Turkmenistan pauses at pipeline fork

By bne IntelliNews April 27, 2007

Tim Gosling in Moscow -

Turkmen president Gurbanguly Berdymukhammedov

The riddle as to which side of the fence Central Asia may fall was no clearer this week following Turkmen president Gurbanguly Berdymukhammedov’s meeting with President Putin. Unsurprisingly, the April 24 talks starred Turkmenistan’s gas reserves, with Putin hoping to persuade Saparmurat Niyazov’s successor to throw in his country’s lot with its former imperial master. However, Berdymukhammedov left Moscow having sent no clear signal that Turkmenistan will either continue to export its gas through Russian pipelines exclusively, or spread its bets by feeding planned transit routes backed by Europe and the US.

Although the exact volume of Turkmenistan’s gas reserves are currently kept secret, the country is generally credited with containing the world’s fifth largest potential supply. With the spotlight shining ever-brighter on Central Asia in the geopolitical battle that has Russia and the west attempting to outmanoeuvre one another over European energy supplies, the likes of Turkmenistan find themselves in an increasingly pivotal role.

With the EU publishing the draft of its first-ever strategy for Central Asia - due to be adopted at the EU Summit in June - on the same day as Berdymukhammedov and Putin met, it appears Turkmenistan is, understandably, happy to use its pivotal role to get itself the best deal it can. The easiest option for the country would be to feint interest in offers from the west in a bid push up the price it receives from Russia.

Gazprom currently dominates gas exports from Turkmenistan, buying its output at $100 per 1,000 m3, and then re-exporting it, but Kommersant reports that the Russian company is already worried about the fulfilment of a 2006 contract for delivery of 162bn m3 by the end of next year. The good news to come from the meeting for Putin however was that Berdymukhammedov agreed to honour a 25-year gas deal signed in 2003 by Niyazov. It’s thought that this promise may be sealed in ink when Putin makes a return visit to Asgabat next month.

However, Berdymukhammedov also announced that his country is now ready to look more closely at the proposed Trans-Caspian pipeline, which aims to transport Kazak and Turkmen under the Caspian Sea and onwards via the Caucus and Turkey. Putin countered by pointing out Russia’s launch of a new leg of the network along the Caspian Sea, which he said is currently pumping more than 5m3 of gas daily. However, it seems more likely that the Turkmen president wanted to hear that Gazprom will talk about raising the prices it is paying, as its reported that the 25-year contract includes no binding price.

This could put Gazprom in a tricky situation, as it continues to juggle domestic demand and high-priced European exports, with Turkmen gas helping to balance the equation. As Alfa notes, this could also: ‘cause yet another crisis in the gas relationship with Ukraine, which is currently consuming Turkmen gas at $130/mcm.’

Should Turkmenistan bend the other way - thus foiling Russia’s bid to place itself as middle man between Central Asia and Europe - Deutsche UFG suggests this could ‘open the way for the independent gas producers in their incremental role to Gazprom as domestic gas suppliers.’

Although it may be no more than a front to strength Turkmenistan’s hand, Berdymukhammedov is said by some to be genuinely more open to the idea of working with the west than his predecessor, who died unexpectedly in December. The country was notably absent in November, when the EU struck an agreement on a common energy strategy with governments across the Black and Caspian Seas regions. While routing exports through the existing Russian infrastructure would be by far the simplest option, it would also leave Turkmenistan relying solely on one customer for its economic mainstay.

This is the likely the main point in the EU’s favour. ‘At an informal external relations Council meeting on 23 April 2007,’ reads a statement, ‘member states decided to intensify co-operation with Central Asia on a number of areas, including human rights, trade, education, environmental issues and energy.’ German Foreign Minister Frank-Walter Steinmeier said: "Countries such as Russia, China, Japan, Turkey and the US are very present there. We have some catching up to do in Europe."

Aside from the choppy geopolitical waters of the Caspian, and the current lack of infrastructure, the poor human rights record of Central Asian countries is a palpable disadvantage for the west. The EU walks a fine line in the need to admonish the Draconian regimes in the region, without upsetting them too much. The draft strategy notes that sanctions placed on Uzbekistan in 2005, following the events in Andijan, are to be ‘reassessed’ in May, to the agitation of human rights groups. Somewhat disingenuously, Steinmeier claimed that the rule of law, education and training are "at the forefront" of the EU's concerns, before adding that "it may well be that in our new partnership the energy dialogue will be something that we seek to promote".

Meanwhile, the wild card at this geopolitical poker table is China, with the lie of the land lending great potential to a pipeline heading east in Turkmen eyes. This route would lead through Central Asian neighbours, possibly the path of least resistance and minimum leverage. The route north leads through Russia; westwards is the Caspian presents a barrier; while southern routes are blocked by Iran and Afghanistan.

Last month, Turkmen minister of mineral resources, Gurbanmyrat Atayew spoke at a cabinet meeting about the construction of the Turkmenistan-China pipeline. Niyazov agreed to a Chinese plan to fund this in April last year, claiming that it would be completed by 2009. China committed to purchase 30bn m3 of gas annually via the route, with the contract due to run for 30 years. Although undeniably large, Turkmen reserves will not be able to satisfy every bidder.

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