Turkmenistan sets out new energy policy

Sep 08, 2002 02:00 AM

The government of Turkmenistan has outlined a new energy policy that it hopes will result in investments in oil and gas projects of $ 46 bn by 2010. Most of the investment will come from overseas sources -- 80 % the government says. Foreign companies will be especially welcome in offshore and infrastructure projects, but will not be able to take equity in onshore projects, which will be reserved for the state- owned oil and gas firms, Turkmenneft and Turkmengaz.
Progress is already being made in one critically important area -- building new gas export infrastructure. A pipeline from Turkmenistan to Pakistan, across Afghanistan, could be built as early as 2005, says President Saparmurat Niyazov.

The proposed 30 bn cmpy pipeline, which would cost $ 1.8 bn - $ 2.0 bn to build, would be of huge benefit to Turkmenistan, allowing it bring more of its stranded gas reserves to market. The 1,500 km trans-Afghanistan pipeline took an important step forward on 30 May, when the three countries' governments signed a construction agreement.
However, the government wants to encourage a much-wider programme of investment in the country. At a round-table discussion on energy in late May, in Ashgabat, the oil minister, Kurbannazar Nazarov, said: "Investments in Turkmenistan's oil and gas complex up to 2010 are projected to total $ 46 bn. Over 75 % of this amount will flow in as direct foreign investments. Another 5 % will be obtained as foreign loans."

Foreign services companies will continue to be encouraged to participate in onshore projects, but, otherwise, their involvement will be restricted to the offshore and to infrastructure. "Direct foreign investments should help boost hydrocarbons production, based on modern technologies and equipment, on Turkmenistan's shelf of the Caspian Sea, and fund the construction of export oil and gas pipelines," said Nazarov.
Mindful of the country's reputation for instability, the government is taking steps to make the operating environment more acceptableto Western investors. A document on improving the business climate in the oil and gas sector will be presented during the annual international oil and gas conference, which is due to be held in Ashgabat in December 2002.
"The state will no longer perform business functions," Yolly Gurbanmuradov, deputy chairman of the cabinet of ministers, told the round-table meeting. "As a result, not only will processes unfolding in the sector become transparent, but also everybody will have equal opportunities to compete." Specifically, domestic oil and gas firms will become oil contractors acting independently of the state, with the same rights and responsibilities stipulated in the law on hydrocarbons resources -- as foreign contractors.

The government plans to invest $ 8.5 bn from state coffers in the oil and gas industry between 2002 and 2010. Turkmenneft will invest $ 3.8 bn, Turkmengaz (which produces 85 % of the country's gas, with Turkmenneft producing the other 15 %) will put up $ 2.9 bn and there will be additional investments amounting to almost $ 2 bn from other state-owned concerns.
Said Nazarov: "In the next five to seven years, Turkmenistan intends to make a giant leap in boosting the delivery of hydrocarbons raw materials and petroleum products to international markets." By 2005, the target is to increase oil production to 28 mm tpy and gas output to 85 mm cmpy. For 2010, its targets are 48 mm tpy for oil and 120 bn cmpy for gas. It hopes exports will grow to 16 mm tons and 70 bn cm in 2005 and to 33 mm tons and 100 bn cm in 2010.

Based on existing and undiscovered reserves, these are very ambitious targets, especially in the case of oil. Crude output in 2001, including gas condensates, was 8.019 mm tons -- about 160,000 bpd. Lifting that to close to 1 mm bpd in eight years will be difficult, even if enough oil is found. The plan for 2002 is to attain production of 13.5 mm tons as new resources are brought on stream and the performance of existing wells is optimised. But the long-term target depends heavily on future exploration success, making it highly challenging. Also, Turkmenistan is a significant gas play, but not a major oil province.
Recoverable oil reserves do not amount to much -- 0.5 bn barrels, according to the BP Statistical Review of World Energy 2001. However, the country has the world's 11th largest gas reserves -- around 2.87 tcm -- the BP review says. The government's figure for combined oil and gas reserves is 45.44 bn tons of oil equivalent (mostly gas). It estimates total proved, probable and possible reserves at 12 bn tons for oil and 22.8 tcm for gas.

Marketing the gas remains a problem because of the shortage of export pipelines, the remoteness of viable markets and limited internal demand. The only two gas export lines are through Russia to Europe (with a capacity of up to 60 bn-70 bn cmpy) and to Iran (up to 12 bn cmpy). Gas exports in 2001 were 37.3 mm cm, of total output of 51.3 bn cm. The plan for 2002 is to raise gas output to 70.8 bn cm, the government says, as the country's biggest field, Dauletabad, reaches peak production, the Chartak, Gazyldepe and Balguyy fields are brought on stream and output is optimised at a handful of other fields.
During the round-table, Gurbanmuradov said the country must develop a "gigantic gas export" infrastructure. Several options, varying in feasibility, have been considered. The most ambitious include pipelines east to China, west to Turkey and Europe, and southeast across Afghanistan.

The 30 May agreement indicates the government is serious about the Afghanistan option, which seemed particularly improbable six months ago because of the war. The pipeline is expected to take about two and a half years to build and will follow the route proposed by the CentGas multinational consortium (which included Unocal) in the late 1990s. The initial findings of a tripartite working group on the project will be announced during an October summit of the heads of the three countries.
The government has not written off the other options. Although Turkish gas demand is falling behind forecasts, "the goal of expanding into markets in Turkey and southern Europe remains as relevant as ever," said Gurbanmuradov. "These markets can be served through trans-Iranian or TransCaspian gas pipelines." A gas line across China is also still under consideration, although analysts say it will be unfeasible.

Gurbanmuradov also emphasised the "urgent need" to put together a modernisation project for the Turkmenistan-Europe gas pipeline to raise its throughput capacity. The pipelines crossing Russia have deteriorated since the Soviet era, reducing capacity. Many analysts claim Russia is Turkmenistan's best gas market.
The infrastructure is already built and there is a growing shortfall of supply in Russia, which is exporting as much of its own gas as it can to the lucrative European market. Potential oil-export projects include the Turkmenistan-Iran-Mideast Gulf pipeline, with a capacity of 7 mm tpy, rising to 14 mm tpy upon completion of a second phase, which would be 1,750 km long and would cost $ 1.0 bn, as well as a pipeline that could follow the trans-Afghanistan gas pipeline route.

Source: Petroleum Economist
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