Gazprom-Turkmenistan gas deal creates problems for Trans-Caspian Gas Pipeline

by Charles Coe

US and Turkish diplomats ventured to Ashgabat in search of an understanding as to what course Turkmenistan intends to take with regard to its future natural gas exports.
Turkmenistani President Saparmurad Niyazov had held talks with the leader of Russia's Gazprom on the possibility of boosting Turkmen gas exports to Russia to 50 bn cmpy over a 30-year period. Such a development would seriously jeopardise the proposed Trans-Caspian Gas Pipeline (TCGP), a project in which both Washington and Ankara have invested considerable political capital.

Last December, Turkmenistan and Russia reached a deal whereby Moscow agreed to purchase 20 bn cmpy of Turkmen gas at a price of $ 36 per 1,000 cm. At the time, Moscow said that it would need the gas for the winter of 2000-2001. These new round of talks, however, are viewed as a deliberate attempt by Moscow to pre-empt the TCGP, which would carry an initial 16 bn cmpy to Turkey and ultimately carry twice that volume via Turkey into Europe.
During the talks between President Niyazov and Gazprom's CEO Rem Vyakhirev, the prospect of shipping Turkmen gas to Turkey via the Blue Stream gas pipeline was raised. Sources close to the company that will build the TCGP say that the Turks are unhappy with this development, as it would reinforce Turkey's dependence on Russia for natural gas supplies.
Ankara has agreements with Russia that will bring total Russian gas supplies to Turkey to 30 bn cmpy by 2010. It could also create more problems for the already troubled Baku-Ceyhan crude oil pipeline, which has been stalled at the negotiating table for several months.

The TCGP and Baku-Ceyhan are the key components of the East-West Energy Corridor proposed by Washington and therefore vital geo-strategic elements of future American foreign policy in Central Asia and the Caucasus. There is undoubtedly support within the Turkish government for Blue Stream, which would carry 16 bn cmpy across the Black Sea via a subsea pipeline, but certainly there are arguments in favour of supply diversification. Moreover, another matter troubling Ankara is the fact that Russia would be looking to collect a higher price for the gas from Turkey that what it would be willing to pay Turkmenistan.
Moscow is seeking to purchase natural gas from Turkmenistan at $ 36 per 1,000 cm -- the price that it agreed with Ashgabat in December -- but Ashgabat is holding out for $ 45 per 1,000 cm. Price negotiations are to continue under the guard of a working group that Turkmenistan and Russia have agreed to set up. The working group is to draft a strategic partnership program in the oil and gas sector.
FSU Oil&Gas Monitor sources say that the joint US-Turkey delegation to Ashgabat wants some straight answers from President Niyazov on his commitment to the TCGP project and will request that he begin to 'play ball' -- not only with the Western companies involved in the project, but with Azerbaijan as well. Ashgabat's position on the TCGP has been that it does not want to allocate a significant portion of space in the gas pipeline to Azerbaijan, which has been demanding as much as 50 % of total capacity in order to export it own gas.

Baku's tough stance on the TCGP might now change in light of the recent announcement by BP-Amoco that it is prepared to invest more than $ 2 bn in development and export of the natural gas reserves contained one of its offshore Azerbaijani concessions, Shah-Deniz. But either way, the sources said, the American and Turkish team intend to press home the point to President Niyazov that he is going to have to cooperate with Azerbaijan if he wants work on the TCGP to get underway. One other reason for Turkmenistan's procrastination on the TCGP could be its previous requests for pre-financing -- something that is not an option at this time.
President Niyazov's renewed friendship with Moscow is on the one hand somewhat surprising, but on the other hand it isn't -- given the nature of Central Asian politics. Not so long ago, Russia refused to carryTurkmenistan's natural gas through its pipeline network, forcing drastic reductions in Turkmenistani natural gas production and causing a large drop in the country's revenues. There was a time when President Niyazov held Russia responsible for all of Turkmenistan's worries.
Moscow's approach to Ashgabat has been very much in the way of stick-and-carrot. The stick prompted Ashgabat's apparent commitment to TCGP. The carrot might now sway Turkmenistan's course.

At present, the chances that any natural gas will be exported from the Caspian region remains unknown. BP-Amoco may be keen to export Azerbaijan's natural gas to Turkey, but to do so it must first secure a gas purchase agreement with Ankara. For its part, Turkey has informed Azerbaijan that a gas purchase agreement might not happen unless opposition to the TCGP eases. The Turks are understood to want Turkmenistani natural gas, but they do not want it to be shipped through the Blue Stream pipeline.
Russia has been moving on several fronts to gain advantage in the Great Game for influence over the Caspian's oil and gas resources. But it remains to be seen if it will actually succeed. Gazprom might sign up for 50 bn cmpy of natural gas from Turkmenistan, but it will not be able to pay cash for all of it. A large portion will be paid for in barter, whereas Ashgabat will earn cash for all its gas exports via the TCGP.

Russia is also pushing to finish the Chechen bypass section of its Baku-Novorossiisk crude oil pipeline and pressing Azerbaijan to increase its future crude shipments through the 'northern' export route. Moscow hopes that Western oil firms operating in Azerbaijan will come to see the Baku-Novorossiisk pipeline as a viable alternative to Baku-Ceyhan, though the prospects for this do not look all that promising.
Moscow has also proposed the formation of a multi-national oil and gas cooperation body. While Vyakhirev was in Ashgabat, Russian Fuel and Energy Minister Viktor Kalyuzhny was in Kazakhstan, where he proposed the creation of an energy union between Russia, Kazakhstan, Turkmenistan, Belarus and possibly Ukraine. The purpose of this body would involve co-ordinating a schedule for the supply and demand of oil, gas, coal and electricity. There is also the chance that Kazakhstan could gain greater access to Russian crude oil pipelines for export. Not long ago, that wasn't even possible.