In the not remote 1998 when the great gas future of Azerbaijan was just a perspective and former chief of BP John Brown had doubts about the choice of Baku-Tbilisi-Ceyhan as the main export pipeline, Amoco, General Electric and Turkey’s Bechtel worked out a project for supplying Turkmen gas to Turkey extending to 1200 km and estimated at $2.4bn. Then the presidents of Turkey and Turkmenistan in Ankara signed an agreement on mutual understanding on project of the export gas pipeline construction via the Caspian shelf to transport Turkmen gas to Europe. This was about the supplies of 15bn cubic meters of gas to the Turkish market every year. At that time Turkmenistan reduced its gas production by 80% after it failed to agree transit tariffs with the Russian Gazprom and was looking for new markets to sell its gas. However, at that period still unsettled issue of the Caspian status hampered the implementation of the Transcaspian project. Over 42bn cubic meters of Central Asian gas and almost 7bn cubic meters of Kazakh gas were delivered to Russia in 2004. The total supplies from Turkmenistan, Uzbekistan and Kazakhstan to Russia were to reach almost 70bn cubic meters a year as scheduled by 2010. In 2006 Russia’s Gazprom failed to reach price agreement with Turkmenistan on Turkmen gas re-exported by Gazprom. Later in March Turkmenistan signed an agreement on Bagtiyarlik field with China.
But already in May of 2007 the presidents of Russia, Kazakhstan and Turkmenistan signed a declaration on construction of Caspian gas pipeline which would enable to raise the Middle Asia-Center route capacity by 40bn cubic meters up to 80bn cubic meters.
During the signing ceremony Russian President Vladimir Putin said that Russia is ready to invest in not only the pipeline system but also the production process. In response, Turkmen leader Gurbanguly Berdimukhammadov personally guaranteed his Russian counterpart the inviolability of the contract with Gazprom signed in 2003 for the period until 2028. Simultaneously, the President of Turkmenistan noted that the project of Transcaspian gas pipeline construction which would liaise the countries of Middle Asia Turkey had been still on the agenda.
“Diversification of gas distribution routes proceeds worldwide”, the Turkmen leader said in 2007. The EU then allocated EU1.7mln for the feasibility study of Turkmenistan’s participation in the Transcaspian gas pipeline project.
Gazprom and Turkmenistan signed an appendix to a contract on the supply of natural gas from the country, according to which gas price was to make $130 per 1,000 cubic meters in the first half of 2008, $150 in the second half of 2008 and would be calculated on the formula of price on the market principles from 1 January 2009.
But the crisis year of 2008 came and the demand and then the prices on natural gas in Europe started to drop, the European Commission announced the de-monopolization of its energy market and imposed the unbundling norm which preceded the currently functioning third energy package. In these conditions Gazprom reduced its production and announced the reduction of Turkmen gas purchases; as a result of the failure on the outdated (1965) gas pipeline Central Asia – Center -4, export of Turkmen gas supply was suspended in April 2009. The situation on the world market was not favorable for the Russian gas monopolist, capitalization of the company started rapid decline in the subsequent five years after rising almost to the level of US Exxon.
The leader in the fight for Turkmen gas was clearly defined by that time. Unexpectedly, that was silent China, whose cheap loans in 2009 enabled to launch the large-scale construction of the Transnational gas pipeline with the initial capacity of 20bn cubic meters a year in the territory of Turkmenistan, Uzbekistan, Kazakhstan.
In December 2009, Turkmenistan signed new contracts worth $ 9.7bn with China’s CNPC for gas production in the field of Galkinish (South Yoloten, Osman, Minara and Yashlar).
The project, in particular, involves the construction of two refineries with the raw capacity of 20 billion cubic meters per year. China plans to raise Caspian gas imports up to 55-60 billion cubic meters per year by 2015. Of these volumes 40 billion cubic meters must be provided by Turkmenistan. Main resource base for export to China becomes a giant South Iolotan, Galkinish. Ashgabat will give preference to exports in this direction, as it is connected with Beijing through credit obligations.
In November 2011, the parties signed a new agreement on deliveries of additional 25 billion cubic meters of “blue fuel” from Turkmenistan to China, which will bring the total volume of Turkmen gas delivered to China to 65 billion cubic meters per annum.
Production at Galkinish was launched in September 2013, Chinese investment in the project amounted to $ 30 billion. Turkmenistan plans to send 40 billion cubic meters of gas to China, 10-11 billion cubic meters to Russia, 14 billion cubic meters to Iran.
At the same time, China is diversifying its energy transit. In mid- September 2013 after negotiations of Tajikistani President Emomali Rahmon and President of China Xi Jinping in Bishkek the parties signed an intergovernmental agreement on the construction of a gas pipeline from Turkmenistan to China through Tajikistan. Construction is scheduled for completion by the end of 2016. This pipeline will annually supply China with another 25-30 billion cubic meters of Turkmen gas.
Turkmen officials say Galkinish resources are sufficient not only for exports to China, but also for filling the planned gas pipeline Turkmenistan - Afghanistan - Pakistan - India (33 billion cubic meters per year). In addition, about 30 billion cubic meters of gas per year may be transported by pipeline under construction East -West towards the coast of the Caspian Sea, “if there is need “.
The emergence of “necessity” in the form of a trans-Caspian gas pipeline caused still fierce environmental rebuke from Tehran and Moscow, which stated that the project should be approved by all five states. “Our partners in the EU try to literally impose the Trans-Caspian gas pipeline on Azerbaijan and Turkmenistan, ignoring that such issues should be solved by Caspian states, rather than in Brussels”, Russian Foreign Minister Sergei Lavrov said at the end of October.
But today, circumstances cause quite different situation. Russia is in anticipation of incorporating of its draft trans-Black Sea gas pipeline South Stream in priority lists of energy projects for the EU and Iran expects easing of sanctions on its oil exports and is planning to develop its gas component. In addition, Gazprom has been in over 10-year talks with China’s CNPC on cost of delivery of 68 billion cubic meters of gas to China. And on the last agreement signed in September between Gazprom and CNPC, the parties managed to agree on only its lower limit. According to information of Russia’s media, now 1000 cubic meters of gas in the calculation of the agreed index is worth $130 on the European market, as you know, the price is higher by more than 2.5 times. Using its monopoly situation in Central Asia, China desperately traded with Russian exporters. The emergence of a trans-Caspian pipeline will somewhat weaken the Chinese position in negotiations with Gazprom and seriously diversify the conducted energy policy of Turkmenistan.
Thus, the situation today is in favor of a trans-Caspian project, another matter is whether the potential project participants (the EU, Azerbaijan, Turkmenistan) want to use it or not. In any case, the two Caspian countries - Azerbaijan and Turkmenistan have a historical chance to lead the relations on an entirely new level of development in almost all areas.
