By Robert M Cutler
MONTREAL - Azerbaijan and Turkmenistan, two relatively small countries in geo-political terms, are demonstrating the foresight and political skills that will help them - rather than the likes of the fuel-hungry United States, European Union and China - take the driver's seat in the next phase of evolution of Central Eurasian energy geo-economics.
Most significant, Azerbaijan in the next few months will have to choose - rather than have a decision forced on it - between the EU-backed Nabucco and Russia-backed South Stream pipelines for large gas exports to Europe.
At the end of last year, I wrote that three phases could be distinguished in the realm of Eurasian energy development since the disappearance of the Soviet Union. The years 1993-1998 were given over mainly to new proposals for energy exploration and development; during the 1999-2004 period some of these ideas died and other moved towards fruition; and from 2005 to 2010, the ones that had not died (or entered suspended animation) were born and began to operate. (See A delicate dance of power, Asia Times Online, December 24, 2009.)
For the purpose of ordinary-language descriptions, I called these the phases of "bubbling up", "settling down," and "running deep". I also indicated that those three phases were merely subphases of a "metaphase" of "bubbling up" in the development of the consecutive development of Eurasian energy geo-economics lasting until the mid-2040s.
It would be followed by metaphases of "settling down" and of "running deep", each also lasting prospectively about 18 years and each composed of three subphases manifesting the same sequence. If that is so, then we are now in the transition from the bubbling-up metaphase to the settling-down metaphase or, more exactly, from the "running deep of the bubbling-up" to the "bubbling up of the settling-down." What exactly does this mean?
As I pointed out last year, the fundamental triangle of Central Eurasian geo-economics comprised the bilateral Russia-Kazakhstan, Russia-Turkmenistan, and Kazakhstan-Turkmenistan relationships. Over the course of the bubbling-up metaphase just ended, the US, the EU, and China extended their influence into the Central European energy provinces, and more particularly into the Caspian Sea basin.
In the scientific theory of complex systems, from which this framework is taken, the second phase represents the emergence of autonomous goal-setting by the state actors that have newly emerged as central to the constellation of Central Eurasian geo-economic energy relations.
These are, in the first instance, Azerbaijan and Turkmenistan. These have been the subjects of energy geo-economics but they are now becoming its objects: this means that they are acquiring the ability to set their own goals rather than having their goals set for them by others, and that they have developed the means to achieve those goals. (The technical term for this is "autopoiesis". )
For both of these countries, the key has been to seize control of the means to exploit their own natural resources and to use the power given by those resources to assert autonomy in the decision making about the routes of exports and the ultimate consumers. These trends have come even more to the fore than when I first pointed them out at the end of 2009, and we may expect them to be accentuated further in 2011 and the years ahead.
Azerbaijan has diversified its potential export partners by continuing its energy trade with Russia and Turkey while exploring possibilities to deliver natural gas to Bulgaria and Romania. (See Caspian pipeline knots tighten, Asia Times Online, April, 23, 2010.) Minor trade with Iran also continues.
Baku's decision between the Nabucco and South Stream pipelines will come definitively in the first half of 2011, perhaps by the end of the first quarter. At present, more pieces are in place for Nabucco than for South Stream. (See Azerbaijan wants Nabucco's cards on the table, Asia Times Online, November 18, 2010.)
At the same time, Turkmenistan has taken definite steps to liberate itself from the stranglehold that Russia had until recently upon the country's gas exports. This was a breakout year for Turkmenistan, with a heady list of achievements made towards that goal: the construction of an export pipeline already supplying 10 billion cubic meters per year (bcm/y) to China with an end-stage target of 30 bcm/y; the slight increase in exports to Iran; the abandonment of the Caspian Coastal Pipeline for exports to Russia; and the very real long-term possibility of exports to Europe via Azerbaijan either under or over the Caspian Sea. Capping these, was this month's signing of a quadripartite framework agreement for the Turkmenistan-Afghanistan-Pakistan-India pipeline, which has long on the drawing boards. (See Tectonic shift under way in Turkmen gas, Asia Times Online, May 28, 2010; TTurkmenistan signals Nabucco intentions, Asia Times Online, September 24, 2010.)
It may seem odd that it would be relatively smaller countries such as Azerbaijan and Turkmenistan that are taking control over the next phase of evolution of Central Eurasian energy geo-economics.
However, this is in the nature of complex systems, which are systems of which the behavior cannot be predicted from an examination only of their parts. (The canonical example of a non-complex system is an automobile factory: looking at what enters and what happens inside, one can predict what comes up. This is not so with complex systems, such as the biological cell, the human being, or the regional geo-economic system.)
Next year and the first half of the oncoming decade will see more of such developments. It is even possible that Uzbekistan will achieve some energy geo-economic significance beyond its own region. It is one of the largest gas producers in the region, but much of this is domestically consumed; other quantities go to southern Kazakhstan and Kyrgyzstan, but next to nothing is exported beyond Central Asia....
Turkmenistan is one vertex of the fundamental Central Eurasian triangle mentioned above. The other two vertices will also play an important role in determining the future flows within the Central Eurasian energy geo-economic system, but they operate at a different scale of magnitude, and it is the scale that makes all the difference: it is why, if one concentrates on the larger powers such as the US, the EU, and China, the crucial and autonomous influence of such a smaller country as Azerbaijan can easily disappear from view....
By Robert M Cutler
MONTREAL - Attention to Central Asian energy is most often driven by such gigantic projects as the Turkmenistan-China pipeline or the question of doubling the volume of the oil pipeline of the Caspian Pipeline Consortium (CPC) from northwest Kazakhstan across southern Russia to the Black Sea or other such strategic projects having a trans-continental, or at least semi-continental, scale.
However, the Central Eurasian hydrocarbon energy scene is a "complex system" in the technical sense, and it is a postulate of complex systems analysis that evolution on smaller scales can have suddenly apparent effects on larger scales.
Thus events in energy development within Central Asia itself, the development of energy locally and not for export in the first instance, can have broader consequences later on. Such developments have lately been occurring in Tajikistan and Uzbekistan. The reason why they have not garnered so much attention in Western media is not only that the projects are relatively local but also that Western firms have not generally been involved.
It is often not realized that Uzbekistan is the second-largest gas producer in the former Soviet area and 10th in the world. That is because its exports have not been very great compared to others in the region, due to Uzbekistan's larger population and hence greater domestic consumption. Annual production is roughly 60 billion cubic meters (bcm) of gas and eight million tonnes of liquids.
It is the Russian gas monopoly Gazprom's subsidiary for foreign oil and gas development, Zarubezhneftegaz, that has conducted the work in Uzbekistan, and Tajikistan motivated much of that development. Russian companies Lukoil and Rosneft are also participating in natural gas development in Uzbekistan. South Korea is one of the relatively few other foreign countries (Malaysia is another) whose firms participate in energy exploration and development in Uzbekistan, including in the region of the Aral Sea.
At the end of 2010, Uzbekistan announced its energy development program for the next five years. This calls for investment of over US$23 billion, including the development of 37 new projects largely through the national "champion" Uzbekneftegaz and in cooperation with foreign enterprises where appropriate.
It has, for example, worked with Gazprom's subsidiary to develop the Shakhpakhty block of the Ustyurt Plateau, so far producing 120 million cubic meters per year (mcm/y) with the anticipation that at least several more billion cubic meters may be found elsewhere through the dozens of wells being drilled there.
At present, nearly all of Uzbekistan's gas flows to Russia, but the country is trying to diversify its export partners, particularly in the Asia-Pacific region and with special attention to China. Thus, as from 2007, Uzbekneftegaz cooperated with the Chinese National Petroleum Corporation (CNPC) in a joint venture to build Uzbekistan's segment of the Turkmenistan-China gas pipeline that entered into service at the end of 2009.
The second stage of this pipeline is now finishing construction in order to realize the projected throughput of 40 bcm/y, including volumes transiting eastward from Turkmenistan. This second-stage construction will also feed the Gazli underground gas storage facility inside Uzbekistan for domestic consumption purposes. The infrastructure is being upgraded and additional compressor plants constructed for the purpose with Chinese assistance.
Lukoil is involved in developing the Kandym-Khauzak-Shady-Kungrad project in Uzbekistan for possible export to China via supply to CNPC. Current production is 3 bcm/y, with more production coming online by 2013 and peaking at 15 bcm/y by the middle of the decade. At present, Lukoil sells all of its gas produced in Uzbekistan to Gazprom for transshipment to third-party consumers; however, Uzbekistan plans that the gas from this project will enter the Turkmenistan-China pipeline.
One of the few destinations outside Russia for Uzbekistan's gas exports, other than China, has been Tajikistan. This is likely to change in the medium term. Last month, Gazprom announced that its exploration of Tajikistan's Sarikamysh field discovered roughly 60 billion cubic meters (bcm) of natural gas, or the equivalent of 50 years' worth of domestic consumption.
This means that sooner rather than later, Tajikistan will no longer need to be dependent on gas exports from Uzbekistan, which have been a bone of contention over payments and supply suspensions. Indeed, this was the reason behind Tajikistan's original drive to develop more hydropower, which in turn irritates Uzbekistan because the water is needed there for irrigation of cotton, a major export crop. Nevertheless, in Tajikistan, the Sangtuda-1 plant was completed with help from Russia, and Sangtuda-2 is underway.
Along with the development of the Rogun Dam for hydroelectric power, which is now possible thanks to Iran's decision to break an international embargo on sending equipment to Tajikistan to develop the ecologically sensitive area, the new gas discovery has the potential to make Tajikistan a regional exporter of energy to Central and South Asia, and even China, in the medium term.
That in turn would affect not only intra-regional but also broader strategic energy balances, exemplifying how emergence on smaller scales in a complex system affect pattern-evolution at larger scales. And Sarikamysh is unlikely to be the only gas field that Gazprom will find in Tajikistan.