Publication: Monitor Volume: 6 Issue: 39

As anticipated (see the Monitor, July 15, December 7, 1999), the Shah-Deniz gas bonanza in Azerbaijan could lead that country–and the British Petroleum Amoco-led consortium of Shah Deniz owners–into the short-sighted temptation of elbowing Turkmenistan out of the gas markets of nearby countries. That could create an existential problem for Turkmenistan, whose viability hinges on unimpeded access to those gas markets. The hub of those markets is Turkey in a dual role as buyer and transit country.

BP Amoco announced last week a plan to deliver Shah-Deniz gas to Turkey in amounts comparable to those already offered by Turkmenistan, and over a similar time period, but at lower prices than Turkmenistan could afford to charge. Concurrently, the Azerbaijani government seeks to impose stringent limits on the volume of Turkmen gas to be allowed through the planned Trans-Caspian Pipeline (TCP) from Turkmenistan via Azerbaijan to Turkey (see the Monitor, February 18). Those limits would almost certainly render Turkmen gas exports unprofitable to Turkmenistan and commercially unattractive to potential investors in the TCP project. Failing Turkmen acceptance of those terms, Azerbaijan and the Shah-Deniz consortium say that they are prepared to lay their own export pipeline to Turkey, in effect abandoning the TCP and potentially undermining its viability.

The American-planned TCP offers the only viable export route for Turkmenistan’s immense gas reserves. Proposals to lay overland pipelines through neighboring countries have come to naught because of the turmoil in Afghanistan and the policy of Iran, as a competitor country, to accept only the meager quantity of Turkmen gas needed to supply northern Iran. The sole existing major pipeline out of Turkmenistan passes through Russia and is controlled by Gazprom. Russia regards Turkmenistan as a potentially dangerous competitor in international markets. During most of the post-Soviet period, Moscow has to all intents and purposes blocked the access of Turkmen gas to European markets by imposing onerous commercial terms.

Last year, Turkmenistan bowed to terms it had rejected earlier for the transit of 20 billion cubic meters annually to Ukraine. The transaction proved unprofitable to Turkmenistan due to Ukraine’s insolvency. Ashgabat accepted Gazprom’s terms as a stopgap solution, pending the opening of the Trans-Caspian route. That prospect is now suddenly thrown into question by the developments in Azerbaijan.

At present, Gazprom itself targets the Turkish gas market through the Blue Stream project, a Russian-Italian venture to lay a pipeline from Russia to Turkey along the bottom of the Black Sea. Blue Stream’s prospects to prevail in the competition against TCP and Shah-Deniz are meager. But those prospects would suddenly brighten if Turkmen gas is denied access via Azerbaijan. And Gazprom would emerge as a big winner if it ends up transiting Turkmen gas to Turkey via Blue Stream on Gazprom-imposed terms. Turkmen President Saparmurat Niazov now seems to consider taking that plunge.

On February 18-19, Niazov held talks with Gazprom chairman Rem Vyakhirev in Ashgabat. The discussions centered on Turkmen gas transit via Russia to various destinations, including Turkey. Niazov hopes for a long-term contract to Russian consent to the transit of a whopping 100 billion cubic meters annually over a 30-year period. Vyakhirev expressed willingness “theoretically to consider” 50 billion cubic meters annually, depending on pricing and other factors. The Russian side proposes to pay US$36 per 1,000 cubic meters of Turkmen gas at the border. Niazov, who had earlier termed that a “starvation price,” hopes to obtain US$46. The sides decided to set up a commission which would work out an agreement by April.

American and Turkish good offices may yet bridge the differences between Azerbaijan and Turkmenistan and keep TCP on track. The Turkish government has already announced its intention to promote a deal commercially attractive to both of these Turkic countries (Turan, Caspian News, Ashgabat Radio, Dow-Jones Newswires, February 18-22).