Natural gas is the latest prize in the continuing power struggle between the West and Russia over the huge energy reserves of the Caspian Sea, a development that has put long-secluded Turkmenistan - and pipeline politics - center stage in the region.
That’s why U.S. Secretary of Energy Samuel Bodman and his European counterpart, along with hundreds of energy executives, were in the Turkmen capital Ashgabat in mid-November.
Caspian Sea
What’s been a typically sophomoric annual petroleum conference in the past became a coming-out party this year for Turkmenistan, a country of five million mild-mannered, formerly nomadic, Muslims, who are sitting on the world’s fourth or fifth largest reserves of natural gas.
“There is real excitement about Turkmenistan – even some romance - because it is considered very prospective and it has been closed virtually forever to Western firms,” says Edward Chow, 20-year veteran executive with Chevron, now at the Center for Strategic and International Studies in Washington.
Open Door
Turkmenistan’s potential is now within reach because of the country’s new, more outwardly-oriented leadership. President Kurbanguly Berdymukhamedov assumed office in February after the sudden death in December of the country’s first independent, post-Soviet leader, Saparmurat Niyazov, a quirky dictator who never broke free of Russia’s grip.
President Berdymukhamedov, a dentist by trade and former health minister, met with U.S. businesses in New York this year and sent a Turkmen energy delegation to Washington and Houston.
The Caspian Sea region, which includes the Central Asian republics and the Caucasus, has the world’s third largest petroleum reserves, after the Middle East and Siberia, and wresting those free from the clutches of Russia is a vital U.S. foreign policy objective, especially at a time when global supplies are so tight and prices so high.
AP
Caspian Sea
“There is definitely interest - from a fair smattering of the usual [major energy company] suspects - given the potential size and scope of the opportunities,” says Carter Page, COO of Merrill Lynch’s Energy & Power Group.
The country’s reserves – estimates range from 2 to 20 trillion cubic meters – are mainly under the vast Kara-Kum (Black Sands) desert, but the government prefers foreign expertise first be deployed off-shore in the Caspian Sea, where local technology is unable to reach. Current production is roughly 70 billion cubic meters annually but officials are aiming to triple this by 2030.
Among those interested in exploration deals in Turkmenistan are Chevron, ConocoPhillips and Exxon Mobil, along with numerous European firms, many of which are already active in neighboring Kazakhstan or Azerbaijan, where billions have been invested in the last decade. Chevron plans to open a Turkmenistan office “soon,” says a company spokesman.
Industry players, however, emphasize these are early days. Gas requires more infrastructure than oil, and locked-in customers at the end of long and expensive pipelines.
Then there is Turkmenistan’s relative inexperience with large Western firms and Russia’s dominant role in the region, especially involving the energy sector.
The big uncertainty is how to get the gas to Western or Asian markets.
“Companies developing and producing these reserves will need certainty that commercial pipeline export options will be developed,” said U.S. Energy Secretary Bodman. “Pipelines naturally follow investment; they cannot come first.”
Serious investment could start in a couple of years if there are major discoveries, as is expected, says Chow, but full development of gas fields would take decades.
Pipeline Politics
“If this is a great game it is also going to be a very long game,” he said, referring to the 19th century British-Russian rivalry in this region many see as a relevant paradigm for today’s broader struggle over petroleum.
U.S. diplomats downplay competition with Russia but most analysts insist the basic geopolitical struggle over energy resources couldn’t be starker – and that by force of geography and history this region is still very much Russia’s backyard.
Russia’s extensive network of pipelines is now virtually the only export route for the region’s gas and Moscow leverages this to maximum advantage.
Currently 70 percent of Turkmenistan’s gas is sold to Russia for about $100 per thousand cubic meter. Russia then sells this same gas in Europe for $280-$300.
That’s a sweet deal Moscow would like to continue -- not only because Europe depends on Russia for about 50 percent of its gas but because the situation provides political leverage as well.
To lessen that dependence, the EU staked a claim at the recent conference, where EU energy commissioner Andris Piebalgs told his Turkmen hosts, "The EU can offer more competitive prices and European firms are ready to invest."
That also means there is a need for new pipelines and preferably ones that run outside Russian territory to avoid Moscow's meddling, says Zeyno Baran, director of Eurasia Policy at the Hudson Institute.
Two recent deals highlight the on-going competition. On November 18, Greece and Turkey completed a $300 million, 178-mile pipeline that is part of the first direct Western outlet for Caspian gas, which could eventually link to fields in Turkmenistan.
Days later, Eni, the Italian energy group, agreed to build a $14.8 billion pipeline for Gazprom, Russia’s state-owned energy giant, an alternative route that some say will deepen European dependence on Moscow.
The U.S. is trying to revive long-stalled plans for Trans-Caspian pipelines for Kazakhastan oil and Turkmenistan gas with Azerbaijan, where they would connect with existing pipelines feeding the West. Russia and Iran, however, are strenuously objecting due to territorial disputes in the Caspian.
“[Russian President Vladamir] Putin is trying to tie up all the natural gas supplies of Turkmenistan and Kazakhstan and ship it north through a new pipeline and then project Russian power, this petro-power, through this gas,” explains Steve LeVine, the author of The Oil and the Glory: The Pursuit of Empire and Fortune on the Caspian Sea. “Pipeline politics is the cutting edge of the geopolitical energy struggle.”
While a Western route for Turkmenistan’s gas is years away, China recently concluded a 30-year contract for massive amounts of Turkmen gas and will build a 4,300-mile pipeline to support frenzied growth in its coastal cities planned to open in 2009.