Turkmenistan's Pipeline Strategy: Building a Diversified export infrastructure
Turkmenistan has huge mineral wealth, including reserves of natural gas that are estimated to be the fourth largest in the world. However, when the country became independent, it lacked an export infrastructure. The existing gas pipelines formed part of the Central Asia-Centre network, which ran from Turkmenistan through Uzbekistan and Kazakhstan to Russia and the other Soviet republics. Consequently, in the early 1990s the main customers for Turkmenistan gas were still former Soviet republics. Most of these new states, especially Armenia, Georgia and Ukraine, were in the midst of a severe economic recession and were frequently unable to meet payments, thereby falling deeply into arrears. By the end of 1995, Turkmenistan was owed close on US $2 billion.
It was against this background that the Turkmen Government made plans to create a multi-vectored network of export routes to Europe, the Middle East and South Asia. It was a bold, ambitious idea. The distance to world markets and the technical problems of constructing pipelines across difficult terrain would make such projects inordinately costly. Moreover, political factors, notably US sanctions against neighboring Iran, and regional instability, particularly in Afghanistan, would hinder the transboundary transportation of hydrocarbons. In the face of such obstacles, many commentators doubted the feasibility of these schemes. Yet the Turkmen authorities were not deterred: the new pipelines were vital to the country's independence and to its economic development. Moreover, the pipelines were a form of 'energy diplomacy', strengthening ties with regional states and laying the foundations for strategic partnerships. Thus, despite the frustrations of protracted negotiations, memoranda of intent and feasibility studies that were mothballed, and the frequent hiatuses, slowly and determinedly the Turkmens pursued their objectives. The twists and turns that punctuated this process mark the course of Turkmenistan's pipeline strategy, but they also chart the complexities of regional relationships and the changing priorities of international actors.
Turkmenistan -Iran Pipeline
This was the first cross-border pipeline project to be implemented and initially, was the Turkmen Government's favored option for an export route. The intention was to construct a pipeline that would run across Iran to Turkey and thence to Europe (a distance of some 1,400 km.). Construction of the first segment, from Korpeje in western Turkmenistan to Kord Koy in northern Iran, commenced in 1994 and the pipe became operational in December 1997. There were hopes at this time that the US Government was no longer as vehemently opposed to Iranian involvement in the project as had been the case previously. Accordingly, international energy companies such as Royal Dutch/Shell and the French company Sofregaz bid for the contract to carry out the next phase of construction. Yet it soon became clear that this was premature: there were still too many political and commercial obstacles for Western companies to participate in the project. Undeterred, Turkmenistan and Iran continued to expand bilateral energy ties. In 2000, a second cross-border pipeline, from Artyk to Luftabad, was inaugurated and in January 2010, a third, much larger pipeline was launched, running from Dovletabat in south-eastern Turkmenistan (a field previously reserved for deliveries to Russia) to Khangiran. These three pipelines together would, at peak capacity, enable Turkmenistan to make annual deliveries to Iran of up to 20 billion cubic metres (bcm).
Turkmenistan-China Pipeline (Trans-Asian)
Another vector of Turkmenistan's energy export strategy was the construction of a Trans-Asian gas pipeline. This project got off to an early start: in 1992 - scarcely a year after independence - Japan's Mitsubishi Corporation and the China National Petroleum Company (CNPC) undertook feasibility studies for a pipeline from the Caspian region to China, to terminate at a port on the Yellow Sea; from there the gas could be transported by tanker to Japan and, eventually, the Republic of Korea. In 1997, the Mitsubishi Group, Exxon and CNPC formed a consortium to develop a pilot project to connect gas fields in Uzbekistan and Turkmenistan via Kazakhstan to China's eastern seaboard - an estimated distance of some of 6,000 km. However, although the benefits of opening up Central Asian hydrocarbon resources to Pacific markets were considerable, the cost of such a pipeline was deemed too high to be commercially viable.
The project languished until April 2006, when President Niyazov visited Beijing. While there, he signed an agreement with President Hu on the supply of Turkmenistan gas to China, to be transported via Uzbekistan and Kazakhstan. Thereafter, progress was rapid. In 2007, President Gurbanguly Berdimuhamedov, Saparmurad Niyazov's successor, visited China and oversaw the signing of a Production Sharing Agreement between CNPC and the Turkmen authorities to develop the massive Bagtyyarlyk contract territory. Located on the right bank of the Amu Dar'ya, this previously undeveloped area was known to contain several large gas fields. The deal was significant not only because of the territory's rich reserves, but because it was the first major contract to be concluded with a foreign company for the development of Turkmenistan's on-shore hydrocarbon reserves. The Chinese partners lost no time in launching the project: the following year CNPC signed bilateral deals with the national gas companies of Turkmenistan, Uzbekistan and Kazakhstan, giving them 50 per cent stakes in their respective segments of the pipeline. Work on the pipe commenced concurrently in all the participating states and, less than two years later, was completed in record time. On 14 December 2009, in the presence of the Presidents of Turkmenistan, China, Uzbekistan and Kazakhstan, the formal valve-opening ceremony was held. It was the first phase of what would become a major 'gas corridor' to the east. Over the following years, additional branches were constructed. In 2015, the fourth branch, known as 'D', was nearing completion; initial shipments via this new pipeline would total 5 bcm, increasing annually to reach 25 bcm within five years. Total Turkmen gas exports to China by 2020 were expected to reach 65 bcm per year.
Turkmenistan-Afghanistan-Pakistan-India Pipeline (TAPI)
An even more ambitious scheme was the proposal to construct a pipeline linking Turkmenistan to the Indian sub-continent via Afghanistan. The first step towards the realization of this project came in May 1997, when the US petroleum company Unocal and its strategic partner, the Saudi Arabian company Delta Nimir, signed a memorandum of agreement with the Turkmenistan Government for the construction of oil and gas pipelines from hydrocarbon deposits in eastern Turkmenistan to Pakistan via Afghanistan. However, the deteriorating security situation in Afghanistan made the implementation of this route impractical at that time.
Five years later, following the US-led military intervention in Afghanistan in October 2001, the outlook was more promising. Hence, in May 2002 the Presidents of Afghanistan, Pakistan and Turkmenistan agreed to revive the project. The Asian Development Bank provided funding for a feasibility study and facilitated negotiations. There was, however, no firm commitment to the project and little solid progress was made. This changed when India formally joined the steering committee in April 2008. The route of the pipeline, now renamed the Turkmenistan-Afghanistan-Pakistan-India pipeline (TAPI), would extend from Turkmenistan's giant Galkynysh field (previously known as South Yolotan-Osman) to Fazilka on the Indo-Pakistan border-a distance of some 1,800 kilometres. The annual pumping capacity of the pipeline would be 33 bcm, of which 14 million cubic metres of gas a day would be supplied to Afghanistan and the remainder divided equally between India and Pakistan.
Prospects for the construction of the pipeline (estimated at $10 billion) were beginning to look promising. It was beginning to attract interest from regional states such as Bangladesh and China. The Ashgabat agreement, concluded between the participating states in 2010, addressed the practicalities of the undertaking. Russia expressed support for the project. So, too, did the USA - primarily because it regarded TAPI as preferable to the rival scheme to construct a gas pipeline from Iran to the Indian sub-continent (the Iran-Pakistan-India pipeline). American interest in Turkmen energy was underlined by notable visitors such as Neil Bush, head of the energy company South Oil Texas (and youngest brother of former US President George W. Bush), who had a meeting with President Gurbanguly Berdimuhamedov in Ashgabat in February 2010.
International investors, however, were reluctant to commit to TAPI as the security situation in Afghanistan was still unstable. Once again, it seemed as though the project would be postponed indefinitely. Yet the partner states were not only convinced of the commercial viability of the pipeline, but understood that it would be of immense benefit to local economies, boosting industrial development and creating employment opportunities. This would contribute to the creation of a virtuous circle of increased prosperity and regional security. Consequently, in order to avoid further delays, the partner states decided to use their own resources to launch the project. In August 2015, Turkmenistan's state gas company, Turkmengas, was selected to lead the TAPI consortium. Work was scheduled to begin in December, with a provisional completion date in 2018.
Turkmenistan-Azerbaijan Pipeline (Trans-Caspian)
The fourth, and in many ways the most challenging scheme was the construction of a pipeline under the Caspian Sea. The objective was to deliver Turkmen gas to Azerbaijan for on-shipment via Turkey to Europe. The idea was first put forward by US officials in 1996. In 1999, Royal Dutch/Shell became a 'strategic energy partner' of Turkmenistan, with the aim of developing the various gas deposits that would be the main source of supply for the subsea pipeline. Concurrently, the US conglomerates General Electric and the Bechtel Group carried out a feasibility study for the pipeline. The possibility of transporting Turkmen gas to Romania was also being considered. However, that same year the large Shah Deniz gas field was discovered in the Azerbaijani sector of the Caspian Sea. This dramatically changed the situation. Azerbaijan was still prepared to act as a transit country for Turkmen gas, but was understandably eager to prioritise its own gas exports. Hence the terms and conditions that it offered to Turkmenistan were less favourable than had originally been anticipated. Little progress was made as negotiations became mired in disagreements over share-holdings and quota allocations. In 2003, Royal Dutch/Shell decided to reduce its activities in Turkmenistan and the project was shelved.
By this time, the 'Nabucco Pipeline' was receiving strong support from the European Union (EU) and the USA. This project, first mooted in 2002, envisaged transporting Caspian gas via Turkey to Europe, bypassing Russia and Iran. The principal sources for Nabucco were expected to be Azerbaijan and Turkmenistan, with additional contributions from Kazakhstan. The optimal route for transporting Turkmen and Kazakh gas to Azerbaijan would entail the laying of a 300-kilometer gas pipeline on the bed of the Caspian Sea. However, disagreements between the participating states (over transit fees etc.) were compounded by the failure of the EU to demonstrate real commitment to the scheme. There were some attempts to modify the route, but in 2013 the Nabucco pipeline was finally rejected. Despite this setback, however, the EU was already beginning to lobby for a similar, but larger project - the Southern Gas Corridor (SCG). Like Nabucco, it aimed to enhance European energy security by diversifying the routes and sources of energy supply. To this end, it envisaged the transportation of gas from the Caspian region through Georgia and Turkey to Europe.
Meanwhile, Turkey and Azerbaijan were developing their own plans to build the Trans-Anatolia Pipeline (TANAP), which would run via Turkey to the EU border to feed into the proposed SCG. Turkmenistan was favourably disposed to the idea of a subsea pipeline and was ready to participate in this undertaking. In November 2014, during the visit of Turkish President Erdoğan to Ashgabat, a framework agreement was signed between Turkmengas and the private Turkish firm Atagas for the purchase and sale of Turkmen gas destined for TANAP. This was an encouraging development, but it was still too early to predict if, and when, the project would be realised.
Turkmenistan's East-West Pipeline
Russia had long been Turkmenistan's main partner for gas exports, receiving up to 70 per cent of total output. As mentioned above, this was transported via the Central Asia-Centre (CAC) pipeline network. In 2003, President Niyazov proposed extending CAC by the construction of a new pipeline that would traverse Turkmenistan from east to west, then turn north along the Caspian coast via Kazakhstan to Russia, in parallel to an older CAC branch. This new pipeline Caspian Coastal branch, to be built by the Russian company Gazprom, would to carry up to 20 bcm of natural gas per year, with approximately one-half coming from Turkmenistan and the remainder from Kazakhstan. In 2007, Russia, Kazakhstan and Turkmenistan signed an intergovernmental agreement to implement this project. Negotiations between Turkmenistan and Russia limped along until early 2009 when, without warning, Russia drastically reduced the volume of Turkmen gas imports. The abrupt change in pressure caused an explosion that severely damaged the pipeline infrastructure. Supplies were suspended while repair work was carried out; accusations of blame were traded by both sides. The pipeline was eventually fixed, but deliveries to Russia were not resumed until early 2010; the delay cost Turkmenistan an estimated US$1 billion in monthly losses. Any prospect of implementing this project evaporated in February 2015, when Gazprom announced that within the year it would decrease Turkmen gas purchases from 10 bcm to four bcm.
Meanwhile, the Turkmen Government had decided to finance the construction of its own segment as an internal East-West pipeline that would link the Shatlyk compressor station in the east of the country to Belek in the west. Work commenced in 2012, and by autumn 2015 was nearing completion. It was a timely undertaking. Turkmenistan's natural gas deposits are dotted around the country - an area of over 488,000 sq. km. The export pipelines carry supplies from particular fields to international destinations. However, to realize the full potential of the country's gas resources greater flexibility was required. The new East-West pipeline would unite Turkmenistan's main gas fields into a single gas transportation system, thereby significantly increasing the country's export capacity. In the future, it could ensure stable supplies of gas to the proposed Trans-Caspian subsea pipeline.
In the early 1990s, Turkmenistan's plans for creating a network of export pipelines seemed fanciful: there were too many hurdles to be overcome. By 2015, the picture was very different. Turkmenistan was now recognized as a major source of energy supplies for international markets. Some large-scale pipeline projects had already been implemented, others were moving towards the point when engineering works could begin in the foreseeable future. The most impressive achievement was the launch of the Trans-Asian gas pipeline from Turkmenistan via Uzbekistan and Kazakhstan to China. At the time of writing, it had already been expanded and upgraded several times. The subsea Trans-Caspian pipeline was still under discussion. However, the extension of the Turkmen-Iranian pipeline complex was beginning to appear more feasible. The nuclear agreement concluded between Iran and major world powers in July 2015 opened the way for the lifting of international sanctions against Tehran. This in turn meant that the Turkmen-Iranian pipeline network could be extended to Turkey and beyond, raising the possibility that Turkmen gas might eventually be transported to Europe overland along this route. Finally, some eighteen years after the idea of a gas pipeline from Turkmenistan to the Indian sub-continent had first been proposed, the TAPI project seemed to be making real progress.
The chief success of Turkmenistan's pipeline strategy during these years was to shift the country away from dependency on the needs and whims of a single customer by developing a diverse range of export options. This proceeded in step with the development of massive gas deposits at the Bagtyyarlyk territory, Galkynysh and Dovletabad. The combination of these two approaches - pipeline construction and exploitation of hydrocarbon reserves - allowed Turkmenistan to respond more effectively to regional conditions, to global economic crises, and to shifting patterns of global consumption.
A senior fellow of the University of Cambridge,
Dr. Shirin Akiner, London