CAN TURKMENISTAN MEET ITS FUTURE GAS EXPORT DEMANDS?

By any measure, 2008 is shaping up to be an extraordinary year for Turkmen President Gurbanguly Berdimukhamedov. In power for only 13 months following the sudden death of President Saparmurat “Turkmenbashi” Niyazov on December 21, 2006, Berdimukhamedov has humbled Russia’s mighty Gazprom monopoly in price negotiations, forcing the energy giant last November to agree to a price increase to $130 per 1,000 cubic meters for January-June 2008, rising to $150 in the second half of the year. Berdimukhamedov’s triumph meant that in 14 short months Turkmenistan has managed to secure a 200% price increase from Gazprom, which is far more used to playing hardball “pipeline politics” with its hapless consumers. Turkmenistan currently exports 23 million cubic meters of gas per day (Interfax Oil & Gas Report, January 10-16).

This success builds on one of Turkmenbashi’s last diplomatic triumphs, in September 2006 Niyazov managed to convince Gazprom to up the price it paid for Turkmen gas from $65 to $100 per 1,000 cubic meters for 2007-2009, with annual deliveries slated at 50 billion cubic meters.

Another Niyazov initiative that Berdimukhamedov is expanding dates to April 3, 2006, when Niyazov signed an agreement to sell China 30 billion cubic meters (bcu) of Turkmen gas annually for 30 years, beginning in 2009 (Kommersant, April 3, 2006). Dismissed by many analysts at the time as a pressure tactic that Niyazov was using in his torturous negotiations with Gazprom, the project is now about to become a reality, as two China National Petroleum Corp. subsidiaries (PetroChina and China National Oil and Gas Exploration and Development) will each provide 8 billion yuan ($1.095 billion each) to help underwrite the construction of a $2.2 billion, 1,100-mile-long natural gas pipeline with an annual carrying capacity of 30 bcu from Turkmenistan to China (China Daily, December 29, 2007, Interfax Oil & Gas Report, December 20, 2007–January 9, 2008). A gargantuan engineering project by any yardstick, the only thing about the pipeline that does not add up is current Turkmen natural gas production and its export commitments.

In 2006 Turkmenistan produced 62.2 bcu of natural gas, second only to Russia. With 2005 domestic consumption estimated at 17.07 bcu, approximately 45 bcu, or more than two-thirds of Turkmen production, was available for export.

But if the Turkmen-China pipeline comes online in 2009, then its 30 billion bcu commitments, added to Turkmenistan’s contracts with Gazprom stipulating 50 billion bcu; then Turkmenistan’s export requirements to these two countries alone will reach an astounding 80 bcu per annum versus Turkmenistan’s current output of slightly over 60 bcu, producing a deficit of nearly 20 billion bcu. Add in domestic consumption of 17 billion bcu and annual exports to Iran of approximately 7.6 bcu, and Turkmenistan in the next two years must ramp up production by 44.6 bcu, or 71% over its current rate of production, in order to satisfy both its domestic consumers and export contracts.

Berdimukhamedov has publicly committed to supporting both the Turkmenistan-China gas pipeline and a Russian-proposed Caspian littoral pipeline, telling his countrymen during his annual New Year’s speech, “We must build the Turkmenistan-China pipeline and the Caspian littoral pipeline as soon as possible and continue working along many other directions.” In a populist sop to his constituents he added, “We’ll spend all the revenues from the sales of gas to raise our people’s quality of life and to ensure further development of the country” (Itar-Tass, January 1).

Berdimukhamedov has already taken steps to uncover additional natural gas reserves. During a government meeting on December 27 Berdimukhamedov ordered an audit of all hydrocarbon deposits in 2008, appointing Deputy Prime Minister Tachberdy Tagiev to lead the project. Berdimukhamedov told his officials, “Certifying oil and gas supplies in the country’s fields will allow us to clarify our strategy for further developing the use of our hydrocarbon resources and account for the high goals set in the program of development of Turkmenistan’s oil and gas industry through 2030 that would promote the development of mutually beneficial international cooperation in the energy sector” (Turkmenistan.ru, December 28, 2007).

For the projected Chinese pipeline, Ashgabat is already prospecting the subsoil resources of the eastern side of the Amu Darya River in the Bagtyyarlyk region, which also includes the Samandepe field of sulfur dioxide gas, to be developed under a production-sharing agreement with Chinese investors. Regarding the progress of the pipeline, the Turkmen government press agency reported, “At present, the construction of the gas export pipeline is being carried out rapidly” (Turkmenistan.ru, January 16).

Moscow, Beijing, Tehran, and Washington will all be watching developments with the closest interest to see if Berdimukhamedov’s government can fulfill its lofty commitments.