US, Russia Compete for TAPI Role but China Enjoys Advantage in Turkmenistan

Is Turkmenistan waiting to see if the West can get away with standing up to Russia on development of the Shah Deniz II field and the Trans-Adriatic Pipeline? Amb. Matthew Bryza, former US ambassador to Azerbaijan and currently director of the International Centre for Defense Studies in Tallinn recently advanced the theory that Ashgabat is only waiting for the West –and its neighbor Azerbaijan-- to prove they can do this without consequences. 

But it might be that Ashgabat doesn’t need to care. While Turkmenistan itself has never formally abandoned its largely rhetorical commitment to the Southern Corridor, it has always insisted that it would only sell gas as its borders and not worry about other people’s delivery problems after that. And now it is obviously  preoccupied with its new friends from Asia.

China’s President Xi Jinping spent two days in Turkmenistan in early September, then attended the G20 summit in St. Petersburg to continue talks with Russia's Gazprom, reported the Financial Times. Then the Chinese leader headed off for meetings in other Central Asian capitals, a  move certainly not lost on Moscow, although ultimately in October, Russia’s Rosneft was finally able to close a 10-year oil deal with China valued at $85 billion and Novatek signed a 15-year-deal to supply LNG.

China will also continue to provide undisclosed sums to further develop Turkmenistan’s large Galkynysh oil and gas fields; China is currently pumping 40 billion cubic meters and has made plans to accept up to 65 bcm. According to the Financial Times, Turkmenistan will add even another 25 bcm on top of this and the Chinese National Petroleum Corporation agreed to participate in the $30 billion second phase of the project with the help of Chinese loans.

Turkmenistan also received another enormous Asian infusion that has received little notice. At the conclusion of the Turkmen leader's fall visit to Tokyo, Japan and Turkmenistan signed an agreement for Japanese firms to invest $10 billion in the construction of a gas chemical complex in Turkmenistan, ITAR-TASS reported September 19, including gas refineries and a plant to convert natural gas to gasoline. “Turkmenistan has abundant reserves of natural gas, and this country is extremely important from a geopolitical perspective," Japanese Prime Minister Shinzo Abe noted. "We would like to provide support to Turkmenistan with our technologies and qualified personnel."

With all this activity, will the US now cede Turkmenistan to Asia as Russia seems to have done? During her US Senate confirmation hearing in September, Nisha Desai Biswal, the nominee of President Barack Obama for the position of Assistant Secretary of State for South and Central Asian Affairs to replace Robert O. Blake, Jr. spoke mainly about India and other South Asian nations and had little to say about Turkmenistan’s prospects. She did affirm that the parties were “making progress on the proposed TAPI gas pipeline” and indicated TAPI was part of the vision of the "New Silk Road" first articulated by former Secretary of State Hillary Clinton in 2011, yet fielded no questions from senators about the project. While Blake spent a lot of his time focusing on Turkmenistan during hopes for the Trans-Caspian pipeline, now the US is likely to shift its interest to Asia and have less attention for Central Asia – even if it will try to keep a hand in.

In remarks at a conference at the Jamestown on the New Silk Road on October 25 in Washington, DC, Lynne M. Tracy, Deputy Assistant Secretary for South and Central Asian Affairs and former deputy chief of mission in Ashgabat (2010-2011) called TAPI "transformative," claiming that "construction, operation, and maintenance would generate thousands of jobs, and the pipeline would represent a major step forward in economic cooperation between Pakistan and India." The US is "optimistic” about the progress made between Turkmenistan and oil majors towards the formation of a consortium and is "working closely with Turkmenistan" to move the project forward, she said. In June, Blake had announced in Ashgabat that US companies were meeting with the Turkmen government about TAPI, Russian media reported.

Indian and Afghan officials also met in Delhi with a Chevron representative to discuss the American multinational company's role. But back on August 23, CA-News.org reported, citing  ITAR-TASS, that Pakistan would not take part in scheduled talks on the pipeline construction. A source within Pakistan's Ministry of Oil and Natural Resources said the chronic eruption of conflicts was a brake on the government's willingness to develop energy cooperation and would delay talks indefinitely, he explained. The source speculated that India might "turn off the gas faucet" in the future to place political and economic pressure on Pakistan. But commenters noted that the pipeline actually made the countries inter-dependent, particularly with India's growing energy needs. As it was in all their interests, objections raised now may only be temporary bargaining positions.

The Tribune then reported that the Pakistan representative could not attend the meeting due to specific tensions between Pakistan and Ireland over some border-firing incidents. While the Tribune cited Pakistan as "keen to see Chevron undertake work" on TAPI, the stickler with Ashgabat remained the same as always -- Chevron wants exploration rights as well as contracts for financing and operating the pipeline, but Turkmenistan is reluctant to give them. It has, however, offered offshore exploration rights, and suggested Chevron swap the gas found in those fields for onshore gas to go into TAPI, according to a source said to be familiar with the project. Turkmenistan has not publicly made this offer. 

In early October, Pakistan's Tribune reported that the four TAPI countries were "in the process of setting up a consortium" and selecting a "technically capable and financially sound company as consortium leader" to "design, finance, construct, own and operate the gas pipeline." Chevron is one of the companies being considered, sources said. Meanwhile, although relations with Tehran are now improving, the US evidently was still pressuring Pakistan to give up the Iran-Pakistan pipeline.

The US may find itself competing with Russia again in the region. Russia is offering to help Pakistan undertake the Iran-Pakistan pipeline despite US sanctions, and is also hoping to get in on TAPI as well, The News of Pakistan reported.

Indian Foreign Minister Salman Khurshid said at meetings in Moscow on October 4 that "Russia may become one of the main partners of TAPI" through construction or even by having the pipeline extend to Russian territory, Voice of Russia reported. He discounted reports of Pakistani reluctance as he said it was in Islamabad's interests; other routes for pipelines would more expensive than TAPI.

At their meeting in Washington on October 25, Pakistani Prime Minister Nawaz Sharif and President Barack Obama focused primarily on regional security and stability issues following US troop withdrawal from Afghanistan, although they noted briefly in a joint statement that they welcomed TAPI.

Will China ultimately have a say given its considerable leverage now in Ashgabat? According to the Azerbaijani news service Fineko/abc.az, China has already essentially easily taken TAPI away from the US by gaining control of the abundant Galkynysh gas fields for its own pipeline. As China and Turkmenistan have now concluded a strategic partnership and agreement to pump up to 65 bcm, China will have a big say in TAPI, say the Azeri experts. Some believe Washington is even happy to cede  the cost of building infrastructure to China -- and even to have China deal with the "Afghan quagmire," as previously, the Soviet Union and the US itself did. The Azeri sources believes the US even "blocked development" of TAPI and delayed the tender until it could remove its troops by 2014. But the US has made no such statement, and the issue of the upstream ownership for Chevron is likely to be more relevant.

At a recent Central Asian panel organized by the Program on New Approaches to Research and Security in Eurasia  (PONARS) at the Elliott School in Washington, speakers did not mention TAPI, but when pressed, several said it was still viable. One regional analyst said privately, however, that TAPI "was in a coma" not so much over security or pricing issues but over the adamant refusal of Turkmenistan to sign upstream production-sharing agreements with oil majors.  Participants asked whether the “New Silk Road” development plans existed anywhere outside the State Department or even had that much focus inside State; with talk of railroads and electrical power projects, the one-ambitious American vision involving pipelines seems to have been scaled down. In its place, China is the real driver of the “New Silk Road” today, panelists said, and Russia is not objecting.

“Russia was only too glad to have China take Turkmen’s gas away from Western markets” where it would have competed with Russia, said Mikhail Troitsky, a PONARS member and researcher at the Moscow State Institute for International Relations. Asked if Moscow might be forced to befriend Ashgabat again if circumstances changed, he said Russia was not likely to return to Turkmenistan to compete with China, and that only if China become much more heavily involved in other Central Asian countries would Russia take another look. Even with a drop in oil prices or possible spillover of conflict after US troop withdrawal, Pavel Baev, research professor at the Peace Research Institute in Oslo ruled out a resumption of Russian-Turkmen gas deals.

 "Despite turmoil that might come from Afghanistan, despite fluctuations of prices, there is no going back; China has got that chunk” and would not be pushed from Turkmenistan, Baev said. TAPI might be that re-entry for Moscow, yet in the past, Ashgabat has nixed any Russian participation.

Some have asked if Turkmenistan could be stranded if China reached its capacity for sponsoring Turkmen gas infrastructure and delivery.  China produces its own natural gas and also still relies domestically on coal. Although it has shown no sign of slacking, China already gets over half of its gas from Turkmenistan, as EurasiaNet.org has reported, and might itself not want to grow dependent – like Europe is on Russia for about 25% of its natural gas. China has other options for natural gas – Uzbekistan and Kazakhstan have indicated interest, and China will soon start pumping from Myanmar, added EurasiaNet.org.

While Turkmenistan has constantly spoken of its devotion to a “multi-vector” approach to diversification of markets, analysts have begun to wonder if Ashgabat would now privately realize the need to diversify away from China. But with China’s increasing support and the $10 billion Japanese deal, Turkmenistan has illustrated that it has no problem attracting other investment from Asia. And the production-sharing agreement with Germany’s RWE for exploratory drilling illustrates that deep-pocketed and long-patient partners can be rewarded. Meanwhile, Ashgabat can afford to wait for the right configuration of partners in TAPI and let them take time to agree among themselves.

 By Catherine A. Fitzpatrick