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Apr 16, 2008 | 22:10 GMT

4 mins read

Turkmenistan: Natural Gas and the European Union

VLADIMIR RODIONOV/AFP/Getty Images
Summary
Turkmenistan has made its first concrete offer to the European Union to export natural gas to Europe, STRATFOR sources confirmed April 9. If Turkmenistan is serious, the deal will be hugely beneficial for Europe. But it will require Turkmenistan to leave at least one of its three natural gas customers in the lurch.
Turkmen President Gurbanguly Berdimukhammedov met with EU Commissioner for External Relations Benita Ferrero-Waldner in the Turkmen capital of Ashgabat on April 9, during which the two agreed to have 10 billion cubic meters of natural gas available for export to Europe by 2009. STRATFOR sources confirmed the agreement was in fact made. If Turkmenistan’s figures are accurate, and if it is serious about following through with the deal, the European Union will have good reason to be optimistic about its energy future. But these are big ifs. The deal represents a potential watershed in Europe’s attempt to diversify its sources of energy and to gain greater independence from Russian energy — which comes with political strings attached. If Turkmenistan’s natural gas supply is assured, investors will like to get in on the development of a Trans-Caspian pipeline linking Turkmenistan with Azerbaijan. From Azerbaijan, the natural gas would travel through the pipeline network connecting Turkey and Europe, which would have to be upgraded to manage the increase in volume. The new flow of natural gas would also revive the long-deferred dream of the Nabucco pipeline running through Eastern Europe. All of this piping would bypass Russia. Russia in particular is unhappy with the idea of such an EU-Turkmen deal. Until recently, Turkmen energy companies had no choice but to sell to Russia. Turkmenistan's pipelines and rail links left over from the Soviet Union headed toward the Russian market, with Ashgabat's only other option being a small pipeline to Iran. The Russians took advantage of the situation by importing Turkmen natural gas at low prices for domestic consumption, and then exporting their own to Europe at much higher prices. This situation began to change, however, when China — ravenous for energy — entered the Central Asian scene. China funded infrastructure projects of every sort with the expectation of making big returns from Turkmenistan’s exportation of its natural resources. Turkmenistan is indebted to China for its investments in Turkmen production and transportation capabilities, such as the natural gas line connecting China to Turkmenistan, which is under construction and expected to begin operation in 2009. Turkmenistan was therefore beholden to Russia and China before agreeing to the new deal with Europe. Turkmen leaders accordingly could be exaggerating, or even feigning entirely, their readiness to export natural gas to the European Union to keep competition for Turkmen resources strong. Undoubtedly, Turkmenistan knows it does not produce enough natural gas to meet the new deal with Europe while satisfying previous commitments to Russia and China. If Turkmenistan is sincere in its pledge to Europe, it thus will be forced to make the tough decision of which customer to cut out. Economically, the decision is a no-brainer: both China and Europe are willing to pay a higher price for natural gas, and investors from both EU countries and China are willing to dive into Turkmenistan for any number of projects. Russia meanwhile continues to press its old advantage, expecting Turkmen natural gas on the cheap so it can fulfill its own contracts with the West. Needless to say, if China and the West succeed in gaining Turkmen’s partnership, they will have to compete with each other while Russia throws a tantrum. But the Russians still have strings to pull in Turkmenistan’s government. Moreover, territorial claims to the Caspian Sea are highly disputed under international law. Russia, Kazakhstan and Iran each will have something to say about a Turkmen-Azerbaijani pipe link. Endless legal disputes thus could be the price developers pay for constructing the Trans-Caspian line. Furthermore, Russia’s sheer force could come into play at some point. Russia retains heavy influence in the volatile Caucasus region, and any Turkmen shipments to Europe would need to transit that region. Russia could use any number of tools to sabotage an energy deal deliberately designed by the West to undermine Russia’s dominion in that sector. Europeans have reason to be excited about Turkmenistan’s first commitment to provide them with a specified volume of natural gas. But questions about Turkmenistan’s credibility — and its capacity to meet all of its obligations — require Europe to curb its enthusiasm.

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