Russia is unlikely to agree to the transit of the Turkmen gas to Europe and the CIS countries. Will this really push Ashgabat into the embrace of Beijing? Today, the Chinese are the largest investor in the oil and gas complex of Turkmenistan and have already expressed willingness to help the country building gas pipelines to India and Azerbaijan. Meanwhile, experts say that now Ashgabat has faced a complete gas stalemate rather than new opportunities.
Myrat Archayev, acting head of Turkmengaz, declared last week at the International Conference “Oil and Gas of Turkmenistan-2017" in Ashgabat, that the country is ready to supply gas to the CIS countries and Eastern Europe via Russia by the Central Asia-Center gas pipeline. "There is an operating system of main gas pipelines in the northern direction, through which Turkmenistan historically exported natural gas to Russia and other CIS countries. If mutually acceptable agreements are reached with buyers and transit countries, this gas pipeline could potentially be used to supply natural gas from Turkmenistan to the CIS and Eastern Europe,” the head of the gas company said.
"Turkmenistan is trying to use every opportunity to sell its gas. However, the Russian option is hardly possible. Gazprom will not agree to be a transit vehicle for a competitor,” said Igor Yushkov, a senior analyst of the National Energy Security Fund (FNEB). According to him, Gazprom has not fully loaded its own capacities and was glad to cancel the contract for the purchase of Turkmen gas as early as last year. It has been operating since 2009 and envisaged an annual purchase of up to 30 billion gas at a price of almost $ 300 per thousand cubic meters. When world gas prices declined, Turkmenistan refused to review the terms of the contract. As a result, Gazprom one-sidedly cut gas prices, filed a lawsuit with the Stockholm Arbitration Court, and as of January 1, 2016, it stopped buying. Ashgabat responded that Gazprom was unable to pay debts.
The intransigence of Ashgabat led to the termination of gas supplies to Iran this year. The essence of the dispute is again the price of gas. In the winter of 2007-2008, strong frosts hit northern Iran and Tehran went beyond the limits, and Turkmenistan in this situation set new gas prices. They grew by nine times, from $40 to $360 per thousand cubic meters. As a result, Ashgabat wants additional $1.8 billion from Tehran, and since January of this year, due to non-payment, began to reduce supplies.
Today, Turkmenistan delivers some gas to Azerbaijan via Iran, and only China remains the main importer of gas from Turkmenistan. According to Igor Yushkov, Turkmenistan has found itself in a difficult situation, as it repays numerous Chinese loans from profits for gas exports to China and it needs new consumers. The withdrawal of Russia and Iran, coupled with low energy prices, hit hard on the country's budget. Due to the drop in export earnings of Turkmenistan, there is not enough money for own needs and in November Ashgabat raised tariffs for extra-limit water consumption of 7.5 cubic meters per person by 25 times.
So far there are two options for exporting the Turkmen gas. The third, the supply of gas to Turkey through Iran, was rejected by Tehran. The new consumers of Turkmen gas can be Europe if they build a Trans-Caspian gas pipeline that will connect the South Gas Corridor in Azerbaijan and Pakistan and India if the TAPI main pipeline is built through Afghanistan. Today, Chinese companies have access to Turkmenistan's land and offshore deposits and are themselves interested in increasing exports. As the Director General of CNPC International Turkmenistan Li Shulian said, China is ready to help Turkmenistan build both the TAPI gas pipeline to Pakistan and India, and the Trans-Caspian gas pipeline to Azerbaijan, if it is realized. His words at the International Forum "Oil and Gas of Turkmenistan-2017" was quoted by the electronic newspaper of the oil and gas complex of Turkmenistan Hebit-gaz.
"The Chinese are active everywhere, but the projects themselves are doubtful," says the senior analyst at the FNEB.
Deputy Director of the National Energy Security Fund Alexei Grivach suggests that Ashgabat would like to have alternative options for gas exports in order to diversify, but so far the process has been difficult. "Complex markets, geopolitical instability in the region and the need to make concessions to partners do not allow Turkmenistan to solve this problem," the expert believes.
As far as TAPI concerned, the work was conducted only in Turkmenistan and the issue of the security of the 700-kilometer Afghan section has not yet been resolved. At the same time, India refuses to sign a contract until the gas pipeline is built. "Delhi has already singed it feathers by its contract with Qatar. World prices for gas fell, and Doha refused to reduce the cost," says Igor Yushkov.
The prospects of the Trans-Caspian gas pipeline are even lower. Russia and Iran oppose the supply of Turkmen gas to the Southern Gas Corridor, and absence of delimitated borders in the Caspian Sea has long made construction impossible. "An agreement on the Caspian is planned to be signed, but the details are unknown," the expert said.
Deputy Director of FNEB Aleksey Grivach believes that the issue of exporting Turkmen gas to new destinations is not worthwhile, as Turkmenistan has not yet fully satisfied China's needs for long-term contracts. With an opportunity to export up to 40 billion cubic meters over three gas pipelines, last year's deliveries amounted to 29.4 billion. "There is no certainty that they have real free resources for export in other directions," he said. Curiously, in his speech at the International Conference "Oil and Gas of Turkmenistan-2017", the director general of CNPC International Turkmenistan, Li Shulian, said nothing about the construction of the fourth gas pipeline from Turkmenistan to China, although it was discussed at the conference.
The project may be of interest to Gazprom also because it will reorient the potential competitor, Iran, from plans to enter the European market for Asia. The interests of Turkmenistan in this case are unlikely to be of any interest to anyone. Because of its intransigence, Ashkhabad seems to have missed his chance.
Another problem of Turkmenistan even in China is that interests of other major gas players appeared there and Beijing had a choice. Gazprom envisages expansion to the country's market not only in the Power of Siberia pipeline, but also in two more projects. "The Power of Siberia-2 (the former "Altai") can compete with the fourth gas pipeline from Turkmenistan and now Gazprom is trying to offer better terms," says Igor Yushkov. At the same time, a pipeline from Iran may become a competitor of TAPI to India. Its main advantage is that it does not pass through the war-torn Afghanistan. And in early November, Russian Energy Minister Alexander Novak said that Gazprom would take part in the project. The minister noted that the technical documentation would be developed and signed before the end of the year, the project involves companies from Russia, Iran, Pakistan, and India, and the Russian holding plans to develop fields along the gas pipeline.
The only market for Turkmenistan so far, though very small, can be Armenia. Ashot Manukyan, Minister of Energy Infrastructures and Natural Resources of Armenia, said in late October that gas supplies from Turkmenistan were being considered. However, according to him, today Russia delivers gas at fairly low tariffs ($150), it will not reject the program with Iran "gas in exchange for electricity" and the purchase of Central Asian "blue fuel" is associated with barter. This is a trilateral exchange of goods with Iran and Turkmenistan, including the repayment of Tehran's debts to Ashgabat, and the idea is only in the making, experts should discuss it.