Nicholas Watson in Prague -

Taking a leaf out of the geopolitical strategy book of neighbouring Kazakhstan, Turkmenistan appears from its latest moves to be following a similar oil and gas development policy that's geared toward balancing the competing claims of Asia, Russia and the West.

The latest move concerns diversifying export routes for the country's natural gas. On September 20, the energy ministers of Turkmenistan, Afghanistan, Pakistan and India are scheduled to sign a agreement in Ashgabat to build the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline. This southern route for Turkmenistan's gas exports - which currently consists of two pipelines to Iran that sent just 6bn cm of gas in 2009 - offers a third way to the traditional northern route to Russia and the new eastern route to China. The TAPI pipeline would run some 1,700 kilometres south and have a throughput capacity of 30bn cubic metres per year (cm/y). At the same time, Berdymukhamedov is pushing his government to conclude gas supply agreements with Pakistan and India, which have expressed interest in buying up to 70bn cm/y of Turkmen gas.

However, pipelines are a bit like houses in that if one has been on the market for a long time, it usually means there's something wrong with it. The problem for TAPI, which has been on the drawing board since the 1990s, is the chronic instability in Afghanistan, which shows no sign of improving any time soon. "I would say the Turkmens are fairly serious about the pipeline, but the project itself seems to stand little chance of proceeding; pushing for TAPI progress in itself could be beneficial for Turkmenistan, however, in perhaps balancing out China's rising influence in Turkmenistan with a potential counterweight in India," says Andrew Neff of the consultancy IHS Global Insight.

China has been the main beneficiary so far of Turkmenistan's attempts to diversify its export routes, with the building of the Central Asia-China gas pipeline that runs through Uzbekistan and Kazakhstan and a long-term supply agreement struck with China National Petroleum Corporation (CNPC) that should see Turkmen gas exports eventually reach 30bn cm/y over the next few decades.

On 13 August, Turkmenistan state television reported that during a meeting with his top energy officials, Berdymukhammedov pushed for the finalisation of a $4.1bn loan from China's state development bank, which would go toward building a "state-of-the-art complex for cleaning gas so its quality meets the highest international standards", as well as development of the South Yolotan gas deposit, which UK-based international advisory firm Gaffney Cline & Associates in 2008 estimated has between at least 4 trillion cm and 14 trillion cm, with its "best" estimate at 6 trillion cm, which would rank it among the world's top five gasfields.

"The Turkmen government has yet to say who, if anyone, it would involve in developing the [South Yolotan] field, but China is light years ahead in the race - not even a real competition at this point," says Neff. "China has the advantage in terms of finances, infrastructure - the Central Asia-China pipeline is now a reality, whereas Nabucco is still more of an idea than anything else and a trans-Caspian pipeline would still be needed after that - and geographic proximity. Plus, CNPC has already clinched a long-term gas purchase and supply deal with Turkmenistan, and South Yolotan gas is likely going to be needed to help fulfil this deal."

Any mention of the European Union-backed Nabucco gas pipeline was notably absent from the state television report, which will be a worry for Brussels. But perhaps the most surprising omission was reference to the country's traditional energy partner, Russia.

Don't feed the bear

Relations with Moscow have been rocky since April 2009 when Ashgabat blamed Gazprom for an explosion on the Central Asia Centre (CAC) pipeline, which carries Turkmen gas to Russia. Gazprom, faced with falling demand from Europe and at home, had allegedly reduced its imports of gas from Turkmenistan at short notice, which the Turkmens charge led to a dangerous build-up of pressure in the pipeline. Russia's decision to cut imports is an implicit admission that it's policy to tie up Turkmen supplies and prevent other countries, notably the EU, from getting their hands on them is unsustainable. Russia imported 42bn cm of gas from Turkmenistan in 2007-08, but Prime-Tass quoted Gazprom officials in September as saying that figure in 2009 dropped to 11.3bn cm compared with a contracted 41bn cm for that year. Gazprom plans to buy just 11bn cm from Turkmenistan in 2010, compared with forecast supplies of 70bn cm/y under a 25-year co-operation agreement signed in 2003.

"Turkmenistan will extend their hand to anyone who can offer them something and at the moment the Russians can't offer them anything. Central Asian countries perceive Russia as a declining power, while China is an emerging power and the EU and Americans are strongly pushing their interests in the region too," says Shamil Yenikeyeff of the Oxford Institute for Energy Studies. "Also, Turkmenistan is not very keen on cooperating with Russia because they don't trust them after the explosion of that gas pipeline; given Turkmenistan is 80% dependent on hydrocarbon exports, they basically had a lack of funds and the only country that bailed them out was China."

The spat with Russia is thought by analysts to be behind Turkmenistan's surprise announcement in July 2009 to award a license to Germany's RWE, a member of the consortium building the EU-backed Nabucco gas pipeline, to explore Block 23 in the Turkmen sector of the Caspian Sea. This was taken as a positive sign by the backers of Nabucco, which is being pushed as a way to break Russia's stranglehold on gas exports to Europe by importing gas from the Caspian basin and Middle East without crossing Russian soil.

But Nabucco suffers from a lack of potential gas suppliers (see related story, "Nabucco - one step forward, one step back") to fill its 31bn cm/y capacity, and Turkmenistan is regarded as key if the project is to get off the drawing board. In May, RWE's chief executive of Supply & Trading, Stefan Judisch, was talking about signing a supply agreement with Turkmenistan by the end of this year; the omission of any mention about Nabucco by the Turkmen president casts doubt on this, say analysts.

Worse for Nabucco, none of the upstream goodies handed out by Berdymukhammedov were to partners in the pipeline; instead, the president offered here a bone to the hitherto ignored US.

American takeout

State television reported the government has named US-based Chevron, ConocoPhillips - jointly with Abu Dhabi-based Mubadala Oil and Gas - and TX Oil as preferred bidders for the rights to two blocks in the Turkmen sector of the Caspian Sea.

Turkmenistan estimates its sector of the Caspian Sea contains 80.6bn barrels of oil and 5.5 trillion cm of gas, though this has yet to be independently verified. Yet despite strenuous effort by the US, so far Turkmenistan has awarded offshore exploration rights only to several European firms, such as RWE and BASF/Wintershall, as well as Russia's Itera, Malaysia's Petronas, Canada's Buried Hill Energy and CNPC.

Perhaps sniffing an opportunity, ExxonMobil was reported in August to be planning to open an office in Ashgabat by the end of this year. On the other hand, Russia's largest oil company Lukoil has admitted defeat in its efforts to gain access to Turkmenistan's oil and gas reserves.

"Lukoil people will tell you that [Turkmenistan] is not keen to be involved with Russian companies, not just because of the lack of trust, but also the development of the offshore fields in the Caspian is logistically difficult and American companies like Chevron have serious experience in developing similar fields in the Caspian - Lukoil can't compete with this."

Until now, Turkmenistan's policy has been to use international oil companies to help develop its offshore reserves, while keeping its onshore acreage, where it holds the world's fourth-biggest gas reserves, for national firms only. But here too, there seems to be some give, with Berdymukhammedov instructing energy officials to draw up a new production sharing agreement, or PSA, with Italy's Eni for the Nebit Dag oil and gas field in western Turkmenistan. "The Italian firm was a relative latecomer in the Western push for Turkmenistan acreage, having acquired Burren Energy and its Turkmenistan assets in 2008, but Eni CEO Paolo Scaroni nevertheless has seized on his company's good fortune, solidifying Eni's relationship with Turkmenistan via a series of personal visits with Berdymukhammedov," says Global Insight's Neff.