Turkmenistan: Western Firms Shut Out from Development Deals

Turkmenistan appears to be implementing an eastern strategy in order to export natural gas to the West.

Ashgabat has traditionally shipped most of its gas to Russia, but a long-lasting pricing dispute has severely strained the two countries' special energy relationship. [For background see the Eurasia Insight archive].

In early December, Turkmenistan inaugurated an export route to China - a momentous export-diversification move. And on December 30, Ashgabat took the first step toward possibly upping its export volume to Western Europe countries by awarding $9.7 billion in contracts to develop the South Yolotan gas field.

Although clearly intent on diversifying its export options, Turkmenistan remains reluctant to antagonize Russia. That helps explain why none of the contracts handed out on December 30 went to big Western energy conglomerates. Instead, firms from China, South Korea and the United Arab Emirates secured the lucrative development deals. China's Development Bank Corp. has pledged to help fund development costs. When operating at full capacity, Turkmenistan projects the South Yolotan field to produce 30 billion cubic meters of gas per year.

The tender decisions seemed sure to disappoint Western behemoths. Of late, several big Western firms -- including Total SA, Exxon Mobil Corp., British Petroleum Plc, Chevron Corp. and Royal Dutch Shell Plc - had been pressing Ashgabat to gain on-shore energy deals. And just a few weeks ago, rumors were circulating in Ashgabat that Chevron was on the verge of signing a production-sharing agreement. In November, during a major energy expo in Ashgabat, Douglas Uchikura, head of Chevron Nebitgaz B.V. Turkmenistan, told reporters that company representatives were deep in discussions with government officials. Now, however, it seems clear that on-shore development projects are closed off to Western majors.

A Western energy executive who attended the November energy extravaganza in Ashgabat, speaking on condition of anonymity, told EurasiaNet that Turkmen officials had clearly stated a preference that Western firms be limited to developing off-shore projects.

Experts say the choice of Asian and Arabian firms to develop South Yolotan production is not necessarily an indicator of a lack of interest on Ashgabat's part to ramp up natural gas exports to Europe. Igor Ivakhnenko, the Caspian editor for the RusEnergy newsletter, characterized the December 30 announcement as an "important event" for Turkmen energy relations with the European Union and United States. At the same time, Turkmen leader Gurbanguly Berdymukhamedov may be trying to mask his intentions so as not to put Russia on edge, and thus possibly prompt Kremlin meddling, Ivakhnenko indicated.

The development deals, Ivakhnenko said, show "that the Turkmenistan continues to focus on direct gas supplies to Europe. In addition, it [Ashgabat] intends to produce gas through eastern companies to sell the West."

Turkmenistan's pricing dispute with Moscow seems to have confirmed in Berdymukhamedov's mind a need to reduce Ashgabat's export dependency on Russia. But with Russia still capable of causing lots of trouble for his administration, Berdymukhamedov appears intent on treading delicately.

Berdymukhamedov "would like to export to the West, but he doesn't want to anger Russia by crossing the Caspian Sea with a new pipeline," a European diplomat familiar with Ashgabat's energy-export maneuverings told EurasiaNet.

"This is why he [Berdymukhamedov] tells Westerners that they are welcome to buy Turkmen gas at the border, meaning at the Eastern shore of the Caspian Sea," the diplomat continued. "Now, it is up to Europeans to take the decision and [assume] the risk of dealing with Moscow."