Turkmenistan: “A Stranded Country with Stranded Gas”
The sixth annual colloquium “Eurasia Pipelines: Road to Peace, Development and Interdependencies?” convened April 17 in New York, focusing this year on the Turkmenistan-Afghanistan-Pakistan-India, Baku-Tbilisi-Ceyhan, and Turkmen-China pipelines. Speakers included Amb. Karl Eikenberry, former US envoy to Afghanistan; Wei Cao, director of the Department of Russia and Central Asia of the China National Petroleum Corporation, and many others. The colloquium is convened by Prof. Jenik Radon, adjunct professor at Columbia’s School of International and Public Affairs (SIPA) and an advisor to TAPI.
In a day-long ambitious tour d’horizon of all the major pipeline projects of Eurasia and a deep dive into the most prospective, tellingly, almost no mention was made of the Trans-Caspian Pipeline, as the speakers didn’t believe it was realistic. Turkmenistan was repeatedly characterized by experts as a “stranded country with stranded gas”; while the enclosed Caspian Sea nation has enormous reserves of gas, it is difficult to extract.
Edward Chow, a veteran oil and gas advisor to the State Department and currently a senior fellow at the Center for Strategic and International Studies (CSIS) in Washington said China has experienced an over-reliance on maritime oil and gas delivery, with 80% of Chinese imports coming via ship. “They need balance,” he said, explaining the recent Chinese interest in Central Asian pipelines. For Russia, Central Asian gas is a back-up for what they sell to Europe; but for China, Central Asia gas is a major source of their growth and energy security.
Prof. Richard E. Ericson, professor and chair of the Department of Economics at East Carolina University, said Russia’s Gazprom has struggled with reduced demand and technical challenges; meanwhile China has been a life-saver for Central Asians. “Russia has no future in Central Asia,” said Ericson, and only through cooperation with China are the Caspian countries succeeding. Like other panelists he was quite skeptical of the Trans-Caspian pipeline, not due to the failure of Caspian parties to agree on border disputes or due to Russian objections but due to insufficient European Union support. “Actions are more important than words, so they [Caspian countries] are looking elsewhere,” Ericson explained. After China, the next power to look to is India, a late but active participant in upstream demand to fuel its growing economy. “Russia is a declining power,” said another speaker, Shamil Yenikeyeff, research fellow at the Oxford Institute for Energy Studies.
Among the more intriguing participants of the conference were representatives from the Chinese National Petroleum Company and a Shanghai university. Yet they declined to respond to a reporter’s query about whether more Chinese “soft loans” or investments would be forthcoming in Turkmenistan, and could not even confirm officially the figure of $8 billion already transferred to Turkmenistan so far. LiFan Li, Associate Professor for Eurasian Studies at the Shanghai Academy of Social Studies (SASS) said that he knew this figure only from the press, and that different numbers have been cited, with loans sometimes imprecisely characterized as investment.
Chow noted, however, that CNPC has recently undertaken construction of “Line C” on the Turkmen-Chinese pipeline, and that seems to indicate anticipation of getting the gas to fill it. When President Gurbanguly Berdymukhamedov visited Beijing last November and met with Chinese leaders, he obtained pledges of up to 65 billion cubic meters (bcm) a year to be pumped eventually from Turkmenistan, more than double the original order. Critical Russian analysts of Turkmenistan’s reserves claim extraction could be quite costly, given gas sulphurization, but the Chinese officials declined to speculate whether this meant greater costs for them.
LiFan Li noted the friction between Russia and China and the ability of China to put pressure on Russia by making Russia afraid of the drop in consumption. The landscape was changed by Germany abandoning its nuclear program after the nuclear power plant explosion in Japan. Russia has been able to get Belarus and Kazakhstan to join its Customs Union, but not Turkmenistan, and after the 2009 explosion, China quickly completed its pipeline out of Turkmenistan. “Russia simply cannot compete” said Li. China is currently chairing the Shanghai Cooperation Organization (SCO), a crucial security and development body for the Central Asia region. India and Pakistan are expected to join the SCO simultaneously in a year.
Chow noted four elements of a successful pipeline project: 1) a champion; 2) capable partners; 3) sufficient economic interest; and 4) upstream interest. Otherwise, why would anyone bother to seek the loans for such a venture? While the ultimate commercial champion for TAPI is not yet clear, there are enough oil and gas companies to serve as creditworthy buyers, he said.
There was some discussion in this panel whether China could prove any kind of spoiler to TAPI, and the conclusion was that this could only be in terms of pricing competition. There’s the obvious concern that China has paid a lot to develop Turkmenistan’s gas and expects to fill its pipeline. While the question was asked by one Caspian energy analyst whether the speakers accepted the Gaffney, Clines and Associates estimates regarding Turkmenistan, panelists declined to comment.
TAPI is a pipeline not only with support from the Asian Development Bank, but the US, NATO, and the UN all have hopes that when NATO pulls out troops from Afghanistan in 2013-2014, that this project will help develop the region. Yet Afghanistan currently has a distorted war-time economy where it receives a lot of subsidies from the international community, and this will inevitably be reduced. The ill-fated UNOCAL pipeline experience was cited and its hopes for stability and prosperity in the region. While originally the estimate for building TAPI was $7.6 billion, the price of steel has risen and it is now more like $13 billion just for the pipeline, and there are still other development costs upstream for the fields in Turkmenistan and investment needed downstream as well. For Afghanistan, the price of gas has to come down to where the locals in the south can pay for it.
Radon cautioned patience. Pakistan, not Afghanistan is the security risk, notably Baluchistan, involving the Baluchis and the Pashtuns. “It will happen, but when you align interests, it takes time,” Radon said. “The process isn’t robotic, but takes careful persuasion,” he added. “Turkmenistan needs to realize they are not Qatar,” he said. The main real buyer in the pipeline is India, but “the champion is now not yet here,” he said. Radon said there was a human factor to negotiations often not perceived -- in March, some members of the Indian delegation made their first trip ever to Pakistan. When a member of the Turkmen delegation unexpectedly fell ill and died, this set back talks. Yet Radon was optimistic, and said China in fact had paved the way with quickly building a pipeline out of Turkmenistan. “If China did it with Turkmenistan, why not someone else?” he said. To be sure, costs of transit and transport have to be addressed, and this is different than the LNG which can be bought on the spot market, because in the case of TAPI, the buyer must bankroll the whole deal. “TAPI needs a champion, but at the end of the day there, is the demand from India,” he concluded, emphasizing “patience, price, and partnership.”
While the EU’s support for TAPI was said by some discussants to be “key,” its role is not exactly clear; the US is seen as a more distant player but of course crucial to the transition from war to peace. No speaker saw any role for Russia in TAPI, despite claims by Russian energy officials.
By Catherine A. Fitzpatrick
Click here for the agenda and speaker list from the Harriman Institute's pipeline colloquium