Publication: Monitor Volume: 8 Issue: 22

Russian President Vladimir Putin’s proposal last week for a “Eurasian” association of gas exporting countries (see the Monitor, January 24) would position Russia as a permanent and monopolistic intermediary between Central Asia’s gas exporting countries and Europe. Under the proposal, all of Turkmenistan’s, Uzbekistan’s and–potentially–Kazakhstan’s future exports to points West would go through Gazprom’s pipeline system in Russia.

Turkmenistan is the primary target of this proposal. The country’s proven gas reserves are ranked third or fourth worldwide, but they are only incompletely known. The real potential, once properly prospected, may well prove to be second only to Russia’s worldwide. While Turkmenistan’s gas exports can grow spectacularly if outlets are secured, Russia’s output and exports of gas are stagnating and even declining. Deliveries of Russian gas to Europe overall in 2001, a whopping 127 billion cubic meters, were down by 1.6 percent from the preceding year. Gazprom’s deliveries to Western Europe in 2001, at 87 billion cubic meters, were down by 4 percent from 2000.

Its stagnant output and declining export potential notwithstanding, the Russian government seeks to massively expand gas deliveries to Europe in the years ahead. One way to achieve this increase is by merging the gas reserves of the Caspian-Central Asian region with Russia’s own reserves in a single pool under Moscow’s ultimate control. It is therefore essential for Moscow to make sure that Turkmenistan lacks alternative export routes for its gas. President Saparmurat Niazov has recently been playing straight into Moscow’s hands by pulling out of the Trans-Caspian Gas Pipeline Project (TCGP), which would carry Turkmen gas to Turkey and on to Europe.

Niazov does have major, longstanding disagreements with Moscow over the terms of Turkmen gas sales to Russia. He wants a long-term agreement that would guarantee Russian purchases of Turkmen gas for a period of five to ten years at a minimum. This represents a climb-down from Niazov’s goal last year for a thirty-year agreement with Russia. And he holds out for a purchase price of US$42 per thousand cubic meters, which is the price Ukraine pays for Turkmen gas.

Moscow, for its part, prefers annual agreements as a means of permanently exerting buyer’s leverage on a supplier, which in Turkmenistan’s case lacks alternative outlets. In any such annual agreements, moreover, Moscow wants to profit from the resale of Turkmen gas to third countries. The Gazprom and Itera companies offer a mere US$40 per 1,000 cubic meters of Turkmen gas. Niazov argues that such a price would not even match his country’s production costs.

Earlier this month in Ashgabat, Russia’s Foreign Affairs Minister Igor Ivanov sidestepped Niazov’s proposals. Putin turned them down at their meeting in Moscow last week. Russia does not immediately need Turkmen gas for re-export to Europe. That need will arise in a few years’ time. With his proposal for a Eurasian gas exporting countries’ association, Putin is planning well ahead of time.

Meanwhile, Turkmenistan’s gas output remains well below its current production capacity, let alone its future potential. According to official statistics just issued in Ashgabat, the 2001 output was 51 billion cubic meters. That figure is seriously questioned by international observers, and in any case it falls well short of the official 2001 planned target. Even at face value, the 2001 output figure is barely more than half the pre-1991 output, which had peaked at some 90 billion cubic meters. That peak output had in turn represented only a fraction of Turkmenistan’s potential.

Even in this situation, Niazov is about to waste his country’s sole chance to export its gas and avert Russian political and financial manipulation while doing so. The rapidly receding chance is the TCGP project to Turkey. That country is the world’s fastest growing national market for gas, but the market is being preempted by two Russian supply agreements, an Iranian one and an Azerbaijani one. These are leaving hardly any niche for Turkmen gas. Consequently, raising capital for TCGP on financial markets is scarcely a viable proposition now.

The Turkmen-Turkish agreements, signed in 1999, envisaged deliveries of 16 billion cubic meters annually for Turkey and another 14 billion cubic meters annually for transit via Turkey to European countries, over a thirty-year period. Turkey redesigned the Erzurum-Ankara pipeline, enlarging its diameter to 48 inches in order to accommodate both the Turkmen and the Iranian gas.

Turkey, however, is not only the world’s fastest-growing market, but also a highly promising Asia-Europe energy bridge. The European Union’s INOGATE (Interstate Oil and Gas Transport to Europe) program envisages linking Turkey’s pipeline system via Greece to that of Europe, so as to enable the transit of Middle Eastern and Caspian fuels to European markets. This may offer Turkmenistan its last chance to escape the status of subcontractor to Russia, as envisaged in Putin’s gas export strategy (Roundup based on reporting by the Oil and Gas Journal, Dow Jones Newswires, Turkmenistan.ru, Interfax, January 17-29; see the Monitor, October 2, 23; Fortnight in Review, October 26, 2001).