Turkmenistan’s President Gurbanguly Berdymukhammedov recently signed a Memorandum of Understanding with the EU’s External Relations Commissioner, Benita Ferrero-Waldner, during the trip of a very high-level EU delegation to Central Asia, providing for the export of natural gas from Turkmenistan to the EU but not specifying a route, which is nevertheless understood not to cross Russia. The 10 billion cubic meters per year (bcm/y) mentioned in the MOU amount is not very much of the estimated 500 bcm of natural gas that EU countries consume each year; however, for the EU it is an initial step towards diversification of supply.
At present, EU countries import 57% of their natural gas consumption. Reliable estimates forecast that this proportion will rise to 75% by 2020, increasing further to between 80% and 85% by 2030. Today Europe’s natural gas imports from Russia constitute two-fifths of all gas imports, representing one-quarter of total gas consumption. (Almost all remaining gas imports come from Algeria and Norway in nearly equal proportion.) By 2030 it is expected that three-fifths of all gas imports may come from Russia, thus representing fully half of all gas consumption in the EU. Approximately 95% of Russia’s gas exports (including exports of gas not originating in Russia) go to EU countries.
In the run-up to the G-8 summit in St. Petersburg in 2006, which had questions of energy cooperation as an explicit focus, Russia’s President Vladimir Putin flatly rejected the Energy Charter Treaty’s attempts to open Russia’s domestic energy market to competition, broaden access to the country’s energy transit infrastructure, and assure nondiscriminatory treatment for non-Russian firms. Today Gazprom continues to control over two-thirds of Russia’s gas production and to enjoy a monopoly over exports.
Europe suffered energy shortages during the January 2006 Russian-Ukrainian gas crisis caused by Moscow’s draconian and very public decision to cut off supplies. Further cutoffs became a real possibility when Russia threatened to suspend supplies to Belarus during price negotiations later that same year. These two acts shocked the European political classes into recognizing that Russia will not be the savior of the European international order as it had been in 1849 when the Tsar’s troops intervened in Hungary to repress the Kossuth democratic revolution against the Austrian Empire – a reminiscence still cherished in the collective memory of politically influential circles descended from the pan-European aristocracy.
While Germany has sought to resolve the problem by becoming Russia’s monopsonistic natural gas distributor through the North European Gas Pipeline project (also known as Nordstream), the EU as a whole has sought to diversify its sources of natural gas, insofar as the continuing sovereignty of its member states over their national energy policies permits this. So it was natural that policy attention should turn to Central Asia, which exports to Europe anyway (but through the Russian pipeline system) and specifically to the question of escaping the potential Russian stranglehold.
In November 2007, Turkmenistan’s President Gurbanguly Berdymukhammedov and his entourage visited Brussels, where they had wide-ranging discussions with top-level EU officials and European businessmen, displaying an openness unthinkable during the reign of his predecessor Saparmurat Niyazov. This February saw the settlement of a long-standing conflict over payment of Azerbaijan’s debt to Turkmenistan, and just last month full diplomatic relations between the two countries were restored.
Despite the marked improvement of relations between Turkmenistan and Azerbaijan, there has not yet been much concrete movement towards resolution of their disagreement (dating back to the mid-1990s) over ownership of the mid-Caspian field known as Kyapaz to Baku and Serdar to Ashgabat. This conflict has always been one of the principal political impediments to the construction of a Trans-Caspian Gas Pipeline (TCGP) for taking Turkmenistan’s gas across the sea into Azerbaijan’s pipeline system for transshipment via Turkey to Europe and consumption there.
Berdymukhammedov’s need to consolidate his authority within Turkmenistan and, more important, to identify who is with him and who is against him, obliged him to retain certain policies and political symbols from Niyazov era. However, over the last year these have been revised or simply disappeared one by one. The Kyapaz/Serdar dispute is one such symbol. As time goes on, it will become easier to abandon such symbols and resolve the problems that they create and represent. The re-establishment of bilateral relations, for example, would have been unthinkable under the Niyazov regime and during the lifetime of Heydar Aliyev, who was president of Azerbaijan until his death in 2003.
The TCGP project, which failed in the 1990s due to Niyazov’s insistence on personally leading Turkmenistan’s negotiations and his inability to grasp the technical details of project planning and financing, is now integrated as an aspect of the Nabucco pipeline led by Austrian concerns. The route of the 2100-mile Nabucco pipeline would run from Turkey’s eastern border (with Georgia and/or Nakhechivan, in two non-mutually exclusive variants) through Ankara and Istanbul into eastern Greece, then northwards through central Bulgaria and western Romania, finally snaking across Hungary from southeast to the northwest and terminating at Austria’s Baumgarten gas hub. The new MOU for the first time gives proponents of the Nabucco pipeline specific volumes of gas from non-Azerbaijani sources to consider.
However, the most optimistic estimate today for construction of the Nabucco pipeline is that it will be completed by 2013. How, then, is it that the MOU talks about Europe importing gas from Turkmenistan as early as 2009? There is only one possible answer. That is the interconnection of natural gas rigs from the Turkmenistani sector of the Caspian Sea to those in the Azerbaijani sector, which are already part of the international network of gas pipelines from the Caspian to Europe. The volumes involved would not be great, but this creation of facts on the ground would have enormous political significance and knock-on demonstration effects. It is perhaps no coincidence that Berdymukhammedov learned last November, on his visit to EU headquarters in Brussels, that Belgian companies in particular specialize in such technology.
For Turkmenistan, the MOU is an important bargaining chip as the country proceeds with negotiations with other potential partners: another flag in the ground in what we may call the ongoing War of the Memoranda. No MOU is legally binding; it only establishes some certainty in the business environment. The MOU with the EU is an agreement in principle, a declaration of intent and political support at the highest levels. It is up to companies and consortia to realize its intent on a market basis, knowing that favorable political will now exists.
For example, Turkmenistan also has an agreement to export 20 bcm/y to China, although it cannot be excluded that Turkmenistan’s selection of a Russian company for the planning and construction of this project may introduce possibilities of delay in its realization. Meanwhile, the (re)construction of the Prikaspiy pipeline, announced with Russia and Kazakhstan last year with much fanfare, appears to be at present on hold at least from the Turkmenistan side. It was rarely if ever noted, during all the commentary at the time, that the Prikaspiy agreement represented nothing other than yet another intergovernmental MOU. It did not even establish an international consortium to undertake the work; rather, each national government simply pledged to undertake the work on its national territory using available national means. This allowed Berymukhammedov to placate the Russia, which is promised as much as 50 bcm/y by agreements inherited from the Niyazov era, while gaining breathing space during which to pursue further possibilities.
The major international energy companies have known for ten years that there is no technical obstacle to construction of an ecologically sound gas pipeline tracing a relatively shallow east-west undersea ridge between Turkmenistan and Azerbaijan. An arrangement such as interconnecting the two countries’ offshore gas rigs would not require authoritative resolution of the issue of delimiting the Turkmenistani and Azerbaijani sectors of the Caspian Sea subsoil resources. Any working agreement could easily include the provision that such an arrangement creates no legal precedent for resolution of the matter. Yet it is clear that the fact of practical cooperation would only have the potential to increase mutual trust and confidence, leading at a minimum to further working agreements.
Finally, the agreement is evidence that the EU is finally trying to implement a pro-active Central Asian energy policy. A British consulting firm is now undertaking an inventory of Turkmenistan’s natural gas reserves so that a credible number will be available on which basis the international energy-financial complex can begin to evaluate actual projects.
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First published in Central Asia – Caucasus Analyst, vol. 10, no. 8 (16 April 2008): 7–9.