A NEW DAY FOR TURKMEN ENERGY

Even before the late Turkmen President Saparmurat Niyazov was buried last December, foreign government delegations were scrambling to meet with his successor, Gurbanguly Berdimukhamedov, either to get reassurance that earlier energy contracts would be honored or to angle for new ones to exploit the world’s fifth-largest reserves of natural gas.

Berdimukhamedov immediately assured his anxious guests that all existing contracts would be honored.

A week after his accession to power, at a joint meeting of the State Security Council and the Cabinet of Ministers, Minister of Oil, Gas, and Mineral Resources Gurbanmyrat Atayev reported that all existing agreements with foreign partners on natural gas and oil supplies were being filled promptly and according to contract (Turkmenistan.ru, December 29, 2006). Three days later, the Turkmen press reported that the previous week’s production of oil and gas, covered by 28 foreign currency contracts, exceeded $13.2 million. (Turkmenistan.ru, January 2, 2007).

This year Turkmenistan intends to significantly increase its energy exploration work. The program, approved by Berdimukhamedov, concentrates on the country’s southwestern fields, with a 70% increase in exploration activity planned in Korpeje, Akpatlawuk, Shatut, Nebitlije, Ekerem, and the oil and gas areas of Southern Yolatan and Osman. Fields on the right bank of Amu-Darya River will be developed to feed the proposed Turkmenistan-China natural gas pipeline (Turkmenistan.ru, March 28). The government’s ambitious 2007 goals project 10.4 million tons of oil and about 80 billion cubic meters of natural gas production (Turkmenistan.ru, March 30).

For more than a decade Niyazov chafed under Russia’s hardball energy export tactics, which charged high transit fees while Gazprom paid well below world market prices for Turkmen natural gas, but Niyazov knew that Russia controlled the former Soviet pipeline network, which was his country’s sole access to the global market. While Gazprom has remained Turkmenistan’s primary exporter, Niyazov subsequently began to diversify Turkmenistan’s suppliers of petrochemical equipment and by 2004 had signed over 100 contracts for oil products supply and exploration with more than 60 companies, including Petronas (Malaysia), Maersk (Denmark), Burren Energy (UK), the Irish-Arab company Dragon Oil, and Maytro (Spain) (Turkmenistan.ru, June 10, 2005).

By March 2007 a number of foreign companies had expanded their investments under production sharing agreements and carried out both onshore and offshore prospecting in Turkmenistan’s Caspian sector, including Dragon Oil (Cheleken), Burren Energy (block Nebitdag), Maytro and the Khazar Consortium (Eastern Cheleken), and Petronas (Diyarbekir) (turkmenistan.gov.tm, March 30).

Other foreign companies currently involved in the country’s hydrocarbon infrastructure include Canada’s Thermo Design, the Chansin oil exploration department of China’s National Petroleum Corp., Britain’s Velver, Turkey’s Calyk Enerji Sanayi ve Ticaret, and the Ukrainian company Petro Gaz (Turkmenistan.ru, October 31, 2006; November 21, 2006; December 1, 6, 13, 2006; March 16, 2007).

While in the short term Turkmenistan will still be forced to rely on Russian export pipelines, Niyazov was clearly looking eastwards for outlets. In April 2006 he signed a deal with Chinese President Hu Jintao for natural gas exports and the commissioning of a 30 billion cubic meter per year Turkmenistan-China pipeline by 2009, to be paid for by Beijing (MosNews, December 22, 2006). While such a pipeline would traverse Kazakhstan, Berdimukhamedov has a powerful trump card to play to bring Astana on board, in that he could reverse Kazakh President Nursultan Niyazov’s opposition to a final division of the Caspian’s offshore waters, allowing for the development of underwater pipelines for the five littoral states.

There are already signs that this is happening. On March 13, Berdimukhamedov and Azerbaijani President Ilham Aliyev agreed to resume bilateral cooperation. This telephone call was the first conversation between Turkmen and Azerbaijani heads of state in eight years. A Turkmen government source said that a Caspian working group, led by Deputy Prime Minister Rashid Meredov, has been established to develop proposals on how to reestablish relations with Azerbaijan, suspended since 2001 when Turkmenistan closed its embassy in Baku (Today.az, March 22). Azerbaijan’s Deputy Foreign Minister Khalaf Khalafov told journalists that a meeting of the working group on the Caspian Sea’s status will be held in Ashgabat later this month, saying, “Our position on the Caspian’s status is close to those of Russia’s and Kazakhstan’s. Our position with that of the southern neighbor [Iran] is also becoming closer… We are negotiating with Iran and Turkmenistan” (Azeri Press Agency, April 3). While the two sides are talking, they have yet to resolve the issue of who owns the Caspian deposit known as Kapaz in Azerbaijani and Serdar in Turkmen, which contains an estimated 450 million barrels of oil and 32 billion cubic meters of natural gas.

Berdimukhamedov has already moved away from Niyazov’s monopoly of the Turkmen energy sector, reorganizing the national energy complex and licensing agreements under a new special agency reporting directly to him. Russian businessmen are nervously awaiting the change, as Gazprom currently purchases about 42 billion cubic meters of Turkmenistan’s 60 billion cubic meters of annual natural gas production (Vedomosti, March 14). The new pipeline could be a potential threat to Gazprom, which needs Turkmen natural gas exports to fulfill both its domestic needs and its export contracts.

Foreign companies are increasingly moving into the country’s infrastructure. Dragon Oil is building a refinery in Turkmenistan, the first local refinery owned by a foreign business (Fergana.ru, March 14).

Berdimukhamedov has also taken tentative steps to allow expanded sales of Turkmen energy products. Among the 28 contracts signed at the Turkmen commodity and raw materials exchange in January, Iranian businessmen bought polypropylene, while Afghani and U.S. Virgin Island businessmen bought aviation kerosene, United Arab Emirates businessmen purchased lamp oil and gasoline, Swiss merchants bought aviation kerosene, and British businessmen bought polypropylene (Turkmenistan.ru, January 15, February 13).

Ashgabat would be the real winner in any Chinese-Russian bidding war for developing Turkmen gas reserves, and Berdimukhamedov must be feeling no small satisfaction in humbling the mighty Gazprom. Berdimukhamedov also has the ace up his sleeve of expanding bilateral trade with Iran, which last year reached $ 1.2 billion. If he plays his cards right, Berdimukhamedov will have a far greater presence on the world stage than his illustrious predecessor ever imagined.