NEW TURKMEN GAS FIELDS CHANGE THE STRATEGIC GAS EXPORT PICTURE

On October 13 and 14 in Ashgabat, the British consultancy company Gaffney, Cline & Associates (GCA) presented the first results of its audit of Turkmen gas reserves. According to its research, the South Yoloten-Osman deposits, situated in the south-east of the country, contain four trillion cubic meters of gas at the low estimate, six trillion at the best estimate, and 14 trillion cubic meters at the high estimate. The six trillion best estimate would make South Yoloten-Osman the fourth or fifth richest gas deposit in the world, according to GCA.

That figure substantially exceeds the Russian Shtokman gas field’s reserve estimated at four trillion cubic meters. South Yoloten-Osman also outranks by far the Dauletabad gas field, whose reserves of 1.4 trillion cubic meters were thought to be the largest in Turkmenistan until now.

In addition, GCA estimates that Turkmenistan’s Yaslar field contains 1.5 trillion cubic meters of gas at the best estimate (Turkmen Khabarlary state news agency, October 14; Turkmen TV, October 13).

These results are from the first stage of GCA’s audit in Turkmenistan, which focused on South Yoloten where expectations were already high. The research is also expected to cover other Turkmen gas fields in subsequent stages. Presenting the data to a session of the Turkmen government, GCA business development manager James Bruce Gillett noted that South Yoloten-Osman could optimally be developed through successive phases of 10 billion cubic meters in annual gas production, rising to 70 billion cubic meters per year (Turkmen TV, October 13; AP, Reuters, October 14).

President Gurbanguly Berdimukhamedov, who chaired that government session, had initiated the audit and approved the awarding of the contract to GCA in March of this year after a competitive tender. GCA had some earlier experience auditing Turkmen oil and gas resources, but those data were not made public. Operating worldwide for many years, GCA’s specific strengths include reservoir engineering, exploration, and evaluation of oil and gas deposits (www.oilvoice.com, April 17).

The implications of the audit results are momentous for European and trans-Atlantic energy security. The fields just audited would apparently double Turkmenistan’s export potential in the medium and long term. Brussels and Washington can encourage Western companies to become involved in developing South Yoloten-Osman, Yaslar, and other Turkmen gas fields, with westbound pipeline outlets via Azerbaijan to Europe. This could significantly counterbalance Russian Gazprom’s dominance in European markets.

Conversely, the Kremlin will undoubtedly seek privileged access for Gazprom to the newly ascertained Turkmen resources, acting preemptively against the West. By combining those new resources (on top of the already committed Turkmen inputs) with its own volumes, Gazprom would boost its dominance in Europe to impregnable levels for a long time to come.

Turkmenistan currently produces some 70 billion cubic meters of gas annually. It plans to extract 80 billion cubic meters in 2008 and 125 billion cubic meters by 2015, but the resource base for those targets seemed questionable to Western companies until now. For its part, Gazprom has sought to discourage Western interest in Turkmenistan by publicly deprecating the country’s export potential. The announcement of GCA’s audit, however, opens the prospect of even larger output and export increases than hitherto envisaged.

At present, Turkmenistan consumes some 19 to 20 billion cubic meters of gas per year internally (clearly a case of over consumption). Its annual export commitments include up to 50 billion cubic meters to Russia and up to 8 billion to Iran. From its existing production, Turkmenistan has fallen short of the export target for Russia in the past few years and even short of the target for Iran last winter.

Furthermore, Ashgabat is committed to delivering up to 40 billion cubic meters annually to China through a pipeline that was supposed to become operational from January 2009 onward. That project seems to be several years behind schedule. Nevertheless, over commitments to export from production below the country’s potential add up to a competitive situation for Turkmen gas, undermining Russia’s monopsony in Turkmenistan.

In Turkmen gas deliveries to Russia, 2009 will be a watershed year. As the 2004 to 2008 contract period expires, deliveries will be contracted on an annual basis from 2009 onward. Russia aims to increase its purchases of Turkmen gas to a level of 70 to 80 billion cubic meters after 2009; and plans to boost the capacity of Turkmenistan-Russia pipelines from the now-existing 50 billion cubic meters to more than 80 billion by 2015.

Thus, the Turkmen gas export picture is rapidly becoming far more complex than the hitherto prevailing Russian monopsony. The country’s export potential is far larger than Western skeptics may have assumed; China is late in the game (though not as tardy as the West); and Brussels and Washington as well as Western companies are suddenly looking at massively attractive opportunities at new Turkmen fields, the reserves of which are uncommitted and awaiting development.