Publication: Eurasia Daily Monitor Volume: 4 Issue: 51

On March 7 Turkmen President Gurbanguly Berdimukhamedov met Igor Makarov, the CEO of Russian gas trader Itera. During the meeting Makarov reiterated Itera’s interest in expanded cooperation with Turkmenistan. He also suggested that Zarit, a joint venture founded by Itera and Russian state-run companies Zarubezhneft and Rosneft, could join the development of onshore and offshore oil and gas fields in Turkmenistan. Berdimukhamedov reportedly supported these proposals and urged Itera to hold detailed talks with the Turkmen government (, March 7).

Zarit was registered in Moscow in May 2002 as a joint venture between Rosneft, Itera’s subsidiary Gazkhiminvest (each controlled 37% of Zarit), and Zarubezhneft, which held the remaining 26% stake. The consortium reportedly aimed to attract Turkmen state-owned Turkmenneft and Turkmenneftegas as well as Iranian firms to help develop gas fields on Turkmen shelf of the Caspian Sea.

In December 2003 Zarit was due to sign a 25-year production-sharing agreement with Turkmenistan’s government involving four oil- and gas-rich blocks in the southern part of the Caspian shelf near the Iranian border. However, Ashgabat government delayed the deal.

When Berdimukhamedov took office last month, Moscow was keen to safeguard its stable deliveries of natural gas. Berdimukhamedov met with Russian Prime Minister Mikhail Fradkov and promised to boost energy cooperation with Russia. During the talks the two leaders decided to open a Russian trade mission in Ashgabat.

Earlier this year, Russian officials indicated plans to boost Moscow’s energy clout in the region by forging a post-Soviet energy grouping that would unite exporters and consumers. On February 21 Valery Yazev, head of the Russian Gas Society and chairman of the energy committee of the State Duma, said that a future gas alliance could include Russia, Turkmenistan, Kazakhstan, Uzbekistan, Ukraine, and Belarus. The idea will be discussed at the Eurasian Economic Community energy forum in September 2007 (Prime-TASS, February 21). Due to size of its economy and energy sector, Russia apparently seems destined to lead the new grouping.

Russia has had a long-term interest in Turkmen gas because its natural gas monopoly, Gazprom, needs Turkmen supplies to make up for the shortages created by its export commitments to Europe and growing domestic consumption of cheap gas.

In September 2006 Gazprom was forced to accept a 50% increase in the price of natural gas from Turkmenistan. It was agreed that Turkmenistan would supply Gazprom with 50 billion cubic meters (bcm)/year to Gazprom at a fixed price of $100 per 1,000 cubic meters (tcm). Turkmenistan reportedly pledged to supply Gazprom with 60 bcm in 2007, 60-70 bcm in 2008, and subsequently export up to 80 bcm/year till 2028.

However, Turkmenistan’s ability to honor its gas-export pledges has been far from certain, because the country would have to double its gas production to honor its contract with Gazprom. Turkmenistan has also pledged to export up to 30 bcm/year to China from 2009, thus opening the way for a potential conflict of Russian and Chinese interests.

Beijing was careful to deny any conflict of interest. On March 1 Interfax cited sources at the China National Petroleum Corp. as saying that Russia’s “virtual monopolization” of Turkmen gas exports was no threat to Chinese interests. Last year’s framework agreement stipulated that CNPC would find and develop new deposits on the right bank of the Amu Darya River, the source said, adding that China did not make any claims regarding gas currently produced in Turkmenistan (Interfax, March 1).

Ashgabat insisted that relations with China remain a priority. Controlling major hydrocarbon deposits, Turkmenistan pursues a concept of multiple pipeline routes, President Berdimukhamedov recently told Xinhua. He also noted continued mutual interest in projects to deliver Turkmen energy resources to China (Xinhua, RIA-Novosti, February 22).

Subsequently, Beijing lost little time offering Ashgabat some economic carrots. Earlier this month, the Export-Import Bank of China and the State Bank for Foreign Economic Affairs of Turkmenistan signed two loan agreements, involving the purchase of drilling equipment. Together the loans total $26 million (Interfax, March 5).

Turkmenistan’s support of multiple pipeline routes came as an ominous sign for Gazprom, which currently funnels nearly all Turkmen exports via its pipelines. Talk about alternative routes could indicate Turkmen interest in circumventing Gazprom’s pipeline network.

Last September, the late Turkmen president Saparmurat Niyazov promised Gazprom not to consider a subsea gas pipeline across the Caspian, and Berdimukhamedov is yet to renounce this promise. But Kazakhstan says the subsea gas pipeline remains a matter of discussion.

According to Kazakh Energy and Mineral Resources Minister Baktykozha Izmukhambetov, Astana still considers a Tengiz-Turkmenbashi-Baku subsea gas pipeline to still be viable, adding that the project was discussed during recent meetings with U.S. and EU officials. However, Izmukhambetov conceded that the project remained impossible without the consent of all five Caspian littoral states (Interfax, February 28). The Kazakh state-run oil and gas company KazMunayGaz is considering building the Kazakhstan-Turkmenistan-Iran oil pipeline, according to company sources (Interfax, February 24).

Earlier this month Berdimukhamedov had a telephone conversation with his Iranian counterpart, Mahmoud Ahmadinejad. The two leaders reportedly hailed high level of bilateral partnership, but reportedly did not discuss any pipeline projects (, March 8). However, Turkmenistan already sells some limited amounts of gas to Iran.

Berdimukhamedov also called Afghan President Hamid Karzai to officially inform him of Ashgabat’s decision to write off $3.8 million of Afghan debt. He also invited Karzai to visit Turkmenistan (, February 27).

But Berdimukhamedov’s invitation serves as a reminder of yet another pipeline project. In December 2002 leaders of Afghanistan, Pakistan, and Turkmenistan signed an agreement to build the 1,400-kilometer trans-Afghanistan pipeline that would carry natural gas from Turkmenistan to Pakistan. The $2.5 billion pipeline would carry 20 bcm/year from the Dauletabad field near the Iranian border to Pakistan. Meanwhile, Dauletabad is still hooked up to the old Soviet pipeline network, and Russia’s Gazprom still can take gas from there into Russia.

Kyiv and Minsk have also indicated their interest in boosting their energy partnership with Ashgabat. Ukraine’s deputy fuel and energy minister, Vadim Chuprun, noted that an earlier agreement on Turkmen gas supplies expired on January 1, 2007, and suggested working out a new bilateral agreement, possibly till 2030 (Regnum, February 27).

Meanwhile, Belarus Deputy Prime Minister Alexander Kosinets told Orazmyrat Esenov, Turkmenistan’s construction minister, that Belarus is interested in joint projects to develop oil and gas deposits in Turkmenistan (Belpan, March 1).

Therefore, although Gazprom remains well positioned to control the bulk of Turkmen gas exports, Russia’s gas giant is facing increasing competition.