Thursday, September 23, 2010

Turkmenistan signals Nabucco intentions

Turkmenistan signals Nabucco intentions.

By Robert M Cutler

MONTREAL - "We are currently constructing the East-West Pipeline [across southern Turkmenistan, which] will be laid along the coast of the Caspian Sea ... Nabucco is associated with this project." Thus spoke Turkmenistan's President Gurbanguly Berdimuhamedow at a press conference last week, as reported by many international sources, including Azerbaijan's Trend News Agency, despite the fact that these words did not appear in the official transcript of his remarks as cited by his government's news agency.

Contrary to Berdimuhamedow's statement, the East-West Pipeline properly speaking, which will be constructed to carry a minimum of 30 billion cubic meters per year (bcm/y) at an estimated cost of US$2 billion, does not run along the country's Caspian Sea coast: rather, that is the Caspian Coastal Pipeline (CCP or Prikaspiiskii, sometimes "Pre-Caspian").

The CCP is part of the western branch of the Soviet-era Central Asia-Center (CAC) pipeline, which itself is more a spidery network than a pipeline, running through Uzbekistan and Kazakhstan into
Russia. In December 2007, Turkmenistan, Kazakhstan and Russia signed an agreement to refurbish and reconstruct the CCP, with each country responsible for carrying out the works on its own territory; however, none of that ever happened.

Berdimuhamedow's words raise the possibility that Turkmenistan may reconstruct its own segment of the CCP, running along the coastline in the country's northwest, to connect it up to the East-West Pipeline. But why would it do so? Energy relations with Russia are at low ebb, and with Kazakhstan President Nursultan Nazarbaev's criticism of Europe for dragging its feet on Nabucco it seems unlikely that Kazakhstan has done any work on its own segment of the CCP for export of gas to Russia.

The answer is the following. As is well known, there continues to be a territorial disagreement between Turkmenistan and Azerbaijan over the principle by which to delimit national offshore sectors for undersea resources, and this has impeded the former's gas from transmission into the latter's
infrastructure that could take it to European consumers. (See Another trans-Caspian pipedream, Asia Times Online, October 24, 2007; and The Caspian boils again, Asia Times Online, July 31, 2009.)

Although it would be possible to agree terms to construct a trans-Caspian gas pipeline between those two countries in the absence of agreement over that territorial question, another eventual possibility has been to build a pipeline from an offshore Turkmenistani field now under exploration so as to intersect an undersea Kazakhstan-Azerbaijan pipeline that will take gas from Kazakhstan's offshore Kashagan deposit under the sea to its western shore. That gas is projected to fill an onshore pipeline to be constructed by Kazakhstan along its seacoast from Eskene to Aqtau, whence an undersea pipeline could be constructed to Azerbaijan.

Thus Berdimuhamedow implicitly evokes the possibility that onshore gas from Turkmenistan (through the East-West Pipeline) may transit a refurbished and reconstructed CCP, not for export to Russia through Kazakhstan but rather for export overland to Kazakhstan. That gas would then reach Aqtau and take a left turn to join (or even precede, since Kashagan development and Eskene-Aqtau pipeline construction will take some time) Kazakhstani gas in an undersea Kazakhstan-Azerbaijan pipeline towards a
European destination .

He implicitly evoked this possibility in his original announcement of the projected length of the East-West pipeline. The distance between his two estimates of its length is 200 kilometers: approximately the distance from the East-West Pipeline's western terminus proper to the Kazakhstan border itself. To say that the East-West Pipeline will be "laid along the coast of the Caspian Sea" is to say that the Turkmenistani segment of the CCP will be explicitly considered as an extension of the East-West Pipeline itself.

Such a route would help to justify and kickstart the Eskene-Aqtau gas pipeline, in turn facilitating implementation of Kashagan
development. The cost-effectiveness of liquefied natural gas and compressed natural gas technologies is also being studied.

A further indication of Turkmenistan's intent to dedicate the East-West Pipeline for export to
Europe comes from information reported earlier this month by the Indian Express newspaper, that Ashgabad has informed the Technical Working Group on the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline that gas for this project will not come from Dauletabad as previously planned but rather from the South Yolotan-Osman supergiant field that is already also supplying China via a pipeline transiting Uzbekistan and Kazakhstan.

Despite the planned extension of the Turkmenistan-Iran gas pipeline to Dauletabad on the Turkmenistan side, there is not enough demand by Iran to account for such a switch. The only reasonable conclusion is that Berdimuhamedow sees Dauletabad gas going to Europe through the East-West Pipeline.

Turkmenistan has been exporting gas to northeastern Iran for years, although during the Turkmenbashi era (that is, the presidency of Saparmurat Niyazov, who died in December 2006), sales targets were rarely met for a variety of administrative and industrial reasons. Since Berdimuhamedow came to power, the gas trade has been regularized and apparently put on a more systematic footing, to such a degree that earlier this year a pipeline extension was opened with a view towards increasing gas exports from the current reported level of 8 bcm/y to 20 bcm/y. The existing pipeline, which opened in 1997 runs from Koropeje to Sarakhs.

There has been some misunderstanding of this project even in the specialized international commentary and analysis. It is not a new pipeline that is involved. Rather, the existing pipeline from Koropeje in Turkmenistan to Kordkuy in Iran will have additional compressor stations installed in order to increase its carrying capacity. On the Turkmenistan side, the existing pipeline will be extended to the Dauletabad field to provide for increased quantities, and it will be extended to Khangiran on the Iranian side to provide for increased processing capacity. The construction involved in extending the pipeline Iranian side is projected to take up to two years to execute.

The figure of 20 bcm/y that has more than once appeared in Western commentaries and analyses appears to be based on the supposition that this is a new (parallel) pipeline. It is not; it is an extension of an existing pipeline. In fact, the figure available in the specialized industry press for the capacity of the "new" pipeline is up to 14 bcm/y.

Since actual recent exports through the Korpeje-Kordkuy pipeline are reported in the range of about 6 bcm/y (despite a theoretical maximum capacity of 8 bcm/y), adding that figure to the potential exports of a "new" pipeline, if one existed, could account for the figure of 20 bcm/y. But as this clarification should make clear, that is not the case; moreover, it will take at least two years for the expanded volume to reach planned capacity. In the event, for technical reasons, the total annual export is likely to be closer to 12 bcm/y than 14 bcm/y; and that will take several years to accomplish, assuming the Iran is successful in its intention to extend the pipeline on its own side.

Construction of the East-West Pipeline will contribute to the ongoing unification of Turkmenistan's gas supply system, which has been under way, generally unremarked, for some time. Yet the consequences are considerable. In particular: with the additional planned construction of a connection between Dauletabad and the new South Yolotan-Osman field, it will become possible for Turkmenistan, merely by opening and closing the proper valves, to switch export quantities and export directions among north (Kazakhstan, Russia), south (Iran, Afghanistan, Pakistan, India), east (Uzbekistan, Kazakhstan, China), and west (Azerbaijan, Georgia,
Turkey, Europe).

Central Asia-Caucasus Institute Research Director Svante Cornell was among the int’l energy experts who spoke at Thursday’s Washington Energy Summit....

WASHINGTON, DC – Friday, September 24, 2010 – The emergence of Central Asia as a major oil and gas producer has been a welcome development in the realm of energy in the past twenty years, analysts said Thursday during the Washington Energy Summit in Washington, DC.

The development of energy reserves from nations located around the Caspian basin has been one of the most important changes in the last two decades, noted Central Asia-Caucasus Institute Research Director Svante Cornell.

It has allowed oil-consuming countries “to diversify their import sources” by increasing their choices of oil sellers, while simultaneously allowing producer nations, like Kazakhstan and Turkmenistan, “to diversify their exports.”

“Central Asia can work further to diversify their [energy] exports if they have long-term plans,” he said.

Another benefit to the emergence of Central Asia on the global energy scene lies in its geography, Cornell noted.

“The Central Asian republics are located near energy consumers” like Russia and China, which makes the transportation of fuel to customers easier and allows Central Asian producers to export more, he added.

What is also significant is the “openness of Caspian-basin nations to investments from international oil companies,” Cornell noted, saying that the cooperation between national oil companies and the international giants presented a new method of handling national oil wealth.

The Caspian basin region also offers attractive conditions for international investors, said Heritage Foundation Senior Research Fellow Ariel Cohen.

“The rule of law and protection of assets is important” for international oil companies to consider, he said. In the Caspian region and Central Asia, “the political risk is low, even if it is geographically difficult” to extract the fuels.

The biggest question in the region is the future of resource development in Turkmenistan, analysts said.

The amount of gas resources in Turkmenistan have not been quantified for as long as other nations in the region and the country’s energy relations with regional gas giant, Russia, have been testy.

Russia’s Gazprom is reported to have spread rumors about the lack of quality of Turkmenistan’s reserves, Cornell said. Russia also shut off valves shortly before Turkmenistan built a gas pipeline that would provide China with 30-40 bcm of gas per year.

“Now, Turkmenistan is going to exclude Gazprom from the construction of its East-West pipeline,” Cornell said, adding that Turkmen president Gurbanguly Berdimuhamedov recently excluded Russia from a list of potential gas customers that also included China, Europe and Iran.

Turkmenistan’s gas reserves are estimated to be 7 trillion cubic meters, the fifth-largest in the world.

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