On the natural gas front, all signs are "go" for Azerbaijani gas from the offshore Shah-Deniz deposit to find purchasers in Europe. The head of the European Union's TACIS (Technical Assistance for the Commonwealth of Independent States) program, visiting Baku, declared earlier this month that anticipated industrial growth in southwestern Europe would assure a stable long-term market for this gas. Norway's Statoil, which owns a 25.5 per cent share in the Shah-Deniz consortium and has experience with deep-water gas development in the North Sea, is proposing a strategic partnership to the State Oil Company of the Azerbaijan Republic (SOCAR). In particular, it seeks to organize and operate, together with SOCAR, the country's midstream gas development. Significant investment in Azerbaijan's Soviet-era gas infrastructure would be necessary.
1. The Trans-Caspian Gas Pipeline: To Be or Not To Be?
With the Trans-Caspian Gas Pipeline (TCGP) consortium downsizing its offices in Ashgabat, Turkmenistan's entry into Western markets via the growing Turkish energy hub thus becomes increasingly problematic. Various press reports hint at the specific reasons for this. None of these reports is independently confirmed, but they all point to conditions imposed by President Saparmurat Niyazov upon the project's sponsors, which the latter were unwilling to accept. According to an unattributed report in an English-language Baku newspaper, for example, Niyazov had objected to the proportion of the profit that the consortium's sponsors wished to conserve for themselves. This was later publicly asserted indirectly by Niyazov himself, who accused the consortium of wanting him to accept lower prices during the initial period.
However, a report out of Washington sourced to an anonymous high official asserts that the straw the broke the camel's back was Niyazov's re-imposition of a demand for a side payment of $500 million as a signing bonus, after he had relinquished such a demand at the personal request of Suleyman Demirel, who has just left the office of Turkey's President. This report cannot be immediately dismissed, because it would explain why Turkey, in early April in Baku, approved the idea of importing Kazakhstan gas through the old Soviet pipeline running round the northern shore of the Caspian and through Azerbaijan, leaving Ashgabat out of the picture. Yet another unconfirmed report asserts that Niyazov has objected to a consortium proposal to deposit Turkmenistan's profit in an offshore bank rather than one physically located in Turkmenistan itself.
In May, Russian President Vladimir Putin visited Ashgabat, where he agreed with Turkmenistan's President Sapurmurat Niyazov that Russia will renew and expand a December 1999 agreement foreseeing exports of about 20 billion cubic meters (bcm) for calendar year 2000. The new agreement projects increasing this figure by 10 bcm per year for three to four years, until import levels reach 50-60 bcm per year. However, the two sides are still far apart on price. Earlier this year the president of the Itera, the Russian company that would transport the gas from Turkmenistan said that even $36 per thousand cubic meters would be too high for any new agreement with Ashgabat. (During the negotiations for the December 1999 agreement, Gazprom and Turkmenistan reached a compromise at this price, of which 60 per cent is paid in barter and 40 per cent in cash.)
2. Iran and the South Asian Connection
Gazprom may also have its eye on the Dauletabad field, on the Iranian border, which is still hooked up to the old Soviet pipeline network. It is perhaps as a sign of dissatisfaction over the Russian prospect in Dauletabad, that Iran cut gas imports from Turkmenistan's Korpedzhe gas field in May. Iran had invested nearly $200 million there, which has apparently still not been repaid. Press reports indicate disputes over price and quantities. Iran's move only increases the pressure on Turkmenistan to reach a deal with Russia. But quantities and price are still a problem there as well. Russia needs Turkmenistan's gas because export commitments to Europe combined with a lack of domestic investment have created a large shortfall. However, Turkmenistan may need Russia's market even more.
For now, Turkmenistan is left with a scheme to pipe gas to Pakistan through Afghanistan, a plan that fell apart several years ago when the treatment of women under the Taliban regime led to international opprobrium. The absence of U.S. recognition of the Kabul regime in particular has the effect of making international funding for the project impossible to find. Given the continued uncertainty of the situation in Afghanistan, Ashgabat has recently raised the possibility of its gas going south into Iran before turning eastwards into Pakistan, minimizing or eliminating the Afghanistani trajectory. This idea is unlikely to bear fruit, because Iran is seeking now to develop additional phases of its South Pars field, and certainly prefers for this gas rather than Turkmenistan's to satisfy Pakistan's – and India's – demand. (Long-term liquefied natural gas shipping contracts with India have also become a subject of discussion, given the political and strategic uncertainty of assuring supplies through a pipeline transiting Pakistan, although this land route would be less expensive.)
Meanwhile, earlier this month, the project to refurbish and expand Iran's pipeline from Neka to Teheran fell apart again, this time following the Chinese National Petroleum Company's decision to pull out of the project. This pipeline had been planned to serve to expand the volume of imported Kazakhstani oil that is swapped for Iranian crude exported from terminals on the Persian Gulf. In fact, a dispute between the two countries has reduced such swaps to minimal levels in recent years. It is therefore worth noting President Nursultan Nazarbaev of Kazakhstan was one of two heads of state to stay away from the meeting of the Economic Cooperation Organization (ECO) in Teheran, also earlier this month. Nazarbaev stayed in Astana to host a meeting of the Central Asian Economic Council (formerly the Central Asian Union), which also includes Uzbekistan, Kyrgyzstan, and Tajikistan.
3. Turkey's Key Position
The other head of state absent from the ECO meeting in Teheran was the new Turkish President Ahmet Necdet Sezer, who declined the invitation despite special efforts by Iran to attract him. It is perhaps a noteworthy coincidence that Turkish Foreign Minister Ismail Cem was in Astana just as the meeting of the Central Asian Economic Council closed.
Copyright © Robert M. Cutler unless otherwise noted.
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First published in FSU Oil & Gas Monitor, No. 87 (20 June 2000): 4–5.