest over $5bn in exploration and development, mainly in the southwest Gissar and Ustyurt areas. Lukoil will sell the gas it produces in Uzbekistan to Gazprom. In Kyrgyzstan, Gazprom is to acquire a controlling stake in state gas firm Kyrgyzgaz. Gazprom CEO Alexei Miller has also said the company is willing to invest $300m in exploration projects in the country in the next three years.
Investments into Central Asia are not limited to hydrocarbons. Russia has stepped up its political and economic influence in Kyrgyzstan, providing a $2bn anti-crisis package. Almost simultaneously, Bishkek announced the closure of the US military base at Manas airport. After several months of discussions, it was announced Manas would be kept open; soon after, Russia announced plans for a second base in the south of the country. Russia is also providing financial backing for two massive hydropower projects in the region - Santagula in Tajikistan and Kambarata in Kyrgyzstan.
In the Soviet era, Central Asia was a backwater. Although the region was known to have large hydrocarbon and mineral resources, these were largely untapped. Now that energy security is one of the burning issues worldwide, the Central Asian hydrocarbon producers are asserting their independence and playing a greater role in regional energy politics. At the same time, Russia is equally determined to re-establish its hold over its one-time colonies.
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