Global Insight Perspective
European Union (EU) officials said after a Central Asia-EU summit last week in Ashgabat that Turkmenistan has committed to supply gas to the EU next year, with EU External Relations Commissioner Benita Ferrero-Waldner stating that Turkmenistan will supply up to 10 bcm per year.
No supply deal has (yet) been signed, and Turkmen President Gurbanguly Berdymukhammedov has not confirmed the claims by top EU officials, but the Turkmen leader has stated on numerous occasions his interest in diversifying the Central Asian country's export routes.
Delivering Turkmen gas to Europe via non-Russian routes will entail overcoming a number of obstacles, but if Turkmenistan is willing to translate talk into action, the country could begin supplying Europe (or at least Turkey) in the near future and thus alleviate supply-side risks that have plagued the Nabucco pipeline project.
Turkmenistan On Board…?
In the wake of an EU-Central Asia summit last week, French Foreign Minister Bernard Kouchner claimed that a deal had been reached between the EU and Turkmenistan under which the Central Asian state would begin delivering gas to the EU (see Turkmenistan: 11 April 2008: European Union Secures Gas Supplies from Turkmenistan). Although no actual supply deal has been signed, EU External Relations Commissioner Benita Ferrero-Waldner confirmed today in an interview with the Financial Times that a deal between the EU and Turkmenistan was agreed, with a supply accord slated to be signed later this week. Following the signing of a memorandum of understanding (MoU) on energy co-operation, Ferrero-Waldner said that, "The president...gave us assurances that 10 bcm will be set aside for Europe in addition to possibilities in new fields to be tendered."
It is hard to underestimate the importance of the political agreement between the EU and Turkmenistan in potentially opening the door for Turkmen gas to be exported westwards to Europe via non-Russian routes. Indeed, an “inter-governmental agreement” (such as it is) between the two side is clearly needed, as there is little chance of exporting Turkmen gas westwards without Berdymukhammedov's consent. On the other hand, the MoU is merely the latest in a series of general “energy co-operation” agreements signed by the Turkmen leader since he came to power following the death of Saparmurad Niyazov in December 2006, and without a commercial supply deal, this political agreement is worth little unless there is a move to actually implement it. It is important to note in this regard that Berdymukhammedov himself has not confirmed the supply commitments that the EU officials claim Turkmenistan has agreed. The risk then is that the EU officials have overstated the case.
Still, Ferrero-Waldner herself admitted that the commitment from Turkmenistan is merely a "first step", and Berdymukhammedov has in the past stated his intention to diversify Turkmenistan's export routes for its gas, so the real key will come from Turkmenistan's willingness to implement the supply deal with the EU. Despite some of the world's largest gas reserves, many have questioned Turkmenistan's ability to meet all of its stated supply commitments, given plans to export more some 70-80 bcm per year to Russia, 30 bcm to China, additional volumes to Pakistan and India, as well as to Turkey and Europe via the Caspian Sea. At present, Turkmenistan has pipeline connections only to Russia and Iran, and although a pipeline to China is under construction, Turkmenistan's export ability is already under scrutiny over its halt to gas exports to Iran since the end of last year. While Iran claims the halt was due to a push by Turkmenistan to force Iran to pay more for supplies, Turkmenistan's own stated reason for the halt, "operational factors", actually only serves to reinforce the question about the country's ability to ramp up exports if it cannot even meet current export agreements.
Willingness is Key
If instead we assume that Turkmenistan has the gas reserves to be able to meet its export commitments—and Berdymukhammedov's decision to allow an international audit of the country's gas reserves this year is geared to prove that Turkmenistan can produce the amount of gas that is needed to meet the country's rising export commitments—then the key question becomes whether or not Turkmenistan is truly willing to follow through on the EU deal in order to implement the agreement. Rather than merely waiting for the EU to try to build a trans-Caspian gas pipeline in order to ensure the supply deal can be realised (much as Turkmenistan has done in allowing China's National Petroleum Corp. to take the initiative to begin building the Turkmenistan-China gas pipeline in order that China can import Turkmen gas), now is the time for Turkmenistan itself to advance the trans-Caspian pipeline dream by striking a deal with Azerbaijan.
While the two former Soviet countries have long been at odds over their maritime border, the recent end to a frozen conflict, with the renewal of diplomatic ties between Azerbaijan and Turkmenistan, could well lead to a border deal. This could pave the way for the construction of a trans-Caspian pipeline, even in the face of likely Russian and Iranian opposition. At the very least, a Turkmen-Azeri agreement could open the door for Turkmenistan to link its gas to Azerbaijan's existing offshore gas infrastructure, which would allow some Turkmen gas to flow westwards to Azerbaijan and Turkey, and potentially lead to construction of a larger trunkline transiting the Caspian. Environmental opposition from Russia and Iran notwithstanding (and this opposition is mainly based on seeking to control the flow of Turkmen gas rather than anything else), the lack of a strong political commitment by Turkmenistan and Azerbaijan to carry out the project is really the only major obstacle to the trans-Caspian pipeline at this point, particularly as the project would surely receive financial support from the EU and the United States.
The start of Turkmen gas supplies to Azerbaijan would be likely to have a positive, domino effect in helping to achieve the EU's goals of opening up a new, non-Russian gas-supply corridor via Turkey. Not only would the addition of Turkmen gas help to reduce the risk that the Nabucco pipeline would be left short of supplies—a scenario that has split the project's supporters, with some calling for Russian and/or Iranian gas to be pumped into the pipeline to supplement Azeri gas supplies—it would also likely grease the wheels of a gas-transit agreement between Turkey and Azerbaijan, which, in turn, would resolve the somewhat conflicting objectives between the EU's desire to import non-Russian gas supplies and Turkey's need to secure enough gas to meet its own rising demand. Turkey has been trying to balance out its own import needs with its desire to serve as a “bridge” for Caspian and Middle Eastern gas supplies to Europe, but in trying to do so Turkey is actually acting to hold up progress on the Nabucco pipeline. However, an agreement by Turkmenistan to supply gas to the EU, together with concrete progress in building the trans-Caspian pipeline, could serve to address Turkey's import needs and thus permit more gas to flow through Turkey to Europe.
Outlook and Implications
The contours of a transit agreement between Turkey and Azerbaijan that permits Azeri gas to flow to Europe via Turkey are still unknown, but if there is a real prospect of Turkmen gas flowing to Turkey via Azerbaijan, then the current impasse between Turkey and Azerbaijan could quickly be resolved. Pricing issues will surely be a hurdle to overcome, but one can begin to see a new gas-supply system beginning to take shape, with Turkey and Azerbaijan developing a symbiotic gas-supply relationship. Turkmen gas could be supplied to Turkey via Azerbaijan, while Azeri gas would be supplied to Europe via Turkey. The establishment of a mutually interdependent gas relationship between Azerbaijan and Turkey would then, in theory, ensure greater energy-supply security to Europe. However, it is worth noting that this relationship applies to the Russia-Ukraine gas partnership, so this may lead to caution among European policymakers.
What is more, Turkmenistan may well object, arguing that it wants to supply its gas to the EU. However, provided Turkey is willing to pay a price essentially equivalent to the EU price, Turkmenistan should be satisfied. The flow of Turkmen gas via the Caspian to Azerbaijan and onwards to Turkey could also negate the need for Iranian gas for Nabucco. Turkey has said it plans to proceed with the gas-development and -supply deal it agreed to in principle last year with Iran, despite U.S. objections, but if Turkmenistan can supply its gas via the Caspian to Turkey (rather than via Iran), then any Iranian gas exported to Turkey under that deal could be used to satisfy Turkish demand rather than be included in Nabucco. This would satisfy the EU, but would still aggravate the United States, of course, since it would allow Iran to secure hard currency for its gas exports.Still, the export of additional Iranian gas to Turkey, together with the flow of Turkmen gas to Turkey via the Caspian, could help Turkey meet its own gas-demand requirements better, thereby improving the odds that the country can serve as a reliable transit state for Caspian gas exports to Europe. The more Turkmen and Iranian gas that Turkey can receive, the more likely that Turkey can export additional volumes of Azeri gas to Europe, helping boost the prospects that the Nabucco pipeline will have sufficient gas supplies to become a commercial as well as political success. Hence, Turkmenistan's willingness to implement a supply accord with the EU, with the Central Asian country taking concrete steps to achieve this vision, could be key in unblocking the emerging gas-delivery bottleneck in Turkey and thus realising the dream of an east-west gas-supply corridor based on the Nabucco pipeline.