A waste of energy

Ashgabat, Turkmenistan, Photo: Matyas Rehak / Shutterstock

Its diplomatic efforts are also targeted at building a pipeline that would run through Afghanistan to India, though the project is widely considered to be unfeasible. Serdar Berdymukhamedov successfully became the third president of the Turkmen nation thanks to the government’s staged presidential elections. His father and former president, Gurbanguly, still maintains crucial roles in the nation’s power apparatus and is likely to continue exerting influence on national and foreign policy questions.

Despite Russia’s invasion of Ukraine inducing shifts in the fundaments of the international energy landscape, Turkmen authorities seem unlikely to dramatically adjust their domestic or foreign policies. Ashgabat’s early, hesitant response was to start talks with Iran and Azerbaijan to reach gas markets in Turkey, Azerbaijan and Europe. Since the summer, relations with Russia seem to be warming thanks to Moscow-led overtures. China will and should remain a key energy partner. However, the Turkmen authorities ought to be wary of intensifying their reliance on Beijing. The dynamic already heavily favours China, as Turkmenistan lacks substantial alternative export destinations. It will soon be clear if Ashgabat will reorient away towards Brussels or even Moscow – though the status quo could well hold, as is common in the insular state.

When doors close, windows open

Russia’s war in Ukraine has ruptured Central Asian supply chains and reduced investments. China is Turkmenistan’s largest trading partner by a wide margin, with Russia in second place. Luca Anceschi, a professor at the University of Glasgow, alongside other experts, is of the opinion that Berdymukhamedov is likely to preserve Turkmenistan’s rentier system and safeguard an undiversified economy, in which China will continue to play a dominant role. Even so, Ashgabat can enhance its economic resilience by diversifying its gas exports away from over-reliance on China. Beijing accounts for approximately 90 per cent of total hydrocarbon exports. There are initial signs of change and continued dialogue, as Turkmenistan has intensified discussions with Iran and Azerbaijan on swaps and gas deliveries in recent months. Iran could emerge as the biggest game changer for Turkmenistan’s energy export policy if the two countries could cooperate to provide gas to Azerbaijan and Turkey either through direct deliveries or swaps.

Swaps between Turkmenistan and Azerbaijan would be limited to three billion cubic metres a year due to the decaying pipeline between Iran and Azerbaijan. However, the link with Turkey is underutilised and sanctions artificially reduce Iran’s gas production. Tehran should face few obstacles in ramping up deliveries to Ankara through swaps with Turkmenistan. Pipeline deliveries to Turkey would free up Turkish demand for liquefied natural gas (LNG), enabling LNG shipments destined for there to pivot to the European Union instead. This would be the swiftest way for Turkmenistan to influence the EU gas market. However, sanctions on Iran remain and the renewed Joint Comprehensive Plan of Action, also known as the Iran nuclear deal, has not made any significant progress in 2022 and may complicate Tehran’s relations with Ankara.

Although Ashgabat has repeatedly expressed its interest in large-scale gas exports to the EU, having already completed the 30 bcm annual East-West Pipeline in 2015, the necessary link to Azerbaijan is missing. Trans-Caspian Resources proposes a small, five bcm a year interconnector project that could be constructed within six months at a cost of under 500 million US dollars. Within 18 months, its capacity could increase to between ten and 12 bcm. Turkmenistan should have this production capacity available without additional investments. Implementing the connector project will entail finding investors and convincing Azerbaijan to cooperate, which may be feasible considering the warming relations between Ashgabat and Baku.

The long-touted Trans-Caspian Pipeline (30 bcm annually) is both another potential next step after the interconnector project and a viable standalone project, according to Robert M. Cutler, Director of the NATO Association of Canada’s Energy Security Programme. The Southern Gas Corridor infrastructure between Georgia and Turkey would need to be upgraded and additional compressors would need to be installed to deal with increased volume. Turkmen gas is able to flow to Europe, but its deliveries would be constrained, and it is unclear who would foot the bills.

Three’s company

Despite these challenges, the largest issue may be Russia’s response. Cutler points out that Ashgabat could see relations with Moscow as more valuable than five to 12 bcm of annual gas exports. Turkmen authorities may also worry that gas deliveries would stop at these smaller amounts rather than expand to their capacity. Indeed, Russian President Vladimir Putin has taken steps to solidify relations by visiting Turkmenistan to attend the Sixth Caspian Summit on June 29th this year. This was Putin’s first trip abroad since Russia’s unprovoked and large-scale invasion of Ukraine on February 24th.

Putin’s second and third international visits showcase the apparent importance of the region at large. In July he travelled to Iran, while on September 15th and 16th he attended the Shanghai Cooperation Organisation meeting in Samarkand, Uzbekistan – his only other international trips since February. During the summit, he emphasised the need to diversify cooperation between Russia and Turkmenistan in the economy and energy fields. Gurbanguly Berdymukhamedov was awarded the fourth class of the Order “For Merit to the Fatherland” at the end of August by Putin, who invited him to Moscow in October. Recipients of this award are typically well-known Russian citizens rather than former Central Asian heads of state. Two days later, both Serdar and Gurbanguly Berdymukhamedov met in Ashgabat with Alexei Miller, head of the Russian gas giant Gazprom. According to Turkmen media, Miller expressed interest in continuing to purchase Turkmen gas. This appears to be a concerted attempt by Moscow to maintain relations among a shrinking group of friends or partners, while conveniently undermining the EU’s search for new gas flows.

Both Ashgabat and Moscow are seeking new clients for their gas. In June 2022 China became the largest importer of Russian gas due to the progressive loss of Gazprom’s German and other European destinations. Russian capacity is slated to hit 80 bcm of natural gas annually to Asia once all of its LNG projects are fully online. That said, technological sanctions are hindering its capacity to complete its projects, and even if it manages to overcome them, it will take at least four or five years to reach such volumes.

In contrast, Russia exported 155 bcm to the EU in 2021, down from 201 bcm in 2019. Russia itself is a small but growing destination for Turkmen gas. Having restarted exports to southern Russia in 2019 after a 2015 dispute over price and export amounts, Turkmenistan could change future energy flows due to the war in Ukraine. Russia presents an opportunity for Ashgabat to diverge from its over-reliance on China, though Moscow may also dictate prices for Turkmen gas, as it did in the past. Turkmen deliveries could dry up depending on the price of Turkmen gas compared to domestic supplies. Russian infrastructure will also play a role here as it is needed to get the gas to where it is needed domestically. Reversing the original intention of the system, Russian gas can be exported to the region through the Soviet-era Central-Asia-Centre pipeline, which sought to deliver gas from Central Asia to the Soviet Union’s “Centre”, i.e. Moscow and the surrounding areas. Recent advances made by Gazprom and the Kremlin to purchase Turkmen gas and mend relations could prove but empty gestures, resulting in Russia halting purchases of Turkmen gas, or even becoming a competitor in the region.

Love thy neighbour

Two decades have passed since talk of the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline surfaced. Ashgabat shows persistent interest in TAPI, and the project received support from all countries involved. However, the Taliban-led government in Afghanistan faces severe sanctions and the country is subject to armed conflict. Breaking ground in Afghanistan is yet to start. Turkmen domestic expertise and capital are insufficient for the project’s scale. Experts interviewed agree that the cost to serve Pakistan and India would render Turkmen gas uncompetitive. Even so, Ashgabat is fixated on making progress on this project through high-level meetings. Professor Anceschi believes elites continue to peddle the project to make it appear that they are actively pursuing diversification and new projects, while in reality they are content with the status quo. With the status quo appearing to shift and continued signs of domestic economic troubles, Ashgabat should consider economically viable alternatives.

Hydrocarbon-rich Kazakhstan and Uzbekistan both seek to halt gas exports due to exploding expected domestic demand by 2024 and 2025 respectively. Kazakhstan is looking to replace its coal-dominated energy and heating source with gas due to the poor domestic ecological situation caused by its over-reliance on coal. Although Uzbekistan has produced similar gas volumes to Turkmenistan, most of its production is consumed domestically. The January 2021 social unrest in Kazakhstan sent a clear message to Uzbekistan about the need to prioritise domestic consumption. This is especially true considering the growing Uzbek population, many of whom are young and are faced with an unattractive labour market – and thus, a potential source of social discontent. The Uzbek government will need to provide heating to its population, which at 34 million is by far the largest in Central Asia, compared to the runner-up Kazakhstan at 19 million. Turkmenistan’s official population is six million, though Anceschi believes it is likely to be in the 3-3.5 million range, with unconfirmed reports placing it at just 2.8 million inhabitants.

Uzbekistan is further developing its petrochemicals industry, requiring gas as feedstock. Pipeline C of the Central Asia-China Gas Pipeline allocates ten bcm annually to Uzbekistan and five bcm to Kazakhstan in Chinese deliveries, though recent Uzbek and Kazakhstani supplies were significantly below these allotments. Turkmen gas could replace these shares, assuming Tashkent and Astana agree, and Chinese demand picks up. This would serve to enhance Turkmen dependence on China but at least would not require further pipeline investments. Tashkent and even Astana could import gas from Ashgabat for domestic needs, though Russian gas could prove more attractive if it is sold at cutthroat prices. Uzbek and Kazakhstani intentions of increasing domestic production may further hinder Ashgabat’s attempts to enter these markets, though their actual production may fall short of domestic demand.

Do not hold your breath

Turkmenistan has the potential to become an important energy source at the crossroads between Europe and Asia due to the drastic energy shift in European, Eurasian and Asian energy landscapes. As Russian gas exports to Beijing keep climbing and are likely to remain competitively priced, Turkmen elites may find their personal revenue streams in the country threatened, therefore necessitating the search for alternate destinations and partners. Iran may come out less isolated internationally than before, providing another potential path forward.

Any future contracts between Turkmenistan, Iran and/or Azerbaijan would pave the way for larger deliveries to Turkey and the EU. However, failure to link gas reserves towards Europe within one or two years would cast doubt on Turkmenistan’s ability to do so further down the road. However, Cutler believes the country could have a couple more years to complete its western link. A Turkmen pivot towards the West is likely to illicit a response from Moscow, including exerting serious diplomatic pressure on Ashgabat to halt its reorientation. As an influential Caspian littoral state, Russia might also stonewall any construction efforts to link with Azerbaijan through the Caspian Sea on environmental grounds. Even so, Turkmenistan has more options – and more incentives – than it did before to sell its excess gas production capacity to Europe. Despite this, it does not seem to be making use of them.

Dylan van de Ven has five years of experience as a policy advisor and consultant for international organizations, governments, and the private sector. He is also an expert at Eastern Circles, a geoeconomics think tank focusing on the post-Soviet region.

Samuel Frerichs is an independent researcher, editor, translator and a contributing author to Eastern Circles. He has a bachelor’s degree in Russian Civilisation from UW-Madison and is currently located in Almaty, Kazakhstan.

Alexander Malyarenko is an independent researcher, data analyst, economist and Eastern Circles expert. His research interests are on foreign economic activity, transformation processes in the economy, and structural reforms.

China, gas, oil, Russia, Turkmenistan