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Viktor Katona

Viktor Katona

Viktor Katona is an Group Physical Trader at MOL Group and Expert at the Russian International Affairs Council, currently based in Budapest. Disclaimer: views set…

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Turkmenistan’s Natural Gas Dilemma

Amid much (obligatory) fanfare, Turkmenistan has intensified its spin campaign on TAPI, the long-delayed pipe dream of President Gurbanguly Berdymuhamedov which is supposed to supply Afghanistan, Pakistan and India with Turkmen natural gas. Turkmenistan claims it is on the brink of securing the $8 billion it needs for the construction financing, stating it is a mere matter of several months until they attain that point and that negotiations have been proceeding with numerous counterparties. Yet the upbeat atmosphere of Turkmen authorities and the project company is in a heavy contrast to events unfolding against the background of a success story.

This May works have started in the Afghan province of Kandahar on de-mining the supposed TAPI route to allow for its construction. Yet on May 21, Taliban fighters have killed six sappers who have just begun their difficult task. Even though Turkmen authorities continue to treat the incident as if it was not something powerful enough to derail the development of the project, however, the event itself raises many questions whether the security issue has been dealt with properly. After Saudi Arabia got involved in Turkmenistan’s energy sector, it was widely expected that Riyadh might use its geopolitical (and religious) clout to rein in Taliban antics, especially given that Turkmenistan is nowhere near an ideological foe for the Talibs.

Still, TAPI’s route within Afghanistan is a nightmarish one – it passes through the provinces of Herat, Ferah, Helmand and Kandahar. Kandahar already has a difficult reputation, having been the de facto capital of Taliban before the 2001 US invasion. Helmand is the current “hot” battleground after Afghan and US forces have started operation Maiwand 12 geared to weed out Taliban. Taliban has regrouped itself and struck back in the neighboring Farah and Herat provinces where it has embarked upon a large-scale murdering spree of Afghan security and government officials. It has been reported that weekly death tolls in these provinces of Afghanistan reach as high as 250 people. And confronted with such a challenge...cash-strapped Turkmenistan. Related: OPEC Has Regained Its Grip On Oil Markets

The root cause of Turkmenistan’s gas bottlenecks is its shrinking possibility to export its plentiful gas. Officials in Ashgabat can proudly boast of Galkynysh being the second largest gas field in the world, however, as things stand currently, China is the only viable export route for all the gas produced. Turkmenistan has traditionally been reliant on one export conduit – in the Soviet years up to the late 2000s it was Russia; this decade has witnessed a pivot towards China. Theoretically, Ashgabat could export gas to both Russia and China simultaneously, yet it could not play its cards right.

It is difficult to tell who is more culpable in the Turkmen-Russian breakup, perhaps it would be politic to say that both sides contributed to it. Up to 2009, Ukraine was typically supplied by natural gas coming from Turkmenistan (i.e. gas that Gazprom bought from the Turkmen state company for a fixed price and resold it to Ukraine with a slight margin), yet as Ukraine’s gas supply contract was moved from fixed pricing to an oil-pegged one, the Turkmen burden became increasingly heavier for Gazprom. Turkmenistan was reluctant to move into the (uncharted) volatile territory of market-pricing and insisted on keeping $240 per MCm as a sine qua non condition. With more flexibly priced Kazakh and Uzbek gas available on the market, Gazprom ceased all purchases of Turkmen gas in early 2016. Despite more or less regular political contacts between Moscow and Ashgabat, the issue has remained at square one ever since.

Woefully for Turkmenistan, any export revenue would come in handy to the empty state coffers. For a second year in a row, the country is experiencing flour, bread and egg shortages, severely aggravated by water and fuel paucity. Yet as usual with autarkies, Ashgabat instead of fundamentally solving problem is cracking down on any form of dissent – lately security officials have been seeking out people who use state newspapers, to which they are obliged to subscribe, as toilet paper (every issue’s cover has the President on it). If this were not enough, Turkmen officials are on the brink of being implicated in a regional Saudi-Iranian standoff, largely due to lackluster foreign policy decisions than to their volition. Related: Russia Just Won Big In The European Gas War

Iran recently proposed a gas swap scheme, the viability of which is severalfold greater than that of TAPI. If Turkmenistan were to pump gas to Iran which in its turn would send an equivalent volume to neighboring Pakistan, it could avoid the pitfall of dealing with Afghanistan. Yet the proposal is highly unlikely to see any development. Undoubtedly, the scheme has many flaws - the inexpediency of dealing with sanctions-stricken Iran and risking the ire of Donald Trump, and most importantly, it would stir the wrath of Saudi Arabia which has been courting Central Asian nations to fend off any potential Iranian influence. Angering Teheran might backfire, too, as it could lend a helping hand to Taliban, perpetuating the quagmire in Afghanistan.

Confronted with options that range from simply bad to outright horrible, Turkmenistan will have a hard time navigating its energy policy course. Potentially it could turn to Russia (which could be a face-saving variant), yet Moscow no longer needs Turkmen gas and is intent to market increasing quantities of its own. With China signalling a lack of interest to bring in additional Turkmen gas, it is a lethal balancing act for President Berdymuhamedov.

Disclaimer: views set out in this article are solely those of the author in his private capacity.

By Viktor Katona for Oilprice.com

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  • Billyjack on May 30 2018 said:
    There is already a pipeline into Iran near Sarahs, but the Iranians failed to pay for gas delivered. So I am confused how the burden for marketing can be relieved by Iran. The Chinese basically own the country, so any effort by Gurbanguly has to go through Beijing.
  • Viktor Katona on June 02 2018 said:
    Very good that you have raised the issue. The Dauletabad - Salyh Yar was used by the two parties for bilateral gas supplies (i.e. Turkmens sending the gas to Iran) and it is true that due to Iranian non-payment all contact was cut in January last year.
    However, in this case the Iranians present themselves merely as a potential transit country, without taking any volumes of the stuff. Still, in light of the facts stated above, will not happen.

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