Uncertainty Abounds in Talks on the Possible Export of Turkmen Gas to Europe

Executive Summary:

• Azerbaijan and Türkiye signed an agreement for cooperation with natural gas, which includes increased export of Central Asian and Azerbaijani gas to Türkiye with Turkmenistan being a primary exporter.
• Debate over including Iran in these agreements adds uncertainty to the project due to sanctions against Tehran, despite the delivery of gas via Iran having been recently and successfully tested.
• Exporting Turkmen gas to Europe remains fraught with complexities due to the proposal for the Trans-Caspian Gas Pipeline facing longstanding challenges and routes through Iran, Azerbaijan, and Georgia having practical and financial obstacles.

On May 14, Turkish Minister of Energy and Natural Resources Alparslan Bayraktar and Azerbaijani Minister of Economy Mikail Jabbarov signed an agreement on cooperation in the field of natural gas, including the export of Central Asian gas to Türkiye (Caliber.az, May 14). Bayraktar told the media that by 2030, Türkiye is expected to receive increased gas supplies from Azerbaijan’s natural gas deposits and the Caspian Sea’s natural gas reserves, though he did not specify how much. Some of the gas flowing to Türkiye will transit onward to Europe (Trend.az, May 14). Bayraktar highlighted that a key aspect of the deal was arrangements for transporting Turkmen natural gas to Türkiye via Georgia and Azerbaijan. In recent years, traditionally isolated Turkmenistan has begun to seek more cooperation with outside partners, especially in the energy sector (see EDM, May 18, October 16, 2023). The transit of Turkmen gas to Türkiye and onward to European markets would go a long way in removing ongoing reliance on Russian supplies. While Bayraktar did not disclose the planned transit route for the Turkmen gas to Azerbaijan or the amount of gas involved, several recent developments offer hints on how the two sides plan to carry out this project.

On March 1, Ankara and Ashgabat signed two preliminary agreements for Turkmenistan to supply natural gas to Türkiye and Europe (Iletisim.gov.tr, March 1). A week later, Bayraktar told the media that three options for exporting Turkmen gas to Türkiye are on the table. “One of them is that Turkmen gas is transferred to Türkiye through Iran via swap,” he said. “Another option is that it arrives in Türkiye by exchange through Iran and Azerbaijan. Alternatively, Turkmen gas could be supplied to Türkiye via a gas pipeline passing through the Caspian Sea.” The Turkish official added that up to 2 billion cubic meters (bcm) of natural gas are planned to be transported at the initial stage (Trend.az, March 9).

The third option is seemingly the most ideal for all parties, as it would be longer lasting, have more stability, and could transport a larger capacity of natural gas, according to Bayraktar (Trend.az, March 9). Nevertheless, over the past 25 years, financial and geopolitical challenges have prevented the realization of such a subsea pipeline across the Caspian Sea. The European Union’s reluctance to invest in this project, which is estimated to cost over $20 billion; Russia’s and Iran’s objections related to geopolitical interests disguised as environmental concerns; and the costly need to expand the Southern Gas Corridor for the capacity to handle extra gas deliveries continue to be major impediments (see EDM, September 11, 2012, June 7, 2018, February 23, 2022; Radio Free Europe/Radio Liberty, August 15, 2019; Abna24.com, January 8, 2023.

This option, nevertheless, remains on the table. According to Ilham Shaban, head of the Baku-based Caspian Oil Research Center, “A short subsea pipeline, connecting Turkmen offshore gas fields to Azerbaijan’s Azeri-Chirag-Guneshi block” can be constructed fairly (Iranintl.com, May 17). However, he finds the possibility of the construction of a subsea pipeline in the near future to be low (Author’s interview, June 2).

That Bayraktar did not mention Iran as a party to the newly reached agreement on the exports of Turkmen gas on May 14 has led some observers to conclude that Türkiye “excluded Iran from the Turkmen gas transit route” (Iranintl.com, May 17). Bayraktar’s statement in early March, however, indicated that Iran was still being considered a potential transit country for the project. Even so, the agreement on May 14 includes Georgia, and that may mean that a swap deal between Turkmenistan, Iran, and Türkiye is not being considered. Instead, a trans-Caucasus swap may be the preferred option.

The delivery of Turkmen gas to Azerbaijan via Iran was already tested in the recent past. The three countries agreed on a swap deal for this purpose on November 28, 2021, which would allow Ashgabat to export 1.5 to 2 bcm of gas to Azerbaijan from the beginning of 2022 until the end of 2023 (Caspianbarrel.com, January 8). In 2023, Azerbaijan imported 1.51 bcm of natural gas from Turkmenistan, a 77-percent increase compared to the previous year (Business.com.tm, March 3). The trilateral gas swap agreement between Turkmenistan-Azerbaijan-Iran has gas delivered to eastern Iran from Turkmenistan and then further delivered to Azerbaijan (Commonspace.eu, January 23). Tehran was interested in this arrangement due to the high transit fees, 15 percent of carried gas, and the ability to provide gas to its northern regions, particularly during winter (Mehrnews.com, January 7).

Baku and Ashgabat reportedly failed to agree on the price of gas for 2024, and the swaps were discontinued at the beginning of the year (Iranintl.com, May 17). Both Azerbaijani and Iranian news agencies reported that the supplies may be resumed once a new agreement is reached (Mehrnews.com, January 7; Report.az, February 10). Nevertheless, according to Shaban, the delivery of Turkmen gas via Azerbaijan and Georgia to Türkiye looks to be the most realistic option at the moment (Author’s interview, June 2).

The potential that such a deal would violate Western sanctions against Iran had been used as a deterrent in the past. Matthew Klimow, the US ambassador to Turkmenistan, calmed down these concerns earlier this year. “It depends on a lot of factors,” he said. “For example, the transfer of gas to Azerbaijan via a swap through Iran does not violate sanctions. Therefore, it will depend on how this deal is structured.” He also praised Ashgabat’s efforts to diversify its energy supplies to the West, which is critical for reducing Turkmenistan’s dependency on the Chinese market (Caspianbarrel.org, January 16).

In sum, the journey toward exporting Turkmen gas to Europe remains fraught with complexities and uncertainties. Despite recent agreements and negotiations, significant hurdles persist. The proposal for the Trans-Caspian Gas Pipeline faces longstanding challenges. Alternative routes through Iran, Azerbaijan, and Georgia present potential but remain fraught with practical and financial obstacles. It remains to be seen whether the recent agreements announced among the parties will bring any lasting solutions to the existing conundrums.