Prospect of Caspian Littoral States’ Gas Industry

Iran and its neighbors hold more than 70 percent of world’s total gas reserves. Iran, Russia, Qatar and Turkmenistan are respectively the world’s largest owners of gas reserves. 

However, none of Iran’s neighbors, except for certain projects, have any interaction with others in the gas industry. They ignore the available cooperation opportunities, viewing each other as tough rivals. 

Iran’s littoral neighbors both in the north and south enjoy significant gas reserves. On the other hand, Iran’s eastern and western neighbors are in dire need of gas and power. So, Iran can play the role of a regional hub for gas or power exports. But in practice, Iran is importing and exporting only a limited amount of gas and power. 

With the current joint gas markets in the region, it seems we will see an intense rivalry between regional states to raise their share in the global gas markets. There are some options for cooperation in this field. 

Caspian Region  

The five littoral states of the Caspian Sea have in total about 85 trillion cubic meters (45 percent) of the worlds’ proved gas reserves. 

A glance at the Caspian Littoral States’ Gas Industry

* The figures are taken from official sources or statements in the mentioned countries
** Excluding the flaring and  re-injected gas. 

Azerbaijan’s gas export to Russia decreased more than 1.1 billion cubic meters in 2014. Russia also planned to decrease Turkmen gas imports from 10.5 billion cubic meters (bcm) in 2014 to 4 bcm in 2015. Turkmenistan’s gas export to Iran stood at just 7.5 bcm in 2014, while this country should deliver 14 bcm per annum to Iran based on existent agreements.  

So, to meet their energy security needs, the Caspian littoral states have no other way but to reach the European and Chinese markets. 

Considering eastern, western markets 

No Caspian littoral states except Russia view European markets as a potential gas market by 2019.

Turkmenistan is still hesitating to export its gas via the Trans-Caspian Gas Pipeline and instead prefers to put its focus on eastern markets.

This comes as Russia’s gas export to Europe decreased by 14.3 bcm in 2014 compared to the previous year. On the other hand, Europe is planning to lessen by 25 percent its dependence on Russian gas by 2020.

China has increased its gas imports from Turkmenistan and Kazakhstan last year by 5.8 percent and 159 percent respectively. China, which previously consumed 25 bcm of gas in 2000, has increased its gas consumption to over 180 bcm/a. It is now expected to raise its consumption to 420 bcm/a and 555 bcm/a by 2020 and 2030 respectively. 

Despite reducing its gas export to Russia by 6 bcm in 2015, Turkmenistan is set to increase its total gas export to 48 bcm. To put it differently, in the current year, Turkmenistan gas export to China will rise by at least 8 bcm/a reaching 34 bcm/a in current year. 

On the other hand, Russia is set to export up to 38 bcm/a of natural gas from fields in East Siberia to China over a 30-year period starting after 2018 through the Power of Siberia pipeline, of which construction started earlier in September. Currently, Russia is one of China’s LNG suppliers.

Turkmenistan also plans to allocate about 36 bcm of its gas to domestic consumption in 2015.  BP had estimated just over 22 bcm for Turkmenistan’s domestic consumption in 2013. It seems that the country has decided to increase its domestic gas consumption in power plants as part of efforts to increase its electricity production for further export.

Now, Turkmenistan is vying with Tehran for taking a greater share in the energy markets of Iran’s eastern neighbors. To this end, negotiations are underway over establishing a gas pipeline between Turkmenistan, Afghanistan, Pakistan and India (TAPI). Pakistan was expected to import Iran’s gas based on an agreement signed two months ago, but the country has not yet taken any step to start the required pipeline construction for this end.  

On the other hand, Iran and Russia are vehemently against the Trans-Caspian Gas Pipeline project for exporting Turkmenistan’s gas to Europe through Azerbaijan. 

Turkmenistan plans to raise its gas production to 230 bcm/a by 2030. Based on current agreements, the total volume of China’s gas import from Turkmenistan will remain at 65 bcm/a by 2020. China is determined to receive 85 bcm/a gas from Central Asian countries by this date. 

As a result, Ashgabat needs to develop a comprehensive plan to diversify its gas markets because as things stands, Iran and Russia will not import further gas from Turkmenistan. 

Iran plans to raise its gas production to 365 bcm/a by 2018. Meanwhile, the country’s gas export would reach to 80 bcm/a by 2022.  Iran’s Outlook Plan Document has envisaged exporting gas to Europe. At present, Iran has an obligation to export 52 bcm/a of gas based on signed memorandum of understandings (MoU) and agreements to Iraq, Oman, Pakistan and Turkey, but it exports only 10 bcm/a to Turkey currently. 

Azerbaijan is also working on a plan to start exporting annually 16 bcm/a of gas to Turkey and Europe via Shah Deniz Stage 2 (SD2) by 2020. So, Iran and Russia would play the role of main rivals for Baku government. 

At the same time, Europe has decided to decrease its gas import from Russia by about 25 percent (45 billion cubic meters) by 2025. This is part of a larger plan to decrease the block’s dependence on Russia’s gas which is standing now at 27 percent. If become operational, the decision would prepare the ground for Iran and Azerbaijan’s export to Europe. 

Converting gas to power option 

As described above, tough competition between regional states to gain more shares in the global gas markets seems almost inevitable. But the issue of converting natural gas to electricity and its export is also among the options that first attracted huge attentions from Iran and its northern neighbors but they left it undecided later.

Last year, Iran imported 3,718 million kilowatt-hours (KWh) of electricity, 67 percent of which comes from Turkmenistan. Back in December 2008, members of the Economic Cooperation Organization (ECO) including all Central Asian countries, Iran, Afghanistan, Pakistan, Turkey and Azerbaijan agreed to hold talks on converting some of their gas to power. The agreement was part of a larger plan to establish a regional power network for exporting power to Iraq, Europe and Syria. The issue was forgotten later. Now, Iran and Turkmenistan are working separately to increase their power production. Last year, Turkmenistan increased its electricity production by about 12 percent. The country exports 2.8 billion KWh of electricity but based on a state program, Ashgabat plans to establish 14 new power plants to raise its electricity production to 27.4 billion KWh. 

Iran exports annually approximately 12 billion KWh of electricity and is now planning to allocate an additional 6 bcm/a of its gas to new power plants by 2018 to increase its power export by additional 5,000 MW.  

Iran is now producing more than 70,000 MW power (Equivalent to about 263 billion KWh electricity). On the other hand, Azerbaijan is exporting more than 2 billion KWh. But since Iraq and Turkey are importing 68 and 20 percent of Iran’s power export respectively, the idea of establishing a regional network for exporting Azerbaijan’s power to these countries via Iran seems very promising. 

Iran’s eastern neighbors, Afghanistan and Pakistan, both constitute about 10 percent of Iran’s power export. So, Turkmenistan can gain a greater share in these markets via Iran. For the time being, Ashgabat is exporting about 250 MW power to Afghanistan. 

Dalga Khatinoglu is an expert on Iran's energy sector and head of Trend Agency's Iran news service.