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Turkmenistan: Competition or Co operation?

It was hoped that Turkmenistan would contribute to the Nabucco project. From the beginning it was believed that without the gas resources of Central Asia, especially Turkmenistan, and Middle East, Nabucco project would not make sense. It is important to look at what Azerbaijan’s position was towards this conviction; namely whether Azerbaijan was interested in incorporation of Turkmenistan into the Nabucco project even though it would put Azeri gas into competition with the Turkmen gas, serving the same market. Azerbaijan’s relationship with Turkmenistan is also a crucial factor that shaped Azerbaijan’s stance on Nabucco project. Although Azerbaijan and Turkmenistan have differing view on legal status of Caspian Sea and conflict over some oil fields, when it comes to Nabucco they have conducted several negotiations. Turkmenistan has shown clear interest in European energy market. However, no solid backing from the ‘West’ and the China’s growing interest and access into Turkmen gas market pose a serious question for the integration of Turkmenistan into European energy network. The country is rich in gas resources. According to the BP Statistical Review Turkmenistan has reserves of 2.67 trillion cubic meters natural gas without taking into consideration the very promising South Yolotan-Osman gas field, which is believed to contain 4 to 14 trillion cubic meters of natural gas alone.⁹⁶ If true, that estimate is way higher than EU28’s annual gas consumption which was 462 bcm for 2013 according to EUrogas.⁹⁷

With such a capacity Turkmenistan seemed very promising as a supplier for EU. In return, EU wanted Turkmenistan’s collaboration with Azerbaijan. However, surrounded by Russia and China, there are complications for Turkmenistan to get its natural gas into European market. Back in 2007 Turkmenistan agreed with Russia to continue with its gas transportation through Russia after Russia announcing its readiness to pay EUropean market prices for the Turkmen gas. It can be incurred that helping Turkmenistan to transfer its gas through Azerbaijan, indeed Azerbaijan indirectly would undermine the Russian interests vis-a-vis Turkmenistan. That begs the question if Azerbaijan can take such a risk disturbing its biggest and the most powerful neighbour.

This is reflected in the ambiguity of the position that both states have taken and which continues until now. For example, In April 2014, there was an upbeat meeting  between Rovnag Abdullayev, head of Azerbaijan’s state oil company SOCAR and Turkmenistan’s President Gurbanguly Berdymukhamedov,  in which “implementation of joint projects on construction of gas transit pipelines that are of great importance” was acknowledged, “ given the growing needs of the world market in stable supplies of energy.” Again in September the two sides issued a statement in Ashgabat about "the possibility of building a trans-Caspian gas pipeline, settlement of the disputed oil fields in the Caspian Sea, and joint protects in the energy sector.”⁹⁸ However, later that year, Turkmenistan failed to send a representative to the meeting. The chances are not very high that Turkmenistan will participate in a revived Nabucco project.

There are several reasons for this. Key are varying estimates of the amount of gas available, other partners, and finally a deep reluctance to offend Russia by being part of a project that bypasses Moscow. Here there is a marked contrast with Azerbaijan. In contrast to the balancing act of Azerbaijan and its commitment to it s long term foreign-policy and strategic goals, helped by its geographic position and rich resources, Turkmenistan, in contrast, is more like a pawn in line with the Great Game theory.

This was evident in 2009 when a gas conflict popped up between Russia and Turkmenistan in March. It seemed to change the conditions in favour of EU. Turkmenistan intended to build an internal East-West gas pipeline aiming at transferring gas resources to EUropean market. To no one’s surprise Russia wanted to control this route, however, Turkmenistan perceived the construction of this pipeline as a strategic project that could contribute Turkmenistan`s policy of diversification of its transportation routes.⁹⁹

Consequently, Russia stopped the transfer of the Turkmen gas through its territory that led to huge losses for the Turkmen government; almost 2 billion USD for the spring of 2009.¹⁰⁰ In return, that convinced Turkmenistan that it should pursue a reliable alternative transportation route beyond Gazprom gas system. In this respect the Trans-Caspian pipeline project, which could have saved Nabucco, had been revived. China s interest in the gas also helped. Indeed, starting from 2007 China strengthened its work on piping Central Asian gas and after the gas crisis, in late 2009, stepped up work when China built gas processing plants in Turkmenistan as well as launching first gas pipeline to China from Turkmenistan. By 2012, Turkmenistan was providing more than half of the China’s gas imports, with 21.3 bcm and moreover, by 2020 Turkmenistan plans to bring this number to 65 bcm.¹⁰¹ That means that, for Turkmenistan the main market is China; it has many reasons, among others, is that China does not at all bothers with the nature of the ruling ‘regime’ and also it is the easiest route to free Turkmenistan from Russian grip in terms of controlling energy routes.

Apart from that, Turkmenistan signed agreements with China and Iran for gas deliveries to these countries. Taking into consideration all the promises Turkmenistan made to the EU, Russia and China, it was doubtful if Turkmenistan at all is able to fulfil agreements on gas deliveries. This was a valid question in 2007 as nothing was certain, and there was no auditing of Turkmen gas capacity. In 2007 Turkmen gas capacity was estimated at 60 bcm and 50 bcm of that was promised to be transported through Russia.¹⁰² But many realities have changed since then, which will be mentioned below.

With regard to the Nabucco project, Turkmenistan had a very ambiguous approach. As noted above in 2007, Turkmenistan expressed its interest in cooperation with Russia following the latter’s announcement of the construction of the Caspian gas pipeline transferring Turkmen and Kazakh gas to north. In 2008, once Russia announced that it would not construct such a pipeline, then Turkmenistan restarted negotiations with Azerbaijan hoping for the realization of the Nabucco pipeline. In November 2008, Azerbaijan, Turkey and Turkmenistan signed a memorandum on cooperation for increasing their level of trade with Europe.¹⁰³ Azerbaijan and Turkmenistan have a conflict over certain oil field in the Caspian Sea.¹⁰⁴ This was a key element in negotiations over Nabucco and it was also reflected over the negotiations on Nabucco pipeline. While negotiations were going on fully in 2009, when hopes for Nabucco were higher, President of Turkmenistan Berdimuhamedov gave a statement about applying to international arbitration about the legal status of Azerbaijan, implying that Azerbaijan breaches the international sea law. That statement was a surprise for Azerbaijani government as relations were improving since Berdimuhamedov has come to the power in Turkmenistan.

It is important to note that in July 2009 the Turkmen President Berdimuhamedow for the first time ever openly declared that Turkmenistan is ready to cooperate with the West on transporting its gas to Europe vie planned Nabucco route by using planned Trans-Caspian pipeline or via Iran. However, he noted that if main partners of Nabucco clear up all the stumbling blocks before the realization of the project, his country will join the deal.

It is indeed in line with the Turkmenistan’s policy of diversification of transportation routes. In line with the hope of gathering support for Nabucco, the German company RWE signed a contract with Turkmenistan for developing gas deposits as well as dealing with the transportation problems via South Caucasus Energy Corridor.¹⁰⁵

Map 2. Proposed Trans-Caspian Pipeline



Source: Retrieved from http://osw.waw.pl/en/epub/EW/2009/090729/02.htm

The reaction of Azerbaijan to these developments is significant. As long as Turkmenistan was lukewarm about the subject, and had other markets, Azerbaijan did not lobby for the Nabucco project, in spite of the earlier talks. This served Azerbaijan’s long term strategy of not offending Russia. There were no significant signs from the EU except for the memorandum signed, and Azerbaijan calculated that there was no reason antagonizing Russia or a possible connection to Turkmen gas sometime in the distant future. Indeed, here were no clear signs of possible implementation and support from the EU. Thus it was a cold headed realist approach to the question.

That sensibility can be seen also in talks about the construction of Tran-Caspian Pipeline. The EU has expressed its interest in this pipeline and encouraged Azerbaijan and Turkmenistan to go ahead with this. However, so far no real action has been taken. However, with the changing regional politics following the anti-sanctions deal against Iran in April 2015, this issue is back to the table. And Turkey again tries to bring Azerbaijan and Turkmenistan together to discuss the construction of this pipeline.¹⁰⁶ Azerbaijan will firmly support such a project if it sees the full support of all the actors involving, including the EU. As of now, Azerbaijan has secured its national interests in terms of finding promising market for its gas resources, hence will not risk harming its relations with its biggest neighbour.

Against some arguments that Azerbaijan is not interested in transfer of Turkmen gas through its territory to West as these resources will serve the same market where Azerbaijani gas goes or will go. However, this ignores a very significant point. It should be noted that by being a transit country for the Turkmen gas, Azerbaijan certainly will receive a substantial amount of transit fees, which is very important to the backdrop of decreasing oil production of the country. Moreover, having transit lines carrying Turkmen gas will certainly increase the political leverage of Azerbaijan over Turkmenistan As shown above transit pipelines are very vulnerable to political pressure, and hence can force the latter one to give up its claims over certain oil fields in the Caspian Sea against Azerbaijan once and for all.