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    Turkmenistan: Separating Fact From Fiction [NGW Magazine]


Turkmenistan keeps the world guessing - The European Commission seems determined to bring Turkmen gas into the Southern Gas Corridor, despite the opacity surrounding the government’s plans. [NGW Magazine Volume 4, Issue 21]

by: Joseph Murphy

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Top Stories, Asia/Oceania, Europe, Premium, NGW Magazine Articles, Volume 4, Issue 21, Security of Supply, Energy Union, Exploration & Production, Import/Export, Political, Supply/Demand, Caspian Focus, Infrastructure, Pipelines, Trans-Adriatic Pipeline (TAP) , Trans-Anatolian Gas Pipeline (TANAP) , Trans-Caspian Pipeline

Turkmenistan: Separating Fact From Fiction [NGW Magazine]

Envoys from the European Commission (EC) and the World Bank travelled to Ashgabat in late October to attend Turkmenistan’s latest oil and gas conference, where the country’s decades-old plan to route a gas pipeline across the Caspian Sea was on the top of the agenda.

EC official Erlendas Grigorovic delivered a speech on the Trans-Caspian Gas Pipeline (TCGP) between Azerbaijan and Turkmenistan, describing it as a “promising plan”, according to local state media. He also raised the prospect of European lenders and companies getting involved in financing and developing the venture.

While the EU has accelerated negotiations with Turkmenistan on the project, which would connect Turkmenistan’s vast gas resources with Europe via the Southern Gas Corridor, it still faces significant obstacles – both political and commercial.

The project cleared one hurdle at the start of October, when Russia ratified last year’s convention on the Caspian Sea’s legal status, leaving Iran as the only littoral state yet to approve the agreement. But Russia and Iran have shown no sign of dropping their opposition to TCGP, indicating they will make use of the clause in the convention that allows any littoral state to block the pipeline for environmental reasons.

Azerbaijan and Turkmenistan are also struggling to make headway in talks on TCGP, despite the substantial gains they both stand to make from its realisation.

“There has been very limited progress in talks between Turkmenistan and Azerbaijan on a Trans-Caspian Gas Pipeline,” Tobias Vollmer, an analyst at London-based Prism Political Risk Management, told NGW. “Azeri and Turkmen officials met in September for the fifth intergovernmental commission on economic co-operation, without any reported progress on the construction of TCP. Nevertheless, we have seen a reactivation of relations over the past two years with bilateral visits behind the scenes.”

Turkmen media claimed back in August that a consortium of three European companies – Germany’s Edison Technologies and MMEC Mannesmann, and France’s Air Liquide – and China’s state-owned Sinopec had agreed to build the pipeline. This claim was later debunked, with Air Liquide emphatically denying any involvement in the project in comments to NGW

The eastward vector

Turkmenistan is eager to open up new export routes for its gas, with shipments to its main buyer China rising much slower than the Ashgabat government would have liked over the past decade. But prospects at its other major export project, the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, look equally dim.

Progress on Tapi has been shrouded in mystery for years. Turkmenistan held a ground-breaking ceremony for its 214-km section of the 1,800-km pipeline as long ago as December 2015. And in February 2018, the head of the project’s operating company claimed the section had been finished. As such, an announcement by Russian state lender Sberbank in April this year that it had approved a letter of credit for a $219mn contract won by a Russian pipe rolling plant to supply 214 km of pipes for laying Tapi in Turkmenistan – corresponding to the exact length of its section – raised eyebrows.

In neighbouring Afghanistan, construction was reported to have started in February last year, although last month local authorities revealed that land acquisition for the pipeline had only just begun.

First proposed in the 1990s, Tapi would export up to 33bn m3/yr of gas at full capacity, requiring $10bn to build. According to Turkmen media, the Saudi-based Islamic Development Bank (IDB) and the Philippines-based Asian Development Bank (ADB) offered a combined $1.5bn in project financing in 2016, but these arrangements are not verified. There were previously several pages on the IDB’s website detailing its support for Tapi, but these have since been deleted. Even with IDB and ADB backing, this would still leave a large share of funds unaccounted for.

Tapi’s advisors are looking to work with export credit agencies from Germany, Spain and the UK, and Japan and South Korea have also been invited to invest with export credit, according to Prism. Several major international banks have stated interest in together providing $0.5-1.0bn in financing, including Deutsche Bank, Credit Suisse and Credit Agricole. Advisors are asking these banks to speed up their due diligence process, Prism said.

Financial close is targeted for early next year, but according to Prism, this goal is unlikely to be met and the project remains a pipe-dream, Vollmer said.

“Turkmen officials reinforced efforts to provide security insurances for Pakistan in meetings with Pakistan’s military and political leadership several times in October. Ashgabat signalled it was ready to compensate losses in cases of terrorist attacks on pipeline infrastructure in Afghanistan,” he told NGW. “However, this will not assuage India’s security concerns that Islamabad might exploit temporary closures of the pipeline to put pressure on the Indian market. A recent presidential reprimand against the Turkmen deputy prime minister responsible for Tapi speaks to the reality that the project drags far behind official rhetoric about progress or even imminent completion.” 


In the near three decades since its independence from Moscow, Turkmenistan has enjoyed nowhere near the same success as other former Soviet states Azerbaijan and Kazakhstan in developing its oil and gas resources. This is despite the country having the fourth largest proven gas reserves in the world, estimated by BP at 19.5 trillion m3. This is in large part because Turkmenistan’s rigid political system and state-managed economy have posed barriers to foreign investment.

Authorities have invited international oil companies (IOCs) to explore 32 blocks in the Caspian Sea over the years, but so far there are only two active projects in the Turkmen Caspian – Block 1 operated by Malaysia’s Petronas and Block 2 managed by UAE-based Dragon Oil. Others have come and gone, after encountering difficulties with Turkmenistan’s business climate, or failing to find commercial resources. Cyprus-registered Buried Hill and Russia’s Areti also control projects, but no work appears to be taking place.

The real prize for international oil companies (IOCs) is Turkmenistan’s onshore oil and gas, though the government has shown no indication it is willing to open up access to this wealth.

Only a select few international operators have gained rights to onshore fields in Turkmenistan, namely China’s CNPC, which controls the prolific Bagtyyarlyk gas block in the country’s east; and Italy’s Eni and Austria’s Mitro International, which have contracts for oil projects in its west.

“President Berdimuhamedov is wary of co-operation with large Western IOCs, preferring to deal with oil companies whose corporate governance standards might be more flexible,” Vollmer told NGW.

Options at home

In the absence of any tangible progress in developing new export routes, Turkmenistan has focused on ways of monetising its gas domestically.

It has some success in this regard. In June, the country cut the ribbon on a $1.7bn gas-to-gasoline (GTG) plant in a central Ahal region. The project was funded largely with a soft loan from the Japan Bank for International Cooperation and was built by Japan’s Kawasaki Heavy Industries and Turkey’s Ronesans. It uses technology licensed from Denmark’s Haldor Topsoe.

The plant, which can convert up to 1.8bn m3 of gas into 600,000 mt/yr of gasoline, was successfully commissioned, and weeks later Turkmen media reported that exports had begun to Afghanistan.

Turkmenistan has completed several other gas-based projects over the past year, including a fertiliser plant and a petrochemical complex. Just how efficiently these facilities are running in Turkmen state hands is unclear, given the country’s secrecy.

South Korea’s LG and Hyundai Engineering were handed an engineering contract for a $3.9bn gas-to-liquids (GTL) plant in 2015, designed to produce up to 1.1mn mt/yr of fuel, most of which would be diesel, along with some gasoline. A ground-breaking ceremony took place the following year but there have been no updates on the project since then. The project is at a standstill because of financing difficulties, according to Prism.

“Financing is always a hurdle in Turkmenistan, as the government expects loans but is typically unwilling to provide its own funding or offer project equity,” Prism wrote in a research note earlier this year.

Turkmen state media routinely tout the government’s plan to expand gas-fired power generation and then expand up electricity exports. The latest plan is to achieve an output to 33bn kWh by 2024, marking a near 30% increase from the level in 2018, at least according to government figures. The main target markets for this electricity are energy-starved Afghanistan and Pakistan.

The lack of available data makes it difficult to weigh up prospects for Turkmenistan’s power exports. Although one lender that appears to see potential is the ADB, which in November last year approved a $500mn loan to fund the strengthening of the country’s transmission network, with a view to expanding overseas sales.