China is challenging Russia as Turkmenistan’s main buyer of natural gas. Ashgabat’s shift could put the Kremlin in a precarious position.
During a state visit to China on November 23, Turkmen President Gurbanguly Berdymukhammedov said he signed an agreement with Chinese President Hu Jintao to beef up an existing gas accord by exporting 65 billion cubic meters (bcm) a year to China “in the near future.” This new projected volume would total over half of the 2010 gas consumption of China, the largest energy consumer in the world and a market that Russia, the world’s most resource-rich nation, has long been looking to penetrate.
Alexei Miller, head of the Kremlin-controlled conglomerate Gazprom, was quoted by local media as saying that Turkmenistan's intentions "will not affect our plans." But analysts did not seem reassured by Miller’s words.
“Gazprom is reacting to this [deal] with alarm,” said Alexei Kokin, a senior oil and gas analyst at UralSib Capital. “It undermines its bargaining position with China. The question is how much gas China actually needs, and how this market is going to be split between Russia and Turkmenistan. It goes without saying that the more Turkmen gas going there, the less Russian is needed.”
In a single stroke, Turkmenistan may have dashed a decade-long effort by Gazprom to ship 68 billion cubic meters per year of Russian gas to China. Up to now, the price for Russian gas has been a sticking point for a Chinese export deal. Yet, as recently as October, Russian Prime Minister Vladimir Putin said that Moscow was "close" to sealing a deal.
But Kokin questioned how much demand there will now be for Russian gas -- except at a knock-down price -- as China seeks to diversify its energy dependence by expanding cooperation with Turkmenistan, and increasing deliveries of liquefied natural gas from Myanmar.
Speaking to EurasiaNet.org on condition of anonymity, a former senior Turkmen energy official said that the Turkmenistan is engaging in “an old political game,” trying to play China, Europe and Russia off against each other in order to “strengthen its own position” and “maintain its regime.”
Alexander Rahr, director of Germany’s Berthold Beitz Center for Russia, Ukraine, Belarus and Central Asia, said Turkmenistan is partly trying to maximize the amount of foreign investment it can attract for infrastructure. The Turkmen government aims to treble natural gas output by 2030.
The announcement between Ashgabat and Beijing came shortly after Turkmenistan and Russia exchanged barbed words over the Turkmen government’s ambitions to diversify its gas supplies to Asia and Europe. Ashgabat’s export ambitions have grown in the wake of an audit that found Turkmenistan to have colossal untapped reserves of gas. British-based auditor Gaffney, Cline & Associates estimated Turkmenistan’s South Yolotan gas reserves, situated 350 kilometers south east of the Turkmen capital, to be the world’s second largest gas field, holding a volume of up to roughly 21 trillion cubic meters.
In an interview with Russia’s Vesti 24 news channel on November 18, Gazprom Deputy Chairman Alexander Medvedev dismissed the Gaffney estimate, saying it contradicts geological studies of the desert nation of 5 million conducted during the Soviet era. Medvedev's comments strike at the heart of what Rahr called one of Turkmenistan’s “main challenges in playing its game” – the paucity of reliable information in the highly secretive Central Asian state, and the fact that government statements cannot be verified by would-be investors.
Turkmenistan’s Foreign Ministry hit back at what it called a “clumsy attempt to distort the real situation.” It accused Gazprom officials of being "disrespectful of partnership relations in the energy sphere” and promised to up its efforts to diversify its gas supply routes.
Earlier in November, Amanali Khanalyev, chairman of state gas firm Turkmengaz, said he has been in talks to discuss a possible Turkmen role in the construction of an “East-West” Trans-Caspian pipeline that would pump a potential 30 bcm of Turkmen gas to Europe, bypassing Russia.
Turkmen gas is crucial for the European Union-backed “Nabucco” pipeline project that would deliver Central Asian gas to Europe, circumventing Russia. The project has consistently rankled the Kremlin. Kokin said Russia would not up pressure on Turkmenistan, saying that its levers to influence the situation are weaker than they previously were. He added that the Kremlin’s influence should continue to weaken as the reclusive Central Asian state shakes off its post-Soviet dependence on Russia.
Turkmenistan’s energy-driven diplomacy and extensive untapped resources have seen it develop relations not only with Europe and China, but also Iran and Afghanistan, while courting the United States over a possible pipeline to Afghanistan, Pakistan and India that has stalled over security problems.
Ashgabat continues to ship gas to Russia for resale in Europe, although these European-bound supplies have declined precipitously since an explosion on the pipeline from Turkmenistan to Russia in 2009.
Analysts say that Russia’s Gazprom has been forced to change its strategy of trying keep Central Asian countries under Russian energy domination. Rahr said: “Over time it was clear that countries like Turkmenistan would get out of this isolation and would be in a position to play their own game in the oil and gas business. Here I think Gazprom certainly overplayed its hand.”
Tom Balmforth is a freelance journalist who writes about Russia and the Caucasus.