Saparmurad Niazov, the eccentric and grotesque Turkmenbashy[1] who, from 1985 until his death in December 2006[2] reigned supreme over Turkmenistan, used to say to whoever would listen to him that ‘Turkmenistan possesses sufficient reserves to export 150 billion m3 of gas per year for 250 years to come.’ [3]
No one really took this seriously. Absent any international audits, one had reason to doubt the claimed volume of gas reserves. During a visit to Turkmenistan, the German Minister of Foreign Affairs, Frank-Walter Steinmeier, politely listened to Saparmurad Niazov’s remarks. Then he very diplomatically declined the invitation made to his country to cooperate, alongside Russia, in building a gas pipeline intended to serve Western Europe.[4]
On 28 December 2007, Niazov’s successor at the head of the country, Gurbanguly Berdimuhammedov expressed his determination to see his country’s underground gas reserves certified. On October 13, the British company of expert consultants Gaffney, Cline & Associates (GCA) announced the conclusions of an audit carried out on two deposits, that of Yolotan-Osman South and that of Yashlar.
For the deposit at Yolotan-Osman South alone, estimates place the reserves at between 4 and 14 trillion[5] m3. Estimations like these catapult this deposit to the rank of number one at the national level and number four at the world level. That leaves far behind the deposit at Daulatabad which, with reserves estimated at 1.4 trillion m3, was, until now, the deposit on which the Turkmens have based nearly all their export contracts. As regards the deposit at Yashlar, its reserves are estimated at between 0.25 and 1.5 trillion m3. Jim Gillet, one of the GCA managers, believes that ‘Turkmenistan has sufficient reserves to honour its annual contracts with Russia(for around 50 billion m3), China (40 billion) and Iran (8 billion[6]).”
The October 1917 revolution in Russia had immeasurable consequences on the course of the world. History will tell us whether the revelation of October 2008, which propels Turkmenistan to second rank worldwide among gas producing countries, and is the starting point for overturning or fundamentally putting into question the geopolitical and energy situation in the region.
Barely several months ago, many experts and analysts wondered if Turkmenistan had enough gas to honour its present and future commitments. If the high estimates turn out to be true, the answer is clear: Turkmenistan has, just behind Russia and way ahead of Iran, the second largest gas reserves in the world.
This is a prospect that will certainly weigh on the decisions to be taken with regard to the five major gas pipeline projects that are presently being prepared: the Caspian, Trans-Caspian, Nabucco, White Stream and South Stream.In the view of Federico Bordonaro[7], this announcement “re-establishes interest in Turkmenistan and one can reasonably expect an increase in competition and rivalries for Turkmen gas.” It will be particularly interesting to see the “reaction of the EU and of the United States to resuscitate projects like the Nabucco, the White Stream and the Trans-Caspian.”
Cartography of the various projects underway [legend, top down: Russian Project, European Project, Existing Pipeline in Operation (BTE)]
a) The Caspian project
This project was born during an energy summit at Turkmenbashy between 11 and 13 May 2007, during which then Russian President Vladimir Putin and his Kazakh and Turkmen counterparts, Nursultan Nazarbaev and Gurbanguly Berdymukhammedov, agreed to set up a consortium to build this new gas pipeline.
The aim of this consortium is to pass along the Eastern coastline of the Caspian Sea and take the output of the presently operating pipeline connecting Central Asia and Centre 4 (Central Russia) to 10 billion m3 per year versus the less than 2 billion presently transported. Last September, during a visit to Tashkent, Uzbekistan, Russian Prime Minister Vladimir Putin tied this project to expansion of the Central Asian network. As regards the output of the gas pipeline running from Central Asia to Centre 3, which connects the Turkmen, Uzbek and Kazakh networks to the Russian network, it will be increased to 20 billion m3 per year.
By the year 2014, this set of gas pipelines should be able to bring to Russia each year as much as 90 billion m3 of Central Asian gas. By trying to re-direct the flows of gas towards its territory in a major way, Moscow hopes to nip in the bud the competing projects supported by the Western countries which are seeking greater energy independence.
b) The Trans-Caspian
The Trans-Caspian project has been mentioned many times during Western diplomatic visits to Turkmenistan. It has seen a net return of interest recently. Just this past October, Recep Tayyip Erdogan, the Turkish Prime Minister, Maria Reich-Rohrwig, Austria’s roving ambassador responsible for the Nabucco gas pipeline project, Wolfgang Ruttensdorfer, CEO of the Austrian national company OMV, the American special envoy and specialist in Eurasian energy questions, Clayland B. Gray, and Steven R. Mann, diplomatic counselor of the American Secretary of State for Central Asian matters, all tackled the problem of Nabucco and raised the question of the Trans-Caspian, which is intended to supply it.
This project ran into ferocious Russian-Iranian opposition. Moscow and Tehran are hostile to any gas pipeline project which would give the EU direct access to the gas fields of Turkmenistan[8]. According to Roland Götz, a researcher serving the German Institute of International Affairs and Security, the Trans-Caspian project is presently not achievable in the near term and may come about only at the price of considerable international investments.[9]
In the view of Pavel Baev, energy expert at the International Peace Research Institute in Oslo, the Trans-Caspian may be considered to be ‘a completely dead and buried pipe dream,’ [10] if one can speak in that manner about a project intended to run under water.
c) The Nabucco
This European project, financed exclusively with private funds[11] and expected to be nearly 3,500 km long, would initially link Erzurum, in Turkey with Baumgarten an der March in Austria, passing via Bulgaria, Romania and Hungary. Attached to the BTE,[12] it would offer Europeans direct access to Azerbaijani gas. In its second stage, the EU envisages gaining access to the Central Asian deposits by linking it up to the Trans-Caspian pipeline, if that project ever sees the light of day.
An alternate branch towards Iran is being considered, but this scenario greatly irritates American susceptibilities. Its final cost is estimated to be 8.6 billion Euros and its delivery capacity is estimated at nearly 31 billion m3 per year.
d) The White Stream
The White Stream is another Western project which also aims at increasing transport capacity in the direction of the European countries. Initially dubbed the Georgia-Ukraine-EU route, this pipeline would pass under the Black Sea at an average depth of 2,000 metres from a jumping off point in the Crimea. It is presently the project that has been planned in greatest detail. It would allow delivery of nearly 32 billion m3 without passing through Russian territory.
An alternative route prudently envisages going straight to the Romanian coast. It is true that many geopolitical experts say the headquarters of the Russian Black Sea Fleet based in the Crimea could constitute one of the future hot spots of the region and could be the source of a conflict between Kiev and Moscow. In September, Bernard Kouchner, the French Minister of Foreign Affairs, compared the Crimea to a “potential South Ossetia.”
According to Giorgi Vashakmadze, the a manager responsible for developing the project, ‘European energy needs are expected to double in the coming two years and the necessity for this project will make itself felt more and more.” The results of the audit ”constitute for the states concerned and for potential investors an encouraging sign of primary importance.” [13]
The European Bank for Reconstruction and Development (EBRD) has committed some 541 million Euros to financing these two projects, Nabucco and White Stream, and by the year 2020 the Turkish government anticipates investing 125 million dollars in energy projects. The majority of these funds will be intended for the Nabucco pipeline.
e) The South Stream
This Russian project was publicly launched on 23 June 2007 in Rome during the signing of an Agreement on its construction between the Italian company ENI and the Russian company Gazprom. Some 900 kilometres long, this submarine gas pipeline would link Russia and Romania. From its point of arrival in Varna several options are presently being studied. One route goes south towards Greece, Turkey and Italy. A route north goes to Serbia, Hungary, Slovenia and Austria, with two sub-branches in the direction of Croatia and Bosnia-Herzegovina.
As one can confirm, these projects are at the same time rivals and complementary. They are indispensable for supplying energy to the European countries and constitute major stakes on the level of geopolitics. The energy independence of the EU, the economic development of the Central Asian countries, Russian influence and the role of Beijing are at the heart of this struggle for influence that is beginning to take shape around the formidable Turkmen reserves. And the challenges one can reveal on the geopolitical, economic, financial and technical levels are in keeping with the hopes and ambitions displayed.
a) Russia’s private preserve in the region
1) From diplomatic and economic domination…
As the dominant regional power during all of the last century, Russia exercised sole rule over the energy exports headed to Europe until the BTE came on line at the end of 2006. With the South Stream project, Moscow clearly has displayed its ambition to counter the European projects, in particular, the Nabucco.
Given Russian influence over its former CentralAsianSocialistRepublics, experts agree that the South Stream project will very likely be realised, even if the date of its coming into service may be pushed back to 2015. Giorgi Vashakmadzé, of the White Stream project, admits that the Nabucco and White Stream projects still face numerous obstacles.
While Russia has nothing to say about the agreements between the Central Asian producing countries and China, even Pakistan and India[14], it has shown itself to be, on the contrary, very circumspect, even reticent regarding projects that would allow the EU to free itself in the slightest way from its domination. Turkmenistan and Kazakhstan have, to be sure, openly stated their interest in having alternative routes of export, but until now they have only come out in favour of the Russian projects. For reasons of prudence and profitability, they do not seem ready to risk the thunderbolts from the Kremlin.
By establishing a system of energy dependence ‘in all directions’ with America’s allies in the region, Russia hopes to curb the expansion of NATO to the East and to moderate American ambitions in the Black Sea. This is why Moscow recently offered a loan of 4 million dollars to the Ukraine for construction of two nuclear power stations.
Up to now, Moscow’s strategy has paid off. During a press conference at the end of the visit of the Georgian President to Brussels, the President of the European Commission, José-Manuel Barosso, implicitly admitted the effectiveness of Russian diplomacy in Europe. In his justification of a future resumption of the Russia – EU dialogue, Barosso said this resumption would not constitute ‘in any way a gift to Russia,’ but that it is ‘justified by the need for the EU to protect its economic and financial interests as well as its investments.’
Aside from its diplomatic advantages, Russia has sovereign funds that act as especially favourable financial advantages. These are all the more favourable given the present world financial crisis, against the background of bank insolvencies and they give Moscow freedom to manœuvre when discussing with the Turkmen authorities and to evict Western energy companies who are short of cash. In mid-October, Prime Minister Putin loaned 9 billion dollars to the four main Russian petroleum companies to help them deal with their immediate foreign debts. This sum comes on top of the 5.5 billion in reduced taxes and the plan for 50 billion dollars that the Russian government adopted on 17 October to reimburse debts and finance projects in the energy sector.
None of the Western countries presently seems capable of maintaining its energy sector as the Russian authorities are doing. And this aspect of things will be a serious factor in the decision-making process of the Turkmen authorities when they have to decide and choose between the offers of the Western companies and those from Gazprom. Only a real European commitment involving large volume eventual exports and, above all, hard currency receipts could prompt Turkmenistan and Kazakhstan to look to the West without worrying too much about what Moscow might say.
The coming months should tell us whether the EU’s announcing the priority nature of the Nabucco and White Stream projects is a sufficiently strong signal to convince the exporting states and possible investors.
2) … to military pre-eminence
Russian military presence in Central Asia has seen an increase following the departure of the American air force from the Uzbek base at Karshi-Khanabad, where they were located prior to the events of 13 May 2005 in Andijan.[15] One of the principal explanations for the Russian attraction to the Central Asian republics is real fear of a ‘colour’ style revolution like the one that struck Kirghizstan.[16] Fear is associated in the mind of the population to the myth of an America greedy for domination over the region.
In the course of recent months, Kazakhstan and Russia have held two large-scale joint military exercises. Saber 2008, from 9 to 11 June, in the Eastern region of Chebarkul, near the border with Russia ; then in September, Centre 2008, in the Southern region of Zhambul. The exercise Saber 2008 involving air exercises and tank and infantry manœuvres was described by the Kazakh Minister of Defence, Daniyal Akhmetov, as a successful interaction of Russian-Kazakh military forces in the context of a possible foreign military invasion of Central Asia. Other military exercises are now being prepared, in particular Shield 2008, aiming to test the air defences and some tests of ballistic missiles.[17]
Russia is using Soviet era military infrastructures to justify its presence in the region. Unlike the United States, it has a tangible advantage insofar as it does not make its military and economic assistance contingent on democratic and political reforms.[18]. On 12 September, the Secretary General of the Collective Security Treaty Organisation - CSTO -, Nikolai Bordyuzha, announced that five[19] of the member states of the organisation had decided soon to set up an international Central Asian force intended to confront ‘all types of external threats.’ Less than two months later, on 9 November 2008, Russian President Dimitri Medvedev submitted a draft agreement to the Duma for creating a 5,000- man strong force. In the view of many experts, Moscow has used the cover of military cooperation within the CIS or the CSTO to purely and simply reinforce its military presence and its influence in Central Asia.[20]
Despite setbacks in the implementation of certain of its ‘imperial’ ambitions within the CIS, Russia once again is putting its stamp on the course of Central Asian history. Growing Russian military and economic domination in Central Asia is in phase with the strategic interests of Iran and of China, who consider Moscow to be an essential and indispensable element to neutralise American ambitions in this region. In this situation, Kazakhstan, thanks to its ‘multi-polar’ policy looking in ‘all directions,’ seems to be the only country to manœuvre freely between the great world powers. But one essential question remains: what response can the Westerners bring to the ever bigger incursions of Moscow in Central Asia?
b) Beijing advances its pawns
Ever since the Russian –Georgian war of August 2008, many observers speak of a new Cold War. The prospect of relaunching a confrontation between Russia and America over the foothills of the Caucasus, the shores of the Caspian and the steppes of Central Asia should not make us lose sight of an important actor – China.
The Turkmen authorities are committed to delivering an annual quantity of 40 billion m3 via the Central Asia-China gas pipeline that is presently under construction and which is being financed at an amount estimated to be 2.6 billion dollars by China. Petrochina, a branch of the China National Petroleum Corporation, and China National Oil and Gas Exploration and Development Company (CNOGEDC) are sharing the costs of this project equally and have created for this purpose a jointly owned venture called the Trans-Asia Gas Pipeline Company Ltd.
Though it arrived rather late on the Turkmen market, China now occupies the second place there after Russia in terms of commercial transactions. In July 2007, at the time of signing of the Russian-Turkmen contract over gas supplies, American analysis believed they saw a manœuvre by Ashkhabad to raise the bidding by Russian and Western companies. It was only some time later that they realised that China was a serious competitor. The CNOGEDC is far from being a novice. It has proven itself in the domain of operating oil and gas deposits, not only in Kazakhstan and in Azerbaijan, but also in Indonesia, Algeria, Ecuador, Tchad, Nigeria, Peru, Venezuela, Canada and Oman.
China has many advantages in its hands. Firstly, it is an emerging market with enormous needs. Beijing estimates that the share of natural gas in its energy consumption will go from 2.5% to 5.3% by the year 2010. It is still far behind the world average of 25% and that certainly shows the potential of the Chinese market. Another advantage is the absence of the image of ‘imperialist,’ unlike Russia and the United States. China doesn’t try to teach lessons. It does not recommend ‘colour revolutions’ and it dodges the problem of human rights when speaking to its interlocutors. For the Central Asian countries, this is an extremely accommodating partner. The third advantage is that China has a simple commercial strategy: ‘win-win.’ It considers energy cooperation to be a driver of economic cooperation with beneficial results for all the partners. Finally, the last advantage is that China always avoids open confrontation. Thus, it prefers to work and cooperate with Russia on projects for increasing Turkmen production rather than to openly come out against Moscow. Chinese energy diplomacy in Central Asia and on the shores of the Caspian Sea offers a model that European companies wishing to escape from the Kafkaesque universe of Russian-American rivalry would be well advised to follow.
c) Western hopes
The latest developments in Turkmenistan allow Washington to hope, despite its serious setbacks in recent years, for a return to the front ranks in the Grand Game. The guarantee of sufficient resources - Turkmenistan anticipates raising its annual production of gas to 125 billion m3 – will allow the Westerners to consider relaunching projects like Nabucco, even if operations at Yolotan-Osman South will not be starting tomorrow.
As a proof of American hopes, we see how they have put to sleep their customary criticism of Turkmenistan’s failure to respect human rights. As Bruce Pannier remarked,[21] ‘it became clear in 2008 during discussions with the Turkmen authorities that energy needs have relegated human rights to the back burner.’ Such pragmatism is now habitual for the American authorities and Ashkhabad will certainly take note of this new orientation with satisfaction.
Brussels and Washington will not fail to encourage the Western gas companies to get involved in the promotion and operation of the gas deposits of Yolotan-Osman South and of Yashlar.
Passing through Astana on 5 October, American Secretary of State Condoleeza Rice announced[22] that the United States had no intention whatsoever to undermine Russian interests in Central Asia or to make Kazakhstan come under American influence. This statement in fact raises more questions than it brings clarifications on the exact nature of the relations between the American and Russian super powers.
It is hard to imagine that American diplomacy towards Kazakhstan, with its immense energy reserves and the significant geopolitical weight that it respresents, is just one of ‘profit and loss.’ Thus, the conversations between Condoleeza Rice and President Nursultan Nazarbaev, his Prime Minister, Karim Massimov and his Minister of Foreign Affairs, Marat Tazhin, dealt with economic ccoperation, delivery of oil and gas via Azerbaijan and Georgia and on investments in the Afghan economy.
However, the context for these discussions – the serious rise in tension between Moscow and Washington in the wake of the Russian-Georgian conflict during August – prompted the Russians to interpret this visit as an attempt by the Americans to achieve an anti-Russian coalition in Central Asia. The Russian authorities believe that this visit by Rice aimed at dissuading Kazakhstan from siding with them over South Ossetia.[23]
d) Turkmen ambitions
Turkmenistan is a vital partner for Russia as regards gas deliveries but it is also now a gas superpower capable of being its rival. The two countries are linked by a contract that fixes the price and volumes of gas for the 2008/2009 period. From 50 Euro at the end of 2006, 1,000 m3 went to 75 Euro in 2007. At the start of January, the same quantity went for 100 Euros and since July 2008 the price stabilised around 115 Euros.
By negotiating skillfully, by playing on the nerves of the Russian gas giant Gazprom – and above all by its huge requirements for gas to satisfy its commitments on the European markets, which alone represent 70% of its sales figures - Ashkhabad succeeded in obtaining such an increase. Gazprom presently exports nearly 2/3 of its production. In the context of a market that never stops expanding, it is obliged to ensure it has unrestricted access to the Turkmen reserves.
However, the Russian daily Kommersant[24] cites a source within Gazprom and points to what seems to be a cloud in the picture for the moment which could over time turn out to be a serious failure in reckoning on the part of Moscow: the agreement of 25 July between Gazprom and the Turkmen national company Turkmengaz does not concern the deposit at Yoloten-Osman South. This changes completely the givens, because if the Russian gas giant succeeded until now in preempting the greater part of Turkmen production, access to the new resources will certainly be the subject of heated bidding.
e) Technical challenges …
At the technical level, despite the construction of a new gas pipeline in the direction of China, the Turkmen infrastructures are insufficient for the country to be able to honour its present and future commercial commitments to its two main clients, Moscow and Beijing.
The production equipment is old, nearly unusable, and the network of gas pipelines is in such a state that it is nearly impossible to increase its transport capacity. Rovshan Ibrahimov, Director of the Department of International Relations of Qafqaz University in Baku, believes that the Turkmen system has ‘a production capacity that is not suitable and the country on its own cannot remedy these shortcomings.’ An energy expert in Ashkhabad confirms that the production system has long been outmoded, that the network of gas pipelines is decrepit and the Turkmen authorities may rejoice and congratulate themselves over the announcement of phenomenal reserves, but they are unable to increase production.
All experts emphasise that there is a world of difference between an ’audit’ and ‘production.’ The contracts in force signed with Russia, China and Iran are already for more than 30% above the present production capacity, which means that if the projects for delivery to European countries are realised, Turkmenistan must double its export volumes. This is impossible in the near term.
f) … economic and financial
The solution thus inevitably involves recourse to foreign investments. In order for this to bear fruit, the Turkmen authorities must offer attractive financial and commercial terms legally guaranteeing the free flow of capital and liberalising the banking system. This would represent a fundamental change with respect to the situation presently prevailing: a rigid hierarchy and the President’s exclusive control of monetary and financial policy. As one observer remarked, investors do not have confidence because, in their view, it is dangerous to invest in a country where everything can change from one day to the next by a simple decision of the head of state.
Another handicap is that the world financial crisis is not, strictly speaking, the ideal context for raising the funds needed to modernise the Turkmen energy infrastructures and build new gas pipelines.
In the past Turkmenistan was a land through which invasions passed. It knows better than any other country in Central Asia what ‘owning some resources’ can mean. The Scythians, Ta-Yue-Chih, Parthians, Huns, Mongols and Turkmens who invaded this desert country one after another knew about the existence of the Akhal oasis,[25] where the tribe of the Tékés domesticated and raised an exceptional and astonishing race of Turkmen horses, most commonly known as the Akhal-Tékés, whose beauty, elegance, strength, resistance and purity were renowned throughout the entire world.
Historians tell us that Alexander the Great seized several hundred of these horses as trophies of war during his Central Asian campaign. A little more than two hundred years later, in 104 BC, the Emperor Wu-Ti of the Chinese Han dynasty, was literally fascinated, even bewitched, by this race of horses[26] and he expressed the wish to acquire several of them.[27] For some obscure reason, the Turkmen tribes turned down the deal and the Chinese Emperor’s envoy was robbed and murdered. During an initial punitive expedition, Wu-Ti dispatched an expeditionary corps of 6,000 horsemen and many thousands of infantrymen, who were defeated. Two years later, an expeditionary force of 30,000 cavalry, 60,000 infantry accompanied by many thousands of heads of cattle, donkeys and camels seized thousands of specimens of the ‘celestial horses’ and many thousands of ordinary stallions and mares.
Strangely, history has already foreshadowed the present situation. The bait of energy resources has replaced that of the mythical Akhal-Tékés. One would have a hard time challenging the view that the appetite of the gas companies will resemble as closely as two drops of water the imperial voracity of an Alexander the Great or of a Wu-Ti.
Copyright© ESISC 2008
[1] ‘Father of all the Turkmens,’ a nickname which he took for himself before also applying it to the former month of January, to a palace, to an amusement park, to a port, to the highest summit in his country and to a brand of vodka.
[2] Named Chief of the Turkmen Communist Party in 1985, Saparmurad Niazov, leader of the Republic of the Turkmen Soviet Socialist Republic, became, after the fall of the Soviet empire, the Turkmen Prime Minister.
[4] Ibid.
[5] A trillion is the equivalent of 1012 cubic metres, i.e., a million million m3.
[8] Cf. Analysis dated 26/10/2008 (http://www.esisc.org)
[11] The Nabucco Gas Pipeline International GmbH is a consortium consisting of the following companies: BOTAS Petroleum Pipeline Corporation (Turkey), Bulgaraz Holding EAD (Bulgaria), MOL Plc (Hungary and Slovakia), OMV Gas and Power GmbH (Austria), RWE AG (Germany) and TRANSGAZ SA (Rumania).
[12] The BTE pipeline (Baku-Tbilissi-Erzurum) was opened for service on 15 December 2006 and passes via Georgia and Turkey to bring gas from the Azerbaijani deposit at Shah Deniz.
[14] The Turkmenistan-Afghanistan-Pakistan-India gas pipeline project, better known by the acronymTAPI.
[15] Cf. Analysis dated 18/07/2008 (http://www.esisc.org)
[16] The Tulip Revolution of March 2005, which ended in the forced departure of President Askar Akaev.
[17] Kazakhstanskaya Pravda, 7 October 2008.
[18] www.centrasia.ru, 8 October 2008.
[19]Russia, Kazakhstan, Kirghizstan, Tajikistan and Uzbekistan. The two other members of this organisation, Armenia and Belarus, are not affected by this agreement.
[20] http://www.rferl.org/content/Russia_Expands_Its_Military_Presence_In_Central_Asia/1348368. html
[22] Kazakhstanskaya Pravda, 7 October 2008
[23] Moskovsky Komsomolets, 5 October 2008. http://www.mk.ru/
[25] In the South of the country, at the foot of the Kopet-Dag range, near the present Iranian-Turkmen border.
[26] In the Chinese imagination of the time, these horses were called ‘celestial horses.’
