Turkmenistan Lobbies Germany on Gas

When Turkmenistan’s President Gurbanguly Berdimukhammedov held talks in Berlin this week, there was one major energy subject on his mind: how to find a way to get Turkmen gas flowing to European markets.

It’s a subject that has exercised Turkmen and EU officials for more than a decade, but it really does seem as if, finally, Turkmenistan’s leader is trying to break the log-jam. But he faces a tough task.   

The problem is that what Brussels and Ashgabat have long wished to achieve – the development of a system that could carry as much as 30-40bn m³/yr of Turkmen gas to European markets – is simply not attainable under current conditions, not least since it would require the installation of major new infrastructure costing tens of billions of dollars to connect Turkmenistan production with core consumption in western Europe. It would also antagonize Moscow, since it would pose a major commercial challenge to Russian gas on European markets.

President Gurbanguly Berdymukhammedov

What might be achievable, however, is a much more modest programme that would enable gas from Turkmenistan’s Caspian fields to access Azerbaijan’s existing domestic and export systems by means of a link between existing offshore facilities in the two countries.

“We in Turkmenistan are interested in delivering our energy resources to the West,” Berdymukhammedov said during a joint press conference with German Chancellor Angela Merkel August 29. More importantly, he added that the Turkmen government had presented the European Commission with proposals for how to proceed and that Turkmenistan and the European Commission were jointly working on legal and technical issues.

This, in itself, constitutes a significant step forward. As one commercial source commented to NGW in Baku, in previous discussions with the European Commission, Turkmenistan “didn’t commit, didn’t reject” EU efforts to break the log-jam.

The imperative for Turkmenistan is overwhelming. At present, China is the only cash destination for Turkmen gas exports. Last year Turkmenistan did sell 7.2bn m³ to Iran, as well as 27.7bn m³/yr to China, but the Iranian sales were largely conducted as barter. Since Russia ceased to purchase Turkmen gas last year – and purchase may not be quite the right word, as the Turkmens say Gazprom did not pay them for the 2.8 bcm of gas they supplied – Ashgabat has no alternative market to help it become a price maker, rather than a price taker.

In an ideal world it would like to sell its gas to India and Pakistan. In commercial terms, this would make a lot of sense which is why Ashgabat has pursued the project of a Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline so assiduously for close to 20 years. In this context, Berdymukhammedov’s visit to Berlin may constitute an acknowledgement that henceforth the focus has to be on getting Turkmen gas to Europe, because, under current security conditions in Afghanistan, it is simply impossible to raise the kind of finance needed to develop TAPI, a project estimated to cost in excess of $10bn for a 1,680-km, 33bn m³/yr system.  

In the last two years there have been intense efforts by Azerbaijan to see whether Turkmenistan would be interested in a relatively modest connection between the two states, whose coasts on either side of the Caspian are less than 300 km apart. Commercial sources in Baku say both Baku and Ashgabat are seriously exploring the possibility of a connection between Turkmenistan and Azerbaijan’s offshore installations but add that while these discussions have borne some fruit, there are still obstacles to be overcome.

One of these was mentioned by state Socar's first vice president Khoshbakht Yusifzade when he told a conference in Baku August 30 that Turkmenistan stood to benefit from a connection to Azerbaijan’s pipeline infrastructure. “We have pipelines stretching to the middle of the Caspian Sea which are at a small distance from Turkmenistan," Yusifzade said. However, he also raised the issue of a disputed oilfield in the centre of the Caspian, known to Azerbaijan as Kyapaz and to Turkmenistan as Serdar. “There is also an issue connected with the development of Kyapaz border field,” Yusifzade said. However, he added, “I think that we will resolve this issue in the near future."

Other core issues that would need to be resolved concern financing for the project and the volumes that it might carry. One commercial source asked the key question, to which as yet there is no answer: “Who will take the commercial burden, who will invest?”

More broadly, there is an expectation that were an agreement to be concluded on a tie-up pipeline, the volumes it would carry would be in the order of eight to 12bn m³/yr. That would enable some gas to be used by Azerbaijan, which is short of gas for domestic customers as its principal gas production at Shah Deniz is earmarked for export, and for some gas to be dispatched westwards to Turkey and possibly further afield by means of the €39bn Southern Gas Corridor system now under development.

Any substantial modification of inputs at the Azerbaijani end to the SGC would need new pipe to be laid in Georgia, but SGC officials have said previously that this would pose no problem so long as they were given proper notice.

Petronas is producing some 5bn m³/yr at Block One, of which around 4bn m³/y are exported to Iran. But the Malaysian operator possesses the ability to ramp up production to around 10bn m³/y within a couple of years, while gas from the nearby offshore field being developed by the UAE’s Dragon Oil, together with some nearby onshore production by the ENI-owned Burren Energy, could allow for as much as 12bn m³/yr of Turkmen Caspian region gas to be delivered to Azerbaijan without too much cost or effort.

If there was to be a tie-up between Turkmenistan’s offshore Block One, which is operated by Malaysia’s Petronas Carigali, it would not be plugged into the gas gathering system at Azerbaijan’s Shah Deniz gasfield, where Petronas is also a shareholder, but to the gas gathering system attached to Azerbaijan’s giant offshore Azeri-Chirag-Guneshli oilfield complex. This could potentially reduce the connection span to little more than 100 kms.

Even developing a Turkmenistan-Azerbaijan field connector will not be easy. But if such a system were to be develop, it would enable at least some Turkmen gas to enter European markets.

Turkmenistan and Azerbaijan will need partners to ensure such a development. That’s why Berdymukhammedov has been visiting Berlin, and that’s why he said at the August 29 press conference that “we believe that Germany as a respected and authoritative member of the European Union will further provide support to this process.”

As for the German Chancellor’s own thoughts on the matter, she commented simply at the press conference: “I hope the problems that still exist can be overcome."

John Roberts, Chief Analyst