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Good News For Europe: Gazprom Is Being Squeezed Out Of Turkmenistan

April 25, 2009

Good News For Europe: Gazprom Is Being Squeezed Out Of Turkmenistan Martin McCauley writes: Last week in Ashgabat the German energy giant, RWE, signed an agreement with the government of Turkmenistan. It envisages the development of offshore gas reserves and providing gas deliveries. It has the potential to break Gazprom’s stranglehold on gas supplies coming from Turkmenistan. This is very good news for European consumers.

The agreement is a boost for the European Union planned Southern Gas Corridor (which includes the Nabucco project) via Azerbaijan and Georgia and onward to Europe. RWE is a partner in the Nabucco consortium.

The agreement provides for RWE and Turkmenistan to explore the feasibility of transporting Turkmen gas to Germany and the rest of Europe. A long term partnership is envisaged to transport Turkmen gas to the country’s borders and onwards to international markets.

RWE is also to explore and develop gas resources on Turkmenistan’s continental shelf in the Caspian Sea. The offshore Bloc 23 has been assigned to the German company. Further blocs may be added. Exploration is expected to start this year and 20 Turkmen gas specialists are to receive technical training in Essen, the company’s headquarters.

The agreement with RWE is the first ever signed with a major western company. The small Anglo-Arab company, Dragon Oil, is the only other company with western involvement which has a licence to drill for Turkmen oil and gas offshore. The Russian company, Itera, did sign a memorandum of understanding two years ago for the exploration and development of Blocs 21 and 22. It has not been taken any further.

There is still no western involvement in Turkmenistan’s onshore gas industry but there are hopes that the deal with RWE will change that.

RWE is Germany’s largest energy producer and supplier overall of nuclear, natural gas and electricity. E.ON Ruhrgas remains the largest supplier of natural gas. Unlike E.ON and Winterhall, the BASF subsidiary, RWE does not have strategic interests in Russia. It is not dependent on Russia for gas supplies.

The RWE-Turkmen agreement will permit Turkmenistan to diversify its export routes. A Trans-Caspian gas pipeline (which Russia strongly opposes) could be built as a coast to coast project. The other option is to link up Turkmenistan’s and Azerbaijan’s offshore infrastructure, a short distance across the Caspian Sea.

Negotiations on expanding the capacity of the Turkmen-Russian pipeline (which runs through Uzbekistan and Kazakhstan) failed to reach any conclusion last month in Moscow. As a result, President Berdymuhamedov of Turkmenistan instructed his government to offer for international tender contracts to modernise and expand the country’s gas infrastructure. The stated goal is to deliver gas to world markets. This implies cutting Russia out of the picture.

Ashgabat was annoyed when a gas pipeline exploded in Uzbekistan two weeks ago. The Turkmen blame Gazprom for cutting suddenly the pressure because it wanted to reduce drastically the through put of gas. Compensation will be claimed. This is the first time that Turkmenistan has publicly criticised Gazprom and reveals its increasing self-confidence.

Another blow for Moscow was the failure of President Berdymuhamedov to sign a contract to construct a gas pipeline across Turkmenistan. Moscow wanted the pipeline to transport gas from the huge new fields in eastern Turkmenistan to the Caspian Sea coast. It would then be linked to the pipeline running through Uzbekistan and Kazakhstan to Russia. The present inadequate pipeline can only carry 5 billion cubic metres a year. When completed, the new one would be capable of transporting 20 billion cubic metres annually.

Gazprom needs the gas to fill its proposed South Stream project which envisages transporting gas across the Black Sea and onwards to Europe.

On April 3 Turkmenistan openly rejected Russia’s proposal to create a gas cartel along the lines of the oil group Opec. Ashgabat wishes to set its own prices and remain master of its own resources. There was also a sting in the tail. It referred to the idea of using energy as a tool to achieve political objectives as an ‘anachronism’.

A pipeline carrying gas from eastern Turkmenistan to China’s Xinjiang province is already under construction. This affords Ashgabat yet another opportunity to reduce its dependence on Gazprom.

Gazprom relies on Turkmen gas to supply Europe. The danger for the Russian behemoth is that within the next decade it may find that Turkmenistan is no longer willing to sell it the quantities it needs to fulfil its commitments to Europe. Increasingly Turkmenistan will find other markets. It holds out the prospect that Ashgabat will be able to sell its gas to Europe directly. Gazprom will then become redundant. What a nightmare for Russia!

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One Response to “Good News For Europe: Gazprom Is Being Squeezed Out Of Turkmenistan”

  1. Greg Renwick on April 26th, 2009 4:37 am

    This was not the first deal signed with a western oil firm. Mobil signed the first PSC with the Gov’t in the mid 1990s.

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