Ashgabat undoubtedly sees Russia’s decision to restart the procurement of Turkmenistani natural gas as a welcome opportunity to diversify Turkmenistan’s gas export markets. At present, China holds the monopsony on Turkmenistani gas supplies. In the course of the last ten years, Turkmenistan has experienced a transition from a Russian quasi-monopsony (until 2008–2009) to a Chinese quasi-, then full monopsony (from 2010 to date) on Turkmenistani gas.
While gas sales to Russia are restarting on a small scale (with potential for growth—see Part One, EDM, April 18), Turkmenistan expects to monetize its sales to Russia without delay, unlike its much larger deliveries to China. These, for all their big volumes, bring only meager cash earnings to Ashgabat. Much of its revenue from those sales must be plowed back as debt repayment for Chinese investments into gas field development and pipeline construction. It is also possible that some of the gas volumes delivered to China are counted as a non-monetary form of debt repayment, with the same net result of severely curtailing Ashgabat’s cash earnings from these exports, pending the ammortization of Chinese investment credits. Pricing arrangements for these deliveries to China are non-transparent, and are understood to reflect Turkmenistan’s lack of access to alternative export markets for its gas, resembling Turkmenistan’s situation during the period of Russian monopsony.
Ashgabat would therefore hope for Gazprom to increase its intake of Turkmenistani gas far above the 1.1 billion cubic meters (bcm) that Gazprom has just contracted from TurkmenGaz for the period April through June (Platts, April 16) or July (Kommersant, April 15). The volume and the duration look like a test run to reactivate the export pipeline from Turkmenistan via Kazakhstan to Russia (Central Asia–Center pipeline system), idled since Gazprom’s halt on imports from Turkmenistan at the end of 2015.
However, the potential for a major increase in Gazprom’s intake is constrained, first, by Turkmenistan’s pre-existing, long-term export commitments to China; and second, by limitations on gas production growth in Turkmenistan onshore, as long as Ashgabat does not allow international companies to enter into production-sharing agreements for onshore field development. Gazprom has also been barred from such an agreement. Most field development projects are, instead, based on concession agreements and service contracts, less attractive to international companies. China National Petroleum Corporation’s Bagtyarlyk gas field development is an exceptional case of a production-sharing agreement onshore in Turkmenistan.
With the lion’s share of Turkmenistani production growth pre-empted by China, Gazprom might possibly increase its own intake from Turkmenistan if the latter decides to reroute export volumes that were previously destined for Iran. For well over a decade, Turkmenistan exported circa 8 bcm of gas per year to Iran. This trade was repeatedly plagued by Iranian-provoked disputes (see EDM, April 18). Ashgabat suspended gas deliveries to Iran in 2017, seeking to recover almost $2 billion in Iranian debts for past deliveries of Turkmenistani gas. Arbitration proceedings are under way (Caspian Affairs Magazine, January–February 2019).
In this situation, volumes previously earmarked for Iran could instead be made available to another customer. Gazprom and Ashgabat could consider this option without encroaching on Chinese interests, since those freed-up volumes are not pre-committed to China. Nor does the elusive Turkmenistan–Afghanistan–Pakistan–India (TAPI) project provide an alternative export option for Turkmenistani gas any time soon. Moscow has encouraged the TAPI project politically, for channeling Turkmenistan’s gas away from the westerly direction, and also in order to secure steel pipe orders for Russian steel companies (see Part One), without necessarily (if at all) believing in the TAPI project’s viability.
Although vast Turkmenistani reserves could feed gas export pipelines in multiple directions—and notwithstanding Ashgabat’s declared intentions to boost production to a staggering 230 bcm per year—Turkmenistan’s gas production remains far below its potential, with slow growth rates, constrained by its reluctance to attract international companies through production-sharing agreements. Production is understood to be in the range of 70–80 bcm annually, from which the exports to China are variously estimated in the range of 30–40 bcm per annum during the last three years. The export commitment to China currently stands at 65 bcm per year, a level planned to be reached by the early 2020s through the dedicated “D Line” (fourth line in the Central Asia–China gas pipeline system). This will add 25 bcm per year in Turkmenistani deliveries to China, but will probably require Ashgabat again (see above) to ammortize Chinese investments before receiving net cash profits from those exports.
Ashgabat, therefore, must hope to restart gas exports to Russia at volumes more serious than the small one initially contracted (see above), and for immediate monetization. Apart from direct sales to Gazprom—and notwithstanding historical experience—Ashgabat might hope to receive access to Gazprom’s pipelines in Russia in order to export Turkmenistani gas to European markets. This could only involve Turkmenistani gas volumes not yet committed to China, or freed up by the breakdown in the gas trade with Iran.
Gazprom, however, apparently intends to revert to its traditional practice of buying Turkmenistani gas for resale in Europe at a profit (or using Turkmenistani gas in Russia to free up Russian gas volumes for sale in Europe). Gazprom’s CEO, Aleksei Miller, during his recent visit to Ashgabat clearly intimated that the resumption of imports from Turkmenistan is linked with “long-term growth in gas demand on Gazprom’s traditional markets” (Interfax, March 28). Thus, Gazprom would be re-exporting Turkmenistani gas to Europe in Gazprom’s name, as Russian gas, rather than providing transit service for Turkmenistan to sell its own gas in its own name on European markets.
The re-export of Turkmenistani gas would be profitable for Gazprom in a high-price environment in Europe. In a low-price environment, however, achieving a profitable netback from such re-exports would require Gazprom to lower its purchase price for Turkmenistani gas to levels that Ashgabat would deem unattractive or even unacceptable.
By holding out to Ashgabat the prospect of buying substantial volumes, Moscow might also want to discourage Ashgabat from committing volumes to the proposed Trans-Caspian Pipeline in the ongoing discussions with the European Union. In Washington, the Donald Trump administration has signaled renewed the United States’ interest in that project. President Trump, in a message to Turkmenistan’s President Gurbanguly Berdimuhamedow on the occasion of Nowruz, has encouraged the Central Asian republic to return to the consideration of the trans-Caspian project for gas exports to the West (Turkmenistan.gov.tm, March 24).