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Turkmenistan: Opportunities in Diversification

This leading Caspian gas exporter with massive untapped oil and gas potential is now open for business after years of eccentric isolation—and the playing field is wide, wide open.

Turkmenistan is hoping to lure more foreign companies in to explore and develop oil and gas resources, and to this end earlier this month Turkmen officials spent two days in Dubai selling their potential.

What is that potential? The fourth largest natural gas reserves in the world (estimated at around 265 trillion cubic feet) and proven oil reserves of around 600 million barrels. The country has 153 gas fields (142 onshore and 11 offshore), 82 gas condensate fields, and 38 oil fields.

Most of these proven reserves are in the South Caspian Basin and the western Garashyzlyk onshore area. But there is also unexplored potential in Turkmenistan’s area of the Caspian Sea, which the government believes contains over 80 billion barrels of oil. They need to boost exploration and production, which peaked at 213,000 bbl/d in 2004 and then declined slightly to about 202,000 bbl/d in 2010. Half of this production feeds the domestic market.

The problem with Caspian Sea exploration is that some of this unexplored territory is disputed by Turkmenistan, Azerbaijan, Kazakhstan, Russia and Iran.

Oil infrastructure is also a problem: There are no international oil pipelines to get product to market with the exception of a small pipeline that runs from Kazakhstan to Uzbekistan, which is now largely used to import Uzbek crude. Turkmenistan can also export small volumes across the Caspian to Azerbaijan and Russia.

Existing Turkmen crude is also of a poor quality, so no one’s really rushing to get their hands on these exports.

Turkmenistan Oil and Gas
Click to enlarge.

Natural Gas Focus

Turkmenistan’s oil potential has been overshadowed, however, by its stronger focus on the natural gas sector.   

A recent independent audit confirmed that Turkmenistan’s supergiant Galkynysh gas field is the second-largest reserve in the world—rivaled only by the South Pars gas field, shared by Qatar and Iran. And production at this field is about to begin—in June or July. The Galkynysh field has between 13.1 trillion and 21.2 trillion cubic meters of natural gas.

Aside from Galkynysh, Turkmenistan has 10 gas fields with over 3.5 trillion cubic feet each. These are mostly in the Amu Darya Basin (southeast), the Murgab Basin and the South Caspian Basin (west). 

Recent major discoveries have been at South Yolotan in the east, and this should bump the proven reserves from more mature fields quite significantly.

Right now, Turkmenistan has largely got access to three markets: Russia, Iran and China, because this is where the pipelines lead. Most of Turkmenistan’s gas goes to Russia, where it helps Gazprom keep a stranglehold on European markets. Turkmenistan is hoping to cut out the middle man here.

Iran imports about 18 million cubic meters of gas a day from Turkmenistan, and as much as 30 million cubic meters in winter months.

TurkmenGas is supplying around 20 bill cubic meters a year to China, but that could rise to 65 billion cub meters by 2020. China is a major market for Turkmenistan—but the country is hoping to get into other markets. To this end, it has two pipelines planned: the first to Pakistan and India, the second to the European Union countries, via the Caspian Sea.

One of the key new priorities of this eccentric government is to diversify its natural gas markets, and it’s attempting to lure in new foreign investors by touting new innovations, high-pace development and new hydrocarbon discoveries.

The new energy strategy, unveiled in 2010, is to more than triple gas production to over 8.1 trillion cubic feet per year by 2030. The potential is vast, but expensive: Turkmen gas is high in hydrogen sulfide and carbon dioxide, with higher pressure and temperatures, which makes extraction more technologically challenging.

For now, there is little competition for foreign investors: China’s CNPC is THE ONLY foreign company that enjoys direct access to any onshore gas development projects in Turkmenistan. It’s largely an open playing field.

LNG Ramp-Up

Turkmenistan’s liquefied natural gas (LNG) market is also expecting a bit of a boom.

This year, Turkmenistan plans to increase its exports of LNG. High-tech upgrades to an LNG complex in the country’s east came on line earlier this year to ramp up production. In 2012, the complex produced some 144,000 tons of LNG as well as significant amounts of gas condensate.

In terms of markets, the country is in talks to transport LNG to Azerbaijan in LNG tankers, and then on to the Black Sea ports of Batumi and Pot in Georgia via rail. From there, the LNG could be exported further afield to Romania. But they are also looking into the Azerbaijan-Georgia-Romania Interconnector (AGRI) gas pipeline project.

Bottom Line: Turkmenistan has vast potential, but markets and infrastructure are its key problems. Geographically, the country is not close enough to end-use markets, and it needs capital to invest in geopolitically-sensitive pipeline projects in order to get at these markets. Its diversification plans will be ambitious, and they have to be because there’s just too much competition for these markets. For that reason, look for good deals from this government which is in urgent need of investors to maintain its status as one of the Caspian’s key players. Things have changed, and this is no longer an eerily isolated country. It’s open for business in a big way.

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