Turkmenistan emerging as key player in central Asian FSU

While both Azerbaijan and Kazakhstan have received most of the attention concerning oil and gas investment in the central Asian republics of the former Soviet Union, Turkmenistan increasingly has taken steps-through both economic and political moves-to portray itself as a key petroleum player in the region.

Kazakhstan and Azerbaijan have overshadowed Turkmenistan partly because of their coherent policies towards foreign investment. The history of Turkmenistan and potential foreign investors has been exceedingly frustrating for both parties.

Dating to 1991, when the government disclosed its first tender, the government's inexperience, coupled with a policy calling for bonuses of $20-30 million, proved a damper on any real foreign investment.

In May 1993, Eastpak International of the U.A.E. withdrew from a project to develop and further explore Turkmenistan's Kotur-Depe oil field. Oil Capital and Lapis Holding, a U.S.-Turkish combine brought in to replace Eastpak, also withdrew its support.

For the two companies that stayed, Larmag (Netherlands) and Bridas Sapic (Argentina), the Turkmen government rewrote the contracts without their consent.

Lessons to be learned

What Turkmenistan has learned in the last few years is the importance of improved relations between itself and prospective investors. This is largely seen by its willingness, since December 1994, to open direct negotiations with companies such as Mobil Corp., Japan National Oil Corp., and Agip SpA. Despite this rocky start to capitalism, there is reason to believe that Turkmenistan's future is getting brighter based on attempted political resolutions.

A large part of Turkmenistan's problem has centered on the export of its natural resources. Because it is on the Caspian Sea, Turkmenistan has also been concerned with how to export gas and oil to markets that would bring in much-needed hard currency.

While Kazakhstan and Azerbaijan seem to have solved their problems through the cooperation between Georgia, Russia, and the Caspian Pipeline Consortium, Turkmenistan's problems continue.

Possible solutions

Practically speaking, the Turkmen government could enter into an agreement with Azerbaijan to pay rent to the Azeri government in exchange for permission to transport oil and gas through Azerbaijan and then through to western markets, where the price will be the most lucrative for Turkmenistan.

This seems plausible, as most of its oil and gas resources lie in western Turkmenistan, either bordering the Caspian or in the Caspian Sea itself. A pipeline across the Caspian at the narrowest point would be about 150 miles long. However, there is some doubt as to whether this is possible, largely due to the conflict between Azerbaijan and Armenia over the enclave of Nagorno-Karabakh.

Armenian Prime Minister Armen Sarkissian recently told a Washington think tank that "Armenia cannot be bypassed as a transit country; neither can it be ignored that Armenia is the most cost-effective transit route."

It might be the most cost-effective route for Caspian oil, but it's doubtful that Azerbaijan will take that into consideration, as Armenia retains control of 20% of Azerbaijan's territory.

Gas issue

Turkmenistan's largest buyer of gas is Armenia. While it is beneficial to have a market for the gas that is not swallowed up in transportation costs, Armenia is not very timely in paying its gas bill.

Armenia depends largely on Turkmenistan as one of its few reliable sources of energy because of the continuing Azeri-Turkish embargo against it. It has been forced to reopen the nuclear complex in the vicinity that was leveled by a December 1988 earthquake.

The lifetime of this plant is short and very dangerous. For that reason, Turkmen gas is vital and precisely why the chances of Turkmen-Azeri cooperation look slim.

Increasing leverage

Turkmenistan now has a chance and a fair amount of leverage to solve the problems that have confronted it-specifically exportation and timely payment for its oil and gas.

Curiously, the war in Afghanistan and increasing likelihood of a Taliban (Islamic fundamentalists) victory have enabled it to assure itself of a potentially stable export pipeline route to the east proposed by Unocal Corp. and Saudi Arabia's Delta Oil Co.

The elite in Pakistan have a decisive influence over the Taliban. The group receives substantial support from Pakistan, both physical and spiritual, which allows them to have a unified approach, imperative for any discussion of a 1,500-km pipeline.

Geographically, this is an enormous boost for Turkmenistan, allowing it to export its oil and gas directly through to Pakistan's network. Depending on pipeline placement, it could go through to China, a customer with the need and, more importantly, the capital to do it.

It may even be possible to export directly to China.

Afghanistan has a common border with China of about 80 miles, but the Taliban's influence does not reach that far north yet. Even if it did, Pakistan would probably not allow a pipeline to go directly from Afghanistan to China.

Border disputes, the Kashmir problem between India and Pakistan, and the mountainous terrain, would make this project logistically difficult, at the very least. This pipeline would allow companies involved in the Caspian Sea to export their products to an energy-depressed region.

A second route also exists for Turkmenistan via Iran and then on to Turkey. This could allow the Turkmen government to export through Iran to Turkey on the heels of a massive gas deal signed last August between Iran and Turkey.

That deal, which entails the creation of a pipeline network, foresees the sending of 10 billion cu m/year to Turkey for 22 years.

Mixed blessing?

These possible exports could be a mixed blessing for Turkmenistan.

Exporting oil and gas through Iran could cause friction with the U.S., which has imposed sanctions against doing business with states that it contends sponsor terrorism.

Exporting through Iran might be politically sensitive, especially if the U.S. starts to tie aid and future foreign investment to dealing with Iran. Regarding the eastern route, if oil and gas were exported to China, it might place Ashkhabad in a difficult position in the long run.

China is widely predicted as a dominant force in the next century in many aspects, particularly economic.

Some analysts might even equate this as building up an expansionist China.

In the short run, a dependable export route to eastern Asia will be beneficial. Turkmenistan currently has no time to consider the long-term effects of its actions.

With gas estimated to account for about $1.5-2.9 billion of Turkmenistan's exports during 1997, it is in the national security interests of the state to pursue these export routes, regardless of possible future western (particularly U.S.) opposition in the next century.

One major problem for the Turkmen government is that Russian gas giant Gazprom has large concerns in Turkmenistan. Gazprom has basically forced Turkmenistan to sell its gas to former Soviet republics that pay much less than the world price, including Georgia, Armenia, and Ukraine.

The hope for Turkmenistan is that with the appointment of Boris Nemtsov, Gazprom will be broken up and will distance itself from the Russian government. If Gazprom's influence can be decreased in the next few years, Turkmenistan should be able to pursue its goals without Gazprom pulling the strings.

Role of geopolitics

Turkmenistan might also be leaning a little bit more to the south and east because of geopolitics.

In January, the leaders of Kazakhstan, Kyrgyzstan, and Uzbekistan signed an agreement to further their goal of a "Turkistan." The goals of this union are not very coherent, but a possible union of central Asia is something that has been considered.

Who exactly would lead it?

Competition exists between Uzbekistan and Kazakhstan as to whom the leader of the union would be.

The name itself is something that could appear threatening to Turkmenistan's sovereignty.

The location of Ashkhabad, adjacent to the Iranian border, will help to insulate Turkmenistan from any type of threat from its northern neighbors.

As a result, Turkmenistan and Tajikistan will align increasingly with eastern neighbors. In several years, they might go their own way, at least enough to be considered leaning more to the Middle East and/or South Asia.

What's next?

How does this place Turkmenistan for the future? Quite well, considering it has found a place to export its energy.

The last few years have brought much talk concerning the Caspian Sea region, perhaps more than it deserves.

Kazakhstan and Azerbaijan have made a considerable effort to impress foreign oil companies and specifically their governments to aid their fledgling attempts at democracy.

While Turkmenistan cannot be considered a democracy at all, President Saparmurad Niyazon has no intentions of imitating one, orienting his country less to the West and more to areas that will increase its stability, both geopolitically and economically.

Turkmenistan could be useful to the West for its strategic location. However, the North Atlantic Treaty Organization (NATO) is content having as an Asian member Turkey, a country that borders three very strategic states: Syria, Iraq, and Iran.

NATO cannot extend and would never seriously entertain the idea of taking Turkmenistan under its wing when other, equally important countries, such as Ukraine, are much closer.

Two important things are to Turkmenistan's advantage:

Primarily, its main export will be gas, demand for which continues to expand as oil's share of the global energy mix declines.

Secondly, it is exporting to an area where the gas supply is shrinking.

These two facts alone will drive Turkmenistan to economic independence, making it a regional player in a decade.

Copyright 1997 Oil & Gas Journal. All Rights Reserved.