Potentially one of the richest of the former Soviet republics, with natural gas estimated as high as 3.7 trillion yards, Turkmenistan has been unable to exploit its energy reserves because of its geographical isolation and governmental system. Thirteen years after the implosion of the USSR, the equitable distribution of the Caspian’s waters remains an elusive goal among the five riparian states. Russia, with the backing of both Azerbaijan and Kazakhstan, has held out for each state receiving 20 percent. Iran has held out for a division based on national coastline. Turkmenistan has wavered between both positions and has yet to make a definitive choice.
Ashgabat nonetheless has recently renewed its efforts to reach out to regional and international investors to develop its offshore Caspian reserves. Last December, Turkmenistan began negotiations for a production sharing agreement with the Zarit consortium (consisting of the state-run companies Rosneft and Zarubezhneft) and Russian gas company Itera to develop blocks 29, 30 and 31 in Turkmenistan’s Caspian Sea sector along the Iranian border. Turkmen officials have not ruled out the future possibility that the consortium will eventually include Iran. (RIA Novosti, March 28). Ashgabat is hoping to attract up to $25.6 billion in foreign investment by 2020 to develop its Caspian oil and gas resources, an amount double current foreign investment in Kazakhstan. Last year the Azerbaijan State Caspian Shipping Company transported 4.08 million tons of Turkmen crude to Baku for loading into the Baku-Novorossiisk and Baku-Tbilisi pipelines for transshipment to the Black Sea. (Assa-Irada, Jan. 7). Turkmenistan has used CSC tankers since the mid-1990s and remains committed to exporting its oil through the Caucasus to western energy markets in Europe.
For Turkmenistan, Iran represents a logical transport route for its energy. Despite Washington’s displeasure, President Saparmurat Niyazov proposed constructing a pipeline to transport Turkmen oil across Iran to the Persian Gulf to Iranian Foreign Minister Kamal Kharrazi during a visit to Ashgabat. Kharrazi said after meeting with Niyazov, Iran would like to increase the amount of oil transited from Turkmenistan and double its trade with Turkmenistan, currently some US$500 million annually, to US$1 billion (IRNA, 4 April).
Nor is Turkmenistan limiting itself to former Soviet states in its search for partners. Dublin’s Dragon Oil Company is also working in Turkmenistan’s Caspian waters. (La Prevensa, April 12.) In December, Dragon Oil announced its intention to issue US$18 million in new shares to fund an exploration project, an offering equal to about 10 percent of the existing share capital. Investor interest is certainly there; Dragon Oil noted in a statement, “The placement was materially oversubscribed. Application will be made to the Irish Stock Exchange and to the London Stock Exchange for the new ordinary shares to be admitted for trading.” Dubai’s Emirates National Oil Dragon owns two-thirds of Dragon Oil; the company said earlier in the year that it plans to raise output in Turkmenistan by 15 percent to 20,000 barrels a day by January 2004. Dragon sells its output to Caspian refiners or participates in oil swaps with Iran, which takes Dragon Oil’s output to its northern refineries and swaps it for an equal amount of Iranian oil in the Persian Gulf. Turkmenistan has also signed offshore exploration contracts with Denmark’s Maersk Oil and Malaysia’s Petronas.
But what Turkmenistan dreams of is a pipeline of its own, preferably one to the Arabian Sea that would take advantage of the energy-hungry East Asian markets. Ashgabat is starting construction of a 106-mile oil pipeline that is due to be completed by January 2005 to transport crude oil from deposits in Korpedzhe to the Caspian port of Turkmenbashi. A consortium of Ukrgazpromstroi, Turkmenneftegazstroi, Caspro Pipeline Service AG, Ferrostaal Piping Supply GmbH and John Heinr Bornemann Gmbh will build the US$60 million pipeline, which will supply up to 3 million tons of oil a year to oil refineries in Turkmenbashi (Novosti, March 26).
Turkmenistan’s oil output has been rising dramatically; in 2003, Turkmenistan produced 10 million tons of oil, a 111 percent increase over 2002. The reserves are there, as is both regional and international investor interest. The biggest bottleneck that the country currently faces is the nature of its government. If it becomes less xenophobic and more investor-friendly, Turkmenistan’s energy boom could soon come to resemble Kazakhstan’s. Once one of the most promising Central Asian energy countries for western energy investment, Turkmenistan has shed into virtual isolation since Turkmen President Niyazov abandoned its participation in a U.S.-backed project to export Turkmen gas to Turkey in the late 1990s. After ending its participation in this project, Turkmenistan has leaned increasingly toward Iran as a possible energy corridor for its energy exports. The reclusive Turkmen president has for all practical purposes abandoned his countries’ effort to export gas through Afghanistan since the US energy company UNOCAL halted its efforts to build a gas pipeline through to Pakistan and India.