What are the alternatives to diversify the export of Turkmen gas? How will Turkmenistan most likely solve this problem? – these questions are discussed in a material written for cabar.asia by Rovshan Ibrahimov, an expert in the field of energy diplomacy, who gave an estimate of the energy sector of Turkmenistan.
Energy sector development in Turkmenistan
Turkmenistan is a country in Central Asia, which gained independence in 1991. At the initial way of building the state, Turkmenistan had similar characteristics with other former Soviet republics. The country has received an economic collapse as the legacy of the Soviet Union: GDP reduction, hyperinflation, mass unemployment, low wages. Also, it was necessary to adopt new forms of governance, to start the construction of a market economy and establish trade relations with neighboring countries. During the 24 years of independence, each republic of the former Soviet Union has passed its own way of building statehood. Turkmenistan is no exception; it has eventually acquired its own specific features.
Like other energy-rich former Soviet republic, Turkmenistan realized that energy resources are its main trump card.
The origins of the Turkmen energy industry
The oil and gas industry of Turkmenistan began to develop during the period under the Russian Empire. So, in the end of the 19th century, the company of famous oilman Nobel, whose activity was mainly concentrated around the oil fields near Baku, drilled the first wells in Cheleken that proved the presence of oil on the eastern shore of the Caspian Sea. By the beginning of the 20th century, small amounts of oil had been extracted.
In 1933, oil was extracted from the field of “Nebit Dag“, located to the west of the country and discovered in 1931. Production at this field continues to this day. Residual oil reserves at “Nebit Dag” are estimated as 10 million Tons. The operator of the field is the Italian company ENI.
Oil production in Turkmenistan experienced special development after World War II. There were exploited such deposits as “Kum-Dag” (1948), “Lenin” (“Kotur-Tepe“) (1956), “Barca Gelmes” (1962). The last two fields contain more than 65% of oil of the total reserves in the country. Peak oil production in the country was in the mid 1970s. So, in 1975, it reached its maximum – 15.5 million Tons. Then oil production had been gradually declining, and natural gas extraction became dominant in Turkmenistan.
The country began to extract gas in the 1960s. In 1966, a large “Odzhak” field was opened in the north-east of Turkmenistan. The industrial association “Turkmengazprom” was created to produce natural gas. The most important natural gas fields were “Kukurtli“, “Shatlyk“, “Nype” and “Achak“. After putting into operation of the deposit “Shatlyk“, gas production in the country has doubled. In 1974, the large deposit of “Dovletabat” with gas reserves of 1.6 trillion cubic meters was discovered; it was put into operation in 1984. In the same year, there began gas production at the fields of “Uchadzhi“, “Seyrap“, “Shorkel“, and in 1986 – at “Malae” and “Samandepe“. 70% of the known deposits of natural gas in Central Asia were in Turkmenistan. In 1989, it produced 85.5 billion cubic meters of natural gas. However, in the first years after independence, Turkmenistan’s energy experienced the economic crisis and the partial loss of the traditional partners of the former Soviet Union.
OIL AND GAS DEPOSITS
In Turkmenistan, there are two oil and gas provinces. First is Turan, located on the territory of three Central Asian states: Kazakhstan, Uzbekistan and Turkmenistan. On the territory of Turkmenistan, there are only gas deposits. The second province is South Caspian, which covers the western part of Turkmenistan and the Caspian Sea. In total, there are 162 oil and gas fields in Turkmenistan. There are also more than 1,000 areas with prospects of oil and gas production.
Turkmenistan has considerable reserves of energy resources, both on land and in the Turkmen sector of the Caspian Sea. Currently, they are estimated at 71.2 billion tons of oil equivalent, mainly, these are natural gas deposits. At the same time, 53 billion tons are on land, and 18.2 billion tons are sea deposits.
Oil in Turkmenistan is mainly produced in the Balkan velayat (region), which accounts for 95.9% of total oil production. Besides oil, about 17.1% of natural gas is produced in Balkan region. The Turkmen national oil company of “Turkmenoil” is engaged in oil production in the country. In addition to the deposits found in the Soviet era, oil production is carried out in the new fields. So, in 2002, deposit “Magtymguly” was opened in the Caspian Sea, which is included in “Block 1″. In the same 2006, there was opened another relatively large deposit of Turkmenistan -“Diyarbekir.” At the moment, oil from these fields is extracted by Malaysian oil company Petronas. Another sea deposit from which oil will be extracted is “Garagol Denise West“. It is remarkable that Petronas was the second foreign company to extract oil in the Caspian sector of Turkmenistan. Previously, the only marine oil producer was Anglo-Arabian company of DragonOil. This company has been developing the sea block “Cheleken” since 1999 within the framework of the production sharing agreement (PSA). This block includes fields of “Jeitun” and “Jigalybek” with proven reserves of 147 million barrels of oil and 90 billion cubic meters of gas.
In addition, the oil produced in Turkmenistan in such fields as “Akpatlavuk“, “Burun“, “Barsagelmes“, “Nebitlijde“. On average, each of the fields has from 50 to 150 million tons. In general, according to the developed “Program for the development of oil and gas industry of Turkmenistan until 2030“, Turkmenistan plans to increase oil production to 110 million tons per year by 2030.
In natural gas reserves, Turkmenistan ranks fourth in the world after Russia, Iran and Qatar. The largest deposits are concentrated in the Maryi region in the east of Turkmenistan. However, many fields have been discovered in Turkmenistan after it gained independence. Among them, there are fields that are included in the Turkmen oil and gas project “Bagtyyarlyk.”
This project covers the area on the right bank of the Amu Darya River in Lebap province. On its basis, on July 17, 2007, the State Agency for Management and Use of Hydrocarbon Resources under the President of Turkmenistan and the Chinese National Petroleum Corporation (CNPC) signed a production sharing agreement (PSA) for a period of 30 years. The project includes the largest deposit in Turkmenistan “Samandepe” discovered in 1980. Experts estimate that it has 100 billion cubic m and 5 million tons of gas condensate. At “Samandepe“, Chinese company has begun to exploit dozens of old wells and drilled new production wells with good flow rate of natural gas. Another large field of this project is “Altyn Asyr“. In addition, in 2010, with the participation of CNPC, there was discovered a deposit “Agayry” with an estimated gas reserves of 73 billion cubic meters. In addition, the proven gas deposits in the areas of “Eldzhik“, “Gadyn“, “Farab“, “Kishtuvan“, “Dzhuramergen“, “Salarkak“, “Kokniyar“, “Hodzhagurlyk” and “Eastern Hodzhagurlyk“. To this day, the corporation CNPC has invested about $ 4 billion in this project.
One of the largest gas fields in Turkmenistan, opened in 1982 near the town of Serakhs in Maryn region is “Dovletabat.” This field is located near the Iranian border, and its continuation is one of the largest gas fields in Iran – “Khangiran”. The estimated reserves of “Dovletabad” amount up to 1.3 trillion cubic meters. This field is now extremely important for the country both in terms of geopolitics and geo-economics.
The field of “South Yolotan“, later combined with another large deposit “Minara” discovered in 2009, as well as with a number of other deposits, and renamed as “Galkynysh“, was discovered in 2006. It is a super-giant field and is the jewel of the gas sector of Turkmenistan. An independent audit, conducted by the British company Gaffney, Cline & Associates, found that in the depths of “Galkynysh” occupying the second place in the world in terms of reserves, there are 21.2 trillion cubic meters of gas. Total reserves of the complex, together with another large deposit “Yashlar” discovered in 2008, make up to 26.2 trillion cubic meters of gas and 300 million tons of oil. It follows from the foregoing that Turkmenistan decided to approach the production of natural gas from these fields in a complex, uniting them under a common legal status. As a result, in December 2009, in order to develop a “Galkynish“, an agreement was signed between the Turkmen government and the Chinese CNPC, South Korea’s Hyundai Engineering and a company from the United Arab Emirates Petrofac. The operator is “Turkmengaz“, a Turkmen state company. The active commercial development of the deposit began at that time.
Overall, in 2014, more than 76 billion cubic meters of natural gas was produced in Turkmenistan, of which more than 45 billion cubic meters were exported. In 2015, it is planned to bring the level of natural gas production in the country to 83.8 billion cubic meters, of which 48 billion cubic meters will be exported. In the first quarter of 2015, there was produced more than 21.5 billion cubic meters of gas (increase – 5%), including about 11.7 billion cubic meters of exported gas (increase – 6.5%). In addition, according to the adopted “Program for the development of the oil and gas industry of Turkmenistan until 2030”, Turkmenistan plans to increase natural gas production to 250 billion cubic meters a year by 2030. Most of it will be exported.
Energy production complex of Turkmenistan
In Turkmenistan, the production of energy resources and the related activities are carried out entirely by the government. The country has state corporations created over the years of independence, whose activities are specialized by areas:
a) “Turkmenneft” produces oil on land, it is also engaged in natural gas production, and production of chemical products, drinking and industrial water, bentonite.
b) “Turkmengaz” is responsible for the entire cycle of activity with natural gas: exploration, production, transportation, processing and development of the industry.
c) “Turkmengeologiya” is engaged in a comprehensive study of mineral resources of Turkmenistan, the identification and exploration of new deposits of oil and gas, solid minerals and lifting water, as well as ensuring growth of hydrocarbon and mineral resources.
d) “Turkmenneftegazstroy” specializes in the development of oil and gas fields, construction of oil and gas facilities, and improving the structure of management of this specific construction.
The oldest oil refinery plant of the country, built in 1943, is Turkmenbashi (formerly Krasnovodsk) refinery located in the city of Turkmenbashi at the west of the country. After independence, it was renovated. Today it is a complex of oil refineries. The total production capacity of the factory complex is 9 million tons of oil per year. The depth of oil refining is up to 85%, which is the highest in the world. The complex is specialized in the production of gasoline, aviation and technical kerosene, jet and diesel fuel, fuel oil and lubricating oils. There is production of polypropylene, liquefied gas and other products, which are used both domestically and exported to the world markets.
Also in the east of Turkmenistan, in Chardzhou region, there is Seidi refinery with processing capacity of 6 million tons per year. The company specializes in the primary processing of crude oil, production of gasoline, kerosene, fuel oil, diesel and other petroleum products. In addition, the city of Seidi is preparing for the construction of petrochemical complex with processing capacity of 3 million tons of oil and 3 billion cubic meters of gas per year. In order to export the finished product, Seidi refinery uses Pelvertsky oil terminal and a terminal for receiving, storage and sale of petroleum products in the city of Atamyrat. Another terminal with throughput of 540,000 tons of oil products a year is being built at the customs point of Ymamnazar, located in south-eastern Lebap velayat.
Gas Processing Plant is being built on the Caspian sea, near Kiyanly village. It includes a gas refinery with capacity of 5 billion cubic meters of natural gas and 2.4 million tons of gas condensate per year, a workshop for assembly of marine structures and residential town for the staff. At this factory, Malaysian company Petronas mainly processes natural gas produced at gas fields of “Block 1”. The composition of the gas processing plant also includes offshore platforms, offshore pipelines with length of 73 km, a complex of facilities for natural gas processing, storage and a mooring for exporting gas condensate.
Besides, Turkmenistan attaches great importance to the deep processing of energy raw materials and manufacturing all sorts of products from it. In 2014, in the village of Kiyanly, there was laid the foundation of a modern gas-chemical complex to produce polyethylene and polypropylene. The project cost is about 3.5 billion US dollars, and it is being implemented jointly with the Japanese company of TOYO Engineering and South Korean companies LG and Hyundai Engineering. It is expected that the plant will produce 386,000 tons of polyethylene and 81,000 tons of polypropylene per year.
Large gas processing plants (GPP) were erected on the right bank of the Amu Darya River. The Chinese company CNPC in 2009 built a plant for gas treatment on the field “Samandepe” with capacity of 5.5 billion cubic meters per year. It is expected that in 2016, the volume of natural gas processing at this plant will be increased to 8 billion cubic meters per year.
Another gas processing plant “Bagtyyarlyk” was also built by CNPC in 2014. It provides with natural gas the pipeline “Turkmenistan-China“. This company built on the field “Altyn Asyr“, produces 17 million cubic meters of marketable gas of high quality per day. In general, the plant is designed to process 9 billion cubic meters of 8 billion cubic meters per year.
Another project is currently under construction in the city Ovadandepe together with the Japanese company Kawasaki, Turkish Rönesans Holding and Danish Haldor Topsoe. It will be the world’s first plant for the production of gasoline from natural gas. This plant will process up to 1 billion 785 million cubic meters of natural gas and produce 600 thousand tons of gasoline compliant with standard Euro-5 per day. Total project cost is 1 billion 700 million US dollars. It is expected that the plant will be commissioned in 2018.
Policy of diversifying energy export with an emphasis on natural gas
Turkmenistan has no access to open seas, which determines its policy in determining export routes, which, by the way, are very limited. This leads to a number of difficulties faced by Turkmenistan periodically. The situation is complicated by the fact that, except Afghanistan, all the country’s neighbors, including the neighbors on the Caspian sea, are oil and gas producers. As a consequence, these countries generally do not need Turkmen gas for the purpose of consumption, and the major potential markets for Turkmen gas are located outside the territory of these countries. Thus, Turkmenistan has to export its gas through the territory of these countries, competing with them at a disadvantage, and to take into account the political and economic challenges posed by the transit countries.
Development of export markets for Turkmen gas
In Soviet times, the main markets for export of Turkmen gas were Soviet republics. The main transport corridor for the export of Turkmen gas and gas from Kazakhstan and Uzbekistan, was the pipeline “Central Asia – Center“, built in 1967. In 1985, the volume of gas pumping through that pipeline had been brought up to 80 billion cubic meters, and its length had been increased from three to five thousand kilometers. Most of the pipeline was at the territory of Turkmenistan – 3940 km. The export of Turkmen gas continued through this pipeline after Turkmenistan gained independence.
Also, an important market for Turkmen gas was Ukraine – an industrial country with a population of about 50 million people and, therefore, a great need for gas. However, Turkmenistan has no common border with Ukraine, and the transportation of gas is implemented through the territory of Kazakhstan and Russia. After gaining independence by the former Soviet republics, Turkmenistan had a quota in Russian gas exports to the European market, which amounted to 11 billion cubic meters. However, in 1994, Russia abolished this quota, giving Turkmenistan an opportunity to export gas only to Ukraine and other former Soviet republics. This complicated the balance of payments of Turkmenistan, since unlike stable countries in Europe, the former Soviet republics experienced a severe economic crisis and were not able to timely pay for gas supplies. Thus, Turkmenistan had to reduce and eventually to stop deliveries to these countries. This and other reasons related to the transportation of gas have led to a sharp reduction in the export of Turkmen gas in the 1990s. So, in 1997, Turkmenistan exported only 6.5 billion cubic meters, and in 1998 – even less – just 1.8 billion; all the gas was exported to Iran. In fact, in 1998, Turkmenistan suspended gas exports to the countries of the former Soviet Union. In 1999, the supply of the northern route was resumed, however, Turkmenistan began to think about protecting the country against similar disasters in the future.
Reduced exports also led to a sharp reduction in gas production by 80% in 1998 compared with the previous year. Given the high dependence of Turkmenistan on the pipeline “Central Asia-Center” in the issue of exports, as well as the scale of the negative impact of tactical problems, Turkmenistan faced the most important task of diversifying its export routes.
First attempts to diversify gas exports
In 1997, Turkmenistan for the first time launched an alternative corridor: Pipeline “Korpedje – Kurt Kui” , length of 200 km and a capacity of 8 billion cubic meters of natural gas per year, expandable to 14 billion cubic meters. This corridor will link Turkmenistan to Iran. The construction of the pipeline was financed by Iran to supply gas to its northern areas, poorly connected to gas fields in the south of the country. In this case, it was more profitable for Iran to buy gas from Turkmenistan.
In April 2009, there was an explosion on the pipeline “Central Asia – Center“, which completely stopped the export of gas from Turkmenistan to the north for a few months. At the same time, the explosion took place against the backdrop of tense negotiations between Turkmenistan and Russia over pricing of Turkmen gas. In 2003, the two countries signed an agreement for the sale of Turkmen gas to Russia in the volume of 80 billion cubic meters per year. In 2006-2008, almost all exported Turkmen gas (about 41-42 billion cubic meters per year) was sold in Russia. However, because of the explosion, Turkmenistan was forced to reduce the production of gas twice. In 2010, Russia began to produce gas on the Bovanenkovsky deposit at Yamal Peninsula and significantly reduced the volume of purchases of Turkmen gas, having reduced the imports to 11 billion cubic meters, and later up to 4 billion cubic meters. Because of the stop of exports, Ashgabat monthly lost up to 1 billion US dollars. In part, this was one of the reasons why the project of construction of the Caspian Coastal Pipeline, the agreement on which was signed between Russia, Kazakhstan and Turkmenistan in 2007 and was not implemented, just like the plans for the reconstruction of the pipeline “Central Asia – Center” in order to increase its capacity.
The Iranian direction could not become a full-length alternative to the northern route, though it gave a chance of some maneuvering.
An important solution to this problem was the beginning of cooperation between Turkmenistan and China, which, as the productive capacity increases, is seeking new sources of energy resources.
In December 2009, there was launched a new gas pipeline “Turkmenistan-China“, passing through the territory of Turkmenistan, Uzbekistan, Kazakhstan and China itself. The capacity of the first two lines of the gas pipeline amounted to 30 billion cubic meters of gas per year by the end of 2010. This export area is developing very actively. At the end of 2014, the third line capacity of 25 billion cubic meters of gas per year was completed. It is expected that in 2015, the capacity of the pipeline from Turkmenistan to China will amount to 55 billion cubic meters of gas per year. In September 2013, Turkmenistan and China signed an agreement on construction of a fourth gas pipeline with capacity of 25 billion cubic meters of gas per year. This branch will take place along the route Turkmenistan-Uzbekistan-Tajikistan-Kyrgyzstan-China. Construction of the pipeline is scheduled for completion in 2017.
Thus, by 2017, the total capacity of the pipeline system of Turkmenistan in the east direction will reach 80 billion cubic meters of gas. According to the agreements between the two countries, Turkmenistan pledged to annually supply to China 65 billion cubic meters of gas by the end of 2021. However, in this case, Turkmenistan becomes dependent on one country – China. Given past experience, Turkmenistan is trying to find alternative export routes. Again, such opportunities are limited for geographical reasons.
Through Iran to Europe?
In 2010, there was built another pipeline route Dovletabad – Serakhs – Hangeran withlength of 30.5 km, the capacity of which is 12 billion cubic meters of natural gas per year. Thus, the total amount of possible transportation of gas from Turkmenistan to Iran increased to 20 billion cubic meters. This trend is also seen as a way to deliver Turkmen gas to Europe via Turkey. Incidentally, in the mid-90s, this project has already been considered. In April 1994, in Ashgabat, there was even created an International consortium for the implementation of the Turkmenistan-Iran-Turkey-Europe pipeline. The pipeline’s capacity was calculated at 28 billion cubic meters a year. The pipeline’s length through Iran was 1300 km and the end point was to be the Turkish city of Dogubayazit. However, in 1995, the project was shelved. At the same time, the Iranian direction is not a panacea either, because Iran is also a major producer of gas, in the long term considering the European market as one of the destinations of its exports. That’s why Iran is not interested in competing with Turkmen gas. It is acceptable for Iran to acquire Turkmen gas at a low price and then to resell it. In addition, today, there are disagreements over the price that Iran proposes for gas from Turkmenistan.
That is why Turkmenistan remains very interested in the development of new corridors. As mentioned above, there are few alternatives. So, the priority for the country is now a pipeline Turkmenistan-Afghanistan-Pakistan-India (TAPI), the main source of raw materials for which should be “Galkynish“. It is envisaged that the total length of the pipeline will be 1735 km, including 200 km on the territory of Turkmenistan, 735 km – Afghanistan, 800 km – Pakistan to Fazilka village on the border with India. It is expected that the annual capacity of the pipeline will be 33 billion cubic meters. In November 2015, Turkmenistan announced the start of construction of its own segment of the pipeline.
However, despite the willingness of Turkmenistan, there are many questions concerning the safety of the TAPI pipeline. The region, through which it must pass, is very unstable. In Afghanistan, the central government does not control the entire country, and acts of terrorism and military conflicts of different scale are everyday reality. By the way, an Afghan region bordering Turkmenistan is partly controlled by Taliban militants during more than a year. It is not stable in Pakistan either. Also, do not forget about the conflict of this country with India over Kashmir.
The Trans-Caspian gas pipeline
Another project that would allow Turkmenistan to receive alternative access to European markets is a Trans-Caspian gas pipeline, which would run under the Caspian Sea to Azerbaijan, length of 300 km. From Baku, Turkmen gas could come to the European markets via the existing pipeline “Baku-Tbilisi-Erzurum” and a gas pipeline under construction TANAP (Trans Anatolian Pipeline) and TAP (Trans Adriatic Pipeline). For this purpose, Turkmenistan has completed the construction of the gas pipeline “East-West” with length of about a thousand kilometers, which will connect the field “Dovletabat” and “Galkynish” with the Caspian coast.
However, this route has problems, too. The Trans-Caspian gas pipeline has a lot of geopolitical risks. As the legal status of the Caspian Sea has not been determined, each of the littoral states has its own interests in the region. So, Russia and Iran oppose the construction of this pipeline. The official justification for this is the danger for the environment in case of violation of the principles of its operation. As is the case with TAPI, they are numerous talks taking place about the start of construction of the pipeline, but realization of this project is still far from reality.
Given the limited opportunities for diversification of gas exports, Turkmenistan has initiated the resolution “Reliable and Stable Transit of Energy Products and Its Role in Ensuring Sustainable Development and International Cooperation”. This resolution was adopted at the 67th session of the UN General Assembly. Turkmenistan hopes that this will form the basis of the partnership in the energy sector, which will take into account the interests of all participants in the process – producing country, transporters and consumers of energy resources. Thus, on a legal basis, the dependence of the exporting country on the transit countries will be minimized.
At the same time, Turkmenistan allows potential buyers of its gas to choose an export path, offering the sale of its natural gas at the border to all interested partners.
Thus, Turkmenistan seeks to diversify its energy exports in several ways:
– creation of transport corridors in new directions;
– Production of a wide range of finished products;
– Formation of an international legal framework.
Despite the strenuous efforts of Turkmenistan to reach a satisfactory level of diversification, this issue will be important for the country in the future, too.
Rovshan Ibrahimov, an expert in the field of energy diplomacy, Dr. of Hankuk University of Foreign Studies, South Korea
The opinion of the author does not necessarily represent the views of cabar.asia