Turkmen gas into the Southern Corridor: Transcaspian or CNG?

Turkmenistan, being a closed and isolated country, has been pursuing an official policy of neutrality. It is a country that limits its foreign policy to a minimum, and similarly remains very closed to foreign actors and companies. But thanks to its vast gas reserves and its strategic location, bordering to Afghanistan and Iran, neither Turkmenistan nor the worlds major powers can no longer ignore Turkmenistan’s place on the Central Asian map. If in the past there was uncertainty about the size of Turkmenistan’s gas reserves, at least now everybody seems to be agreeing that Turkmenistan has sufficient gas available to supply the Southern Corridor.

And these volumes are impressive. The Turkmen are stating that they are able to provide 30 BCM/a to the Southern Corridor or even 40 BCM/a, Najia Badykova from Antares Strategy tells EEO. The Turkmen diplomatic source agrees with the number of 30 BCM/a and explains, “There is no clear sense of what to do with additional offshore production from Petronas, which is around 10 BCM/a and will be available soon. Combined with the production from the Dovletabad field, which is currently at 10 BCM/a, but used to be good for 30 BCM/a until gas export to Russia dropped from 30 BCM/a to 10-12 BCM/a, the EU would be more than satisfied with these volumes.”

But the question about the actual size of Turkmenistan’s gas reserves nevertheless remains a matter of discussion. And not just outside of Turkmenistan, the source tells us. “Yes, the audit from Gaffney, Cline & Associates (GCA) is regularly being readjusted, it is hard to say whether this audit corresponds to reality. I have the impression that even the Turkmen leadership is not quite certain of it themselves either. Although the GCA number has been readjusted upwards, I cannot but have the impression that nobody actually really knows.”

The number of 30 BCM/a is an impressive number and would be sufficient to supply the whole Nabucco pipeline. But the only realistic and economically justified way to supply the above mentioned volumes to the Southern Corridor, would be via pipeline. Since the EU does not consider pipelines via Russia or Iran as an enhancement of its energy security, the only remaining alternative is to build a Transcapian pipeline to Azerbaijan, connecting Turkmenistan with the Southern Corridor. But those same countries, that the EU regards as undesirable transit countries, i.e. Russia and Iran, object to the idea of a Transcapian pipeline. They argue that a Transcaspian pipeline can only be build after the legal status of the Caspian Sea is settled by all five littoral states. But there seems to be a new development in this matter. In December, the Turkmen President, Mr. Berdymukhammedov, for the first time publicly stated that a Transcaspian pipeline could be realised bilaterally, i.e. by Azerbaijan and Turkmenistan.

The Turkmen diplomat source sheds light on the motivation behind the President’s statement, “One should take into account that the statements made by both the Presidents of Azerbaijan and Turkmenistan, regarding the bilateral solution, came in response to several statements by Russian Deputy Prime Minister Sechin. In these statements Sechin commented on the possible export routes of Turkmen gas. Mr. Sechin had stated that Nabucco was not an economically viable project and that there is insufficient gas to supply the pipeline, simultaneously arguing that Turkmen gas exports to Europe should go via Russia. So from a political point of view it is understandable that Turkmenistan wanted to show that there are limits to how far Russia can go about its gas. Also Mr. Sechin has uninvitedly interfered or practically forced himself upon the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline by saying that Gazprom would serves as the designer or even financier of the project, in which it was not involved.”

There is, however, a more costly alternative to the Transcaspian pipeline, by shipping the gas in a liquefied form across the Caspian, as so called compressed natural gas (CNG). The opinions are divided about whether this actually is a viable solution. Najia Badykova seems to believe it is not, “According to some expert assessments, it will take about 15 years to reach 10  BCM/a of CNG exports through the Caspian Sea. Moreover, it is a very expensive venture. So, it is obvious that the best option is a pipeline with a capacity of not less than 30 BCM/a.”

Despite the limitations of CNG, Turkmenistan’s President, during his recent meeting with Mr. Barroso, mentioned the export of liquefied gas as a possibility. The diplomatic source supports the President’s proposal, considering the legal situation around the Transcaspian pipeline. He tells EEO: “Surely, from a purely economic point of view, a pipeline would be the most effective solution, provided it is politically feasible. An onshore pipeline through Iran would be preferable over an offshore pipeline, but this too is politically not doable. So the obvious conclusion would be to choose for a solution which could be quickly realised and would face the least resistance. CNG exports could start within 3-4 years with volumes of 3-5 BCM/a.”

For Turkmen gas to eventually reach the European market, sufficient transit capacity is of course required. Currently the main artery for Caspian gas is the South Caspian Pipeline (SCP), which runs from Azerbaijan to Turkey, via Georgia. The remaining spare capacity of the SCP is modest, but sufficient for the initial volumes of CNG. According to the Turkmen diplomat source, there is currently between 5-6 BCM/a available in the SCP, which would be sufficient for the CNG shipments and would not require an immediate increase of the transit capacity. But he adds, “When we talk of 20 BCM/a, meaning 10 BCM/a from Azerbaijan and Turkmenistan each, then additional capacity would be needed. But for the 3-5 BCM/a of CNG coming from Turkmenistan, no new pipeline would be required.”

Najia Badykova agrees that the SCP lacks sufficient capacity. According to her, the current 8 BCM/a capacity of the SCP could be expanded to 24 BCM/a by building an additional compressor station and a looping line in Azerbaijan. Badykova tells EEO: “Last year Azerbaijan and Turkey agreed to ship an additional 6 BCM/a of Azeri gas to the Turkish market from Shah Deniz-2. It is obvious that there is a need for the concurrent development of a new line from the Sangachal terminal. So far, I see only one project that is aiming to resolve this problem and underpin the development of Nabucco under the Southern Corridor plan – this is the White Steam  (32 BCM/a) project to be developed concurrently with Nabucco.”

The point is simple, according to Badykova, Nabucco can take 10-15 BCM/a from Turkmenistan, but the Turkmen are restating that they are prepared to supply 30 BCM/a or even 40 BCM/a. With such volumes coming into the Southern Corridor significant transport capacity will be needed. Therefore Badykova argues that Nabucco and White Stream are not competing, but rather complementary pipelines, which is in line with the EC’ policy. Badykova concludes, “With White Stream coming on stream shortly after Nabucco, all will come into place.”

For now, the European market seems a distant a one for Turkmenistan, but small volumes could start entering Europe if CNG indeed turns out to be a viable solution. But for larger volumes, ranging from 30 to 40 BCM/a, many obstacles still lay ahead. Crossing the Caspian and Black Seas could be the less difficult part of this challenge, as competition for Caspian gas is growing...