Publication: Eurasia Daily Monitor Volume: 1 Issue: 97

President Saparmurat Niyazov is favorably considering proposals to change Turkmenistan’s gas-export strategy by reducing reliance on pipelines for delivering natural gas, shifting to other transport methods, and maximizing the processing of gas in Turkmenistan for export of value-added products. Niyazov discussed these plans on September 28 in Ashgabat with Yosi Meiman, head of Israel’s Merhav company, a long-time consultant to Niyazov and participant in Turkmen energy projects (News Central Asia, [Ashgabat], September 28).

At present, Turkmenistan’s gas exports consist almost entirely of pipeline-delivered natural gas, almost all of it to Russia and via Russia, using Gazprom’s pipelines. Turkmenistan’s gas output, officially reported at 59 billion cubic meters in 2003, is expected by 2007 to equal the Soviet-era peak level (some 90 billion cubic meters) and to surpass that level thereafter. The policy changes outlined on September 28 focus on: gas liquefaction, electricity generation, and chemical processing of natural gas.

To reduce its reliance on pipelines, Turkmenistan will seek to rapidly increase production of liquefied natural gas and liquefied petrol gas (LNG, LPG). The volume of natural gas used for liquefaction is projected to rise to 30 billion cubic meters annually by 2015.

Using natural gas for electricity generation and export would mark a further shift away from pipeline use. The intention is to redirect growing volumes — 30 billion cubic meters annually by 2010 — to gas-fired power plants. With exceptionally low generation costs, Turkmenistan expects to target electricity markets in Iran and Afghanistan for its electricity exports.

Downstream industrial processing would focus on export-oriented production of polypropylene and possibly also polyethylene from natural gas in years ahead. At the moment, the Merhav company proposes a $1.5 billion project to modernize the Seydi gas-processing plant in eastern Turkmenistan.

These intentions, if implemented, could substantially change the recently announced plans to maximize exports of Turkmen natural gas by pipeline. Those deliveries, now running at nearly 40 billion cubic meters annually, are projected to surge to nearly 100 billion cubic meters annually to Russia and Ukraine from 2008 onward, through Gazprom pipelines. A significant and growing portion of those volumes is expected to reach European Union markets via Russia (or to enable Russia to use some volumes of Turkmen gas and release corresponding volumes of Russian gas to Europe with a steep commercial markup). Redirecting a large part of upstream output for internal processing in Turkmenistan and for exporting value-added products would clearly be advantageous to Turkmenistan.

All this could thwart Russia’s strategy of maximizing deliveries of Turkmen natural gas by pipeline, monopolizing the export route, and controlling Turkmen gas supplies to Europe. Russian President Vladimir Putin has spoken of creating a Russian-led “Eurasian OPEC for gas” through Russian physical and commercial control of Central Asian natural gas exports. Turkmenistan’s natural gas export potential is of a magnitude close to Russia’s. Putin’s strategy would further increase Russian leverage in Europe and defeat the EU’s goal of supply diversification.

The EU would therefore be shortsighted if it were to encourage continuing increases in Turkmen natural gas deliveries through Gazprom pipelines. The preferable options are: returning to the U.S.-supported project for a westbound trans-Caspian gas pipeline via the South Caucasus and Turkey to Europe, as well as promoting liquefaction of Turkmen gas, so as to diversify export methods and routes, minimizing dependence on Russian transit pipelines.