|Turkmenistan: Opening to the West?|
Q. What is your assessment of President Berdymuhamedov’s statements on the Trans-Caspian Gas Pipeline Project? Is it a tactical move or will a western route open up inadvertently?
A. These statements were a logical continuation of previous decisions. Turkmenistan made a clear indication that it was looking for new markets to diversify its exports when it announced the construction of the East-West Gas Pipeline. President Gurbanguly Berdymuhamedov signed a decree on 21 May 2010 ordering the state-owned energy company Turkmengas to carry out the design and construction of the East-West pipeline. Work began in June 2010 and the pipeline will come into operation, with a 30 bcm/year capacity, in June 2015.
The East-West gas pipeline is designed to connect Turkmenistan’s eastern and Caspian regions. The pipeline will cluster several giant gas fields in the eastern part of the country, including South Yolotan/Osman, into a single system that will stretch to the Caspian region, from where natural gas can be exported to the north (Russia), south (Iran) or west (Europe). In addition to this there will be about 10bcm/y of offshore gas potentially available for export through the Trans-Caspian Gas Pipeline (TCGP).
I would like to emphasize that the main purpose of the East-West pipeline is to bring gas from the eastern, gas-rich part of the country to the western part and then to Europe. Its purpose is not to bring gas “from the western part to the eastern in order to fulfill gas export obligations to China,” as some European energy experts have claimed.
Q. What has been the Azeri view on Berdymuhamedov's statement?
A. There is a mutual understanding and a perception that the pipeline under the Caspian Sea is the business of these two countries. I don’t see any disagreement between Turkmenistan and Azerbaijan. Turkmenistan’s announcement that it is interested in constructing a connecting pipeline beneath the Caspian Sea is a demonstration of that. When it comes to export routes, both countries have a similar interest. Elshad Nassirov, the vice president of the Azerbaijan state oil and gas company (SOCAR), and the country’s top negotiator on gas exports, in his recent interview on November 10, 2010 for the European Energy Review, said that Azerbaijan would commit only 10 bcm/year of natural gas to Nabucco because it does not want to depend on only one pipeline.
Therefore, the Azeris’ policy is the same as Turkmenistan’s: both want the diversification of gas export routes. None of the exporters in the region want to rely on just one pipeline and depend on only one export direction. Nassirov said, “We will not put all our eggs in one basket, however attractive and beautiful it may seem”. Everybody understands that more pipelines bring about a better negotiating position. Azerbaijan wants to have several exit routes to the EU market and does not want to rely solely on Nabucco. So, Nabucco needs Turkmen gas and the TCGP, but the TCGP needs more than just Nabucco, which is intended to transport 10 bcm/year from Turkmenistan.
The TCGP will help diversify exports for Turkmenistan as well as support Azerbaijan’s diversification policy. Azerbaijan currently exports gas to Turkey, Russia, and Georgia and has a swap agreement with Iran; it may increase the volume of export in any of these directions. Rovnag Abdullayev, the head of SOCAR, in December 26, 2010 said that, beginning in 2012, Azerbaijan would export 1 bcm/year of gas to Syria through Turkey, and from 2015 this volume would be doubled to 2 bcm/year.
Q. How are Russia and Iran likely to react to the Trans-Caspian announcements by the Turkmen President?
Both Russia and Iran can at least raise the issues of environmental protection and the legal status of the Caspian Sea. Actually, Russia and Iran both may challenge Turkmenistan by threatening to cut or reduce their imports of Turkmen gas. However, such a policy can hardly be considered realistic or advantageous. I think neither Russia nor Iran will take any drastic measures.
When it comes to Iran, it is not in Iran’s interest to create any tension in the region and become more isolated. Iran wants to break its isolation; and Iran dreams about becoming a regional gas hub, just as Turkey does. Iran has said it is willing to cooperate with Turkmenistan in an effort to ship its gas to Europe. A new export pipeline that increases total gas export capacity to Iran to 20bcm/year was inaugurated last November, around the same time that Iran’s deputy oil minister, Javad Oji, made an announcement that as soon as several nationwide pipelines and the second Iran-Turkmenistan gas pipeline come on stream, Iran's gas network can be connected to six neighboring countries -- Iraq, Turkey, Pakistan, Turkmenistan, Armenia, and Azerbaijan -- as well as to the Persian Gulf littoral states.
Often we hear that the direction of Iran’s policy might be limited by the US sanctions. However, in case any positive policy shifts towards Iran occur, Iran’s direction can be shifted very fast. So, I think Iran has been searching for common ground with the Turkmens and the Azeris. In terms of Russia, the game has already changed direction. The Russian energy policy that worked in Central Asia for years is now only rhetoric and will not bring Moscow any desirable benefits. First of all, the Turkmen are currently better positioned in the regional energy market than was the case ten years ago. Ashgabat was able to secure access to the Chinese energy market and promptly increased the export of Turkmen gas to Iran. It is also important to point out that the European Union has been seriously looking for Turkmen gas. Second, Turkmenistan has managed to surmount its recent difficulties.
Despite a significant drop in income from gas exports in 2009-2010, the Turkmen were able to sustain their economic position without serious financial borrowing. For its part, Russia has had a hard time maintaining its policy in Central Asia. Pursuing a “bullying policy” in Turkmenistan will likely worsen Moscow’s position there. Perhaps Russia will react differently: for example, by offering to buy more Turkmen gas or by speeding up construction of the Prikaspiisky pipeline. However, neither action will make a huge difference. The chances that the Turkmen will give up their diversification policy are very slim.
Q. If a western route opens up inadvertently, will it open up on time to help Nabucco? Will it open up by 2016?
A. I would not single out Nabucco from the Southern Corridor. I believe that a western route or the Trans-Caspian Gas Pipeline eventually will make a huge contribution to the successful implementation of more than one of the Southern Corridor pipeline projects. Sure, by 2016 we will see a new configuration in the Eurasian energy market, including new Turkmen export routes. But the entire dynamic will change very quickly if Europe guarantees security of demand and buys a substantial volume of gas for a long period of time. Transportation risks beyond the Caspian Sea should be mitigated. Europe should offer a robust transportation structure that eliminates the risk of creating a new monopoly. To reduce transportation risks or the emergence of a new monopoly, the EU should secure the development of several routes. The idea that someone may become a new monopolist is not attractive either to Azerbaijan or to Turkmenistan.
Q. Will Russia remain the principal gas importer for Turkmenistan?
A. That will hardly be possible. By 2012 the Turkmen will already be able to ship about an equal amount of gas in the direction of either China, Russia or Iran. Baymurad Khodjamuhamedov, the deputy prime minister of Turkmenistan, told the oil and gas conference on November 19, 2010 that a gas pipeline across the Caspian Sea to Europe “supports our president’s policy of diversifying export markets for Turkmen natural gas and we are bringing these plans to life”. This initiative opens up an opportunity to sell Turkmen hydrocarbons on the European market.
Q. During Russian president Dmitry Medvedev’s visit to Turkmenistan in October 2010, Russian Deputy Prime Minister Igor Sechin made comments that gas demand in Europe will remain significantly low and that Nabucco does not have any future. What is your view?
A. These are very questionable statements. If Russia believes that gas demand in the EU will be low, how can Russia explain its persistent policy of promoting new pipelines, such as South Stream and North Stream? When it comes to EU gas demand, the last word should be Brussels’ word. On 17 November 2010, the European Commission adopted the Communication "Energy infrastructure priorities for 2020 and beyond - A Blueprint for an integrated European energy network.” This document says that the strategic objective of the Southern Corridor is to achieve a supply route to the EU of roughly 10-20% of EU gas demand by 2020, equivalent roughly to 45-90 bcm/year. The principal supplier states of the Southern Corridor are Azerbaijan, Turkmenistan and, if political conditions permit, Iraq. If Brussels’ energy policy is the diversification of sources and routes, with the aim of lowering the European energy market’s dependence on Russian gas, then the EU will need more non-Russian gas. We should remember that some market changes are not always “demand driven.” For example, if there is more non-Russian gas available, the EU can replace all of its coal generation with gas generation. In other words supply availability will determine demand.
Q. Russia has expressed its willingness to participate in the Turkmenistan-Afghanistan-Pakistan-India pipeline. Does this mean that Moscow is starting to worry?
A. An eastward export direction does not bother Russia. Moscow is striving to prevent the Turkmen from developing westward export routes - specifically, towards Europe. Moscow is certainly worried, but not about the Turkmenistan-Afghanistan-Pakistan-India pipeline. If the Turkmen develop only eastward pipelines and give up the idea of entering the European energy market, such a configuration will serve Russian interests perfectly. But the situation is very tricky because there is some concern that both west- and eastward pipelines might be eventually built for Turkmenistan’s exports. In that case, Moscow will face a double threat, including both a loss of its dominant position in the EU energy market and its ability to increase its imports of Turkmen gas at will. Such prospects would indeed be an unpleasant scenario for Russia.
Resume of Dr. Najia Badykova
Dr. Najia Badykova is a highly experienced professional in the areas of international finance, trade and investment, and energy sector development. As a long-time official of the Government of Turkmenistan, she held a number of responsible positions in these fields. Following her governmental service, she worked as a consultant and as a national coordinator of projects for a range of major institutions, including the European Union, the European Bank of Reconstruction and Development, the Japanese External Trade Organization, LPG Center of Japan, Nippon Petroleum Gas, Marubeni Energy, COSMO Petroleum Gas, Kubota Corporation, Price Waterhouse, Louis Berger International and many others.
She is a two-time Fulbright Scholar to the United States, with research at the George Washington University (2002-2003) and at the Nitze School of Advanced International Studies at Johns Hopkins University (1997-1998). In 1998, Dr. Badykova served as a visiting professor at the Institute of Developing Economies at JETRO in Tokyo. Dr. Badykova has lectured at a number of prominent universities such as Colombia, Harvard Oxford and the George Washington University. Dr. Badykova is the founder of Antares Strategy, a consulting firm based in Arlington, Virginia, the US with local representatives in the Caspian Sea region. ANTARES STRATEGY provides strategic consulting for international hydrocarbon, investment and service companies through analysis of political, economic, regulatory and commercial issues crucial to investment decisions in the Caspian region and Russia
 Turkmen President Gurbanguly Berdymukhamedov’s decision to de?link the construction of a trans?Caspian pipeline from the resolution of the Serdar/Kyapaz dispute may prove to be of strategic importance for future developments. The Turkmen president said he was “firmly convinced that laying an underwater pipeline in the Caspian Sea may be carried out only with the consent of those countries, the sections of which it will cross,” the Azeri Press Agency reported. Mr Berdymukhamedov said that all “all environmental security conditions should be met” before the pipeline is constructed noting, according to RIA Novosti, that delimitation of the Caspian Sea should be based on international law: “It doesn’t need to give political value to this issue. This is a legal issue.”, Theodore Tsakiris, “Turkmenistan Tilts Towards the West, Considers Rapprochement with Azerbaijan”, MEES, 29/11/2010, pp.2-4, p.3.
 Rudolf ten Hoedt (Interview with EIshad Nassirov), “We do not want to depend on only one pipeline”, European Energy Review, 15/11/2010, http://www.europeanenergyreview.eu/index.php?id=2528
 “Iran And Turkmenistan Inaugurate Phase 2 Of Gas Pipeline”, MEES, 06/12/2010, pp.14-15.
 Mr Hojamuhammedov told delegates gathered in Ashgabat for the 15th Turkmenistan Oil and Gas Conference that the country was ready to supply Europe with more gas than the Nabucco project could possible manage. “European countries should not be worried,” he said. “Given the domestic consumption in the west of the country and gas supplies from there to Iran, we will have about 40 bcm/year of gas for export.” Mr Hojamuhammedov noted that the gas could come from the South Yolotan fields, currently being developed by CNPC and Turkmengaz, once the 1,000km, 30 bcm/year capacity East?West pipeline is completed in 2014. On top of that, the former head of Turkmengaz noted, “as early as 2011, Turkmenistan needs a market for gas produced by the Malaysian Petronas company on an offshore block at a rate of 5 bcm/y”. Theodore Tsakiris, “Turkmenistan Tilts Towards the West…”, MEES, ibid, p.4.