Turkmenistan Muses on Caspian LNG

The Trans-Caspian Pipeline, it seems, is dead, for now at any rate. Staunch Russian opposition; reluctance from Azerbaijan, Turkmenistan, and the EU; the scaling-down of the Southern Corridor; and a brewing border dispute between Baku and Ashgabat have left the pipeline no closer to construction than it was five years ago.

A permanent pipeline link may be unfeasible for now, but Turkmenistan remains determined to send gas westwards and so open another vector in its energy-driven foreign policy. So it is now looking at the only remaining option – liquefied natural gas.

On 7 August Turkmen media reported that the government’s State Service of Maritime and River Transport was considering the option of shipping LNG to Baku by tanker, and from there by railway to Georgia’s Black Sea ports, where the LNG will be loaded on ships again and sent to Europe, perhaps Romania’s port of Constanta. Reports said that “negotiations are ongoing”, presumably with the Azerbaijani government.

On paper, LNG in the Caspian sounds like a good idea: it would eliminate Russian and Iranian environmental objections to a pipeline on the Caspian seabed, sidestep the dispute with Azerbaijan over the exact line of their maritime border, and allow Turkmenistan to be flexible in its gas deliveries to Azerbaijan, reducing Baku’s concerns about being swamped by competitive Turkmen gas endlessly flowing through a pipeline. At a political level, LNG is a good bet.

But the economics of the project are far less encouraging. There is still a debate about the minimum distance at which LNG is commercially viable relative to pipelines, but most experts agree that LNG transport over distances less than 2000km is not financially sound. The distance from Turkmenbashi to Baku is just under 350km.

As the Caspian is landlocked, any LNG carriers would have to be constructed within the sea itself (the Volga-Don canal is too small to accommodate them). They would have to purely serve the Turkmenbashi-Baku route and could not be contracted for other routes, as on the open seas – which again would be commercially unfeasible for shipping companies.

Constructing LNG terminals is also a complex and expensive undertaking. Turkmenistan’s national agencies probably don’t possess the capability to build an LNG facility alone, and securing investment from international companies could be difficult given the questions surrounding the project’s viability.

State-controlled energy companies may be more willing to invest, notably Azerbaijan’s SOCAR. This would depend on whether the government in Baku believes that the benefits of constructing LNG infrastructure for Turkmenistan would outweigh the competition to Azerbaijan’s own gas that Turkmen LNG would represent.

Getting the gas to Baku is not the end of the story. There is currently no infrastructure for LNG in either Georgia or on the other side of the Black Sea in Romania or Ukraine. In early August Ukraine approved a feasibility study for an LNG terminal capable of handling 10bcm of LNG per year, and SOCAR is planning to build a matching facility in Georgia by 2015, but both projects remain on the drawing board and are not guaranteed.

To be sure liquefied energy in the Caspian would not be entirely unprecedented. In late 2009 the Turkmen government opened a liquefied petroleum gas plant at Kiyanly near Turkmenbashi. The terminal, which was falsely described as an LNG plant in some reports, was constructed by Iran’s Pars Energy Company and enabled Ashgabat to begin exporting LPG by tanker as well as road and rail.

A US diplomatic cable at the time noted that there was no information on the infrastructure required for transportation or about potential export markets, although Iran is the obvious destination. This remains the case today, and it is not clear if the right vessels are available for shipping LPG, let alone LNG.

In any case, LPG is relatively cheap to transport and Turkmenistan has a willing customer in Iran. Neither of those factors are in place for LNG shipments; and given the added complexity of building the necessary infrastructure around the Black Sea it seems that Ashgabat’s talk of shipping LNG across the Caspian is just that. But the fact that it is even under discussion shows that although a Trans-Caspian Pipeline may be dead in the water, Turkmenistan is still determined to keep the European export route open.

Alex Jackson is a political risk analyst at Menas Associates in London, focusing on the Caspian region. He also writes independently on politics, security and energy in the wider Caspian region. This article does not necessarily reflect the views of his employers.