Publication: Monitor Volume: 5 Issue: 37

Turkmenistan, whose untapped gas reserves are among the world’s largest, is finally seeing the light at the end of the tunnel of servitude to Russia’s Gazprom. On February 19 in Ashgabat Turkmen President Saparmurat Niazov and PSG consortium chairman Edward Smith signed the eagerly awaited contract for a gas export pipeline from Turkmenistan to Turkey. The line will provide the first major viable export route out of Turkmenistan circumventing Russia.

PSG is made up of subsidiaries of the U.S. companies Bechtel and General Electric. Richard Morningstar, special adviser to the president and the secretary of state on Caspian energy policy, initialed the document for the U.S. government. Morningstar described the project as key to Turkmenistan’s consolidation as a state and to its entry into the global energy system. The U.S. government had hired the Enron company to prepare the feasibility study for the project. The Israeli company Merhav and its Ashgabat-based president, Yossi Meiman, acted as an intermediary in forming the consortium and negotiating terms with the Turkish, Azerbaijani and Georgian governments.

The pipeline will originate from the eastern Turkmen gas fields Malai and Shadlyg, which contain proven recoverable reserves of some 600 billion cubic meters of gas. It will run approximately 2,000 kilometers, crossing the Caspian seabed between points near Turkmenbashi and Baku, and continuing via Azerbaijan and Georgia to Erzurum in eastern Turkey. The throughput capacity will be 30 billion cubic meters annually, the construction cost US$2.5 billion to US$3 billion, and the construction period some thirty months, to begin in the second half of 1999. The consortium partners will themselves provide 30 percent of the capital and will raise 70 percent of it on financial markets with assistance from U.S. government agencies.

The commercial contract runs for thirty years, during which Turkey will buy 14 billion cubic meters annually and will transit 16 billion cubic meters to Balkan and Central European countries. For that purpose the Turkish side will extend the pipeline from Erzurum to European Turkey. The Turkish Energy Minister, Zia Aktas, greeted the signing with assurances that his country would give precedence to this over any other supply arrangement (Turan, February 19; Assa-Irada, The Wall Street Journal, February 22).

Aktas was alluding to two potential alternatives: the Shell company’s plan to pump Turkmen gas to Turkey via Iran, instead of using the trans-Caspian-South Caucasus route; and the Russian Gazprom-Italian ENI project to lay a “Blue Stream” gas pipeline on the bottom of the Black Sea from Russia to Turkey. The three projects are mutually exclusive, because the commercial viability of each depends on maximal export volumes. Last year Turkey signed an agreement of intent on the Blue Stream project, as well as one with Turkmenistan on the trans-Caspian pipeline projected to continue to Erzurum. Ankara apparently regarded the first as a fall-back option while clearly preferring the second. Proof of this preference was last October’s political declaration, signed by Turkish President Suleyman Demirel with Niazov, enshrining their commitment to the trans-Caspian pipeline.

The Shell and Gazprom alternatives would have defeated Washington’s and Ankara’s goals, to wit: (1) avoiding an Iranian route for Turkmen gas; (2) securing most of the Turkish market for Turkmenistan, in preference to Gazprom; (3) bringing Turkmen gas to Europe; and (4) creating a commercially profitable Caspian energy transport corridor by adding a gas pipeline to the planned Baku-Ceyhan (Turkey) oil pipeline.

Iran immediately condemned Turkmenistan for signing the agreement and “falling into the U.S. trap, as was the case with Azerbaijan.” The Foreign Ministry and officially inspired press comments warned that Iran considers the contract “invalid and unacceptable” because it disregards the “indivisibility” of the Caspian Sea and lacks the consent of “all littoral states” (IRNA, February 20, 22). Yet Iran can no more stop this project than it could stop Azerbaijan’s oil projects and successful assertion of the sectoral division principle. At U.S. urging, Azerbaijan and Turkmenistan have meanwhile agreed to proceed with the trans-Caspian pipeline irrespective of the ultimate resolution of their disagreement over the sectoral border.

Gazprom is not out of the picture yet. It signed an agreement of intent with ENI during Italian Prime Minister Massimo d’Alema’s recent visit to Moscow. On this, as on some other issues, the left-leaning Rome government is not averse to working at cross purposes with its U.S. ally. With prospective Italian government financing, the Gazprom-ENI “Blue Stream” project might yet outpace the trans-Caspian in terms of raising the investment capital. That could nullify this first success of Washington’s Caspian policy, and would help prolong Russia’s and Gazprom’s stranglehold on Turkmen gas exports–a situation that has stunted Turkmenistan’s economic development since independence.

The Monitor is a publication of the Jamestown Foundation. It is researched and written under the direction of senior analysts Jonas Bernstein, Vladimir Socor, Stephen Foye, and analysts Ilya Malyakin, Oleg Varfolomeyev and Ilias Bogatyrev. If you have any questions regarding the content of the Monitor, please contact the foundation. If you would like information on subscribing to the Monitor, or have any comments, suggestions or questions, please contact us by e-mail at pubs@jamestown.org, by fax at 301-562-8021, or by postal mail at The Jamestown Foundation, 4516 43rd Street NW, Washington DC 20016. Unauthorized reproduction or redistribution of the Monitor is strictly prohibited by law. Copyright (c) 1983-2002 The Jamestown Foundation Site Maintenance by Johnny Flash Productions