Prospects for Trans-Caspian Gas Pipeline wane

Despite a report by a source close to the Trans-Caspian Gas Pipeline project indicating that the project backers are prepared to finance the estimated $2 billion construction cost themselves, Turkmenistan's President Niyazov still appears doubtful about the prospects for TCGP. He says construction may be delayed until all disputes are settled. Meanwhile, Iran has declared it opposes the pipeline for environmental reasons.

May 30th, 2000


MOSCOW�Despite a report by a source close to the Trans-Caspian Gas Pipeline project indicating that the project backers are prepared to finance the estimated $2 billion construction cost themselves, Turkmenistan's President Niyazov still appears doubtful about the prospects for TCGP. He says construction may be delayed until all disputes are settled. Meanwhile, Iran has declared it opposes the pipeline for environmental reasons.

The proposed TCGP route stretches from Turkmenistan across the Caspian Sea into eastern Turkey. Royal Dutch/Shell Group and PSG International Ltd., a joint venture of US firms Bechtel Enterprises Inc. and GE Capital Structured Finance Group, offered to foot the bill when they presented a project outline to Turkmenistan's President Niyazov in late March, the source said. But Niyazov at that time threw the entire project into doubt by rejecting the scheme as a whole.

Shell and PSG are now fighting an uphill battle to revise project terms to win Niyazov's support. The source said the two firm have not yet decided exactly how to finance the project, or how to divide financial responsibility between them. But they are determined not to let issues of funding sink the project.

If Turkmenistan does approve the project in coming weeks, quick resolution of financial questions could make it possible to complete the pipeline in 2002, as originally planned, the source said, adding that Shell and PSG believe that, if general Turkmen approval for the project can be obtained, essential diplomatic and commercial agreements with transit countries Azerbaijan, Georgia, and Turkey could be reached quickly.

Ongoing problems
US officials have expressed frustration in recent weeks over the Turkmenistan government's apparent unwillingness to move towards a more concrete understanding on TCGP. Western news sources have recently quoted John Wolf, the Clinton administration's chief adviser on Caspian energy issues, as saying that the project has been stalled for so long that Washington, DC, has little choice but to interpret the delays as a sign of Ashgabat's lack of interest.

Niyazov is said to have been upset at the share of profits Shell and PSG proposed for themselves, and to have wanted pipeline revenue placed directly in a Turkmen bank rather than offshore.

The source also noted that Niyazov and Azeri President Heydar Aliyev agreed in March how much Azeri gas would enter the pipeline, thereby surmounting what was formerly a major project roadblock.

Wolf also has said that the offer presented in March by Shell and PSG was advantageous for Turkmenistan and is not likely to get any better.

Odds against TCGP partners
But a Turkmen source said odds are increasingly against Shell and PSG. "There are not too many chances left to bring the project to life, but the possibility remains," said the Turkmen source.

Niyazov has said that the TCGP could be delayed until disputes are resolved with the consortium that is planning to build the $2 billion link. His statements appear to cast further doubt on a project that has already been dogged by disputes with neighboring Azerbaijan and by Turkmenistan's apparent plans to sell large amounts of gas to Russia.

Turkey last summer signed an agreement to buy 16 billion cu m/year of Turkmen gas if TCGP is built. But as an apparent fallback position, Niyazov in March reached a tentative deal to export a substantial amount of gas through Russia. At peak capacity, TCGP would carry 30 billion cu m/year to Turkey, including 14 billion cu m (bcm) that would be exported to Europe. Analysts say a country that produced 23 bcm of gas last year will not be able to supply both Turkey and Russia.

"We can delay the construction [of the pipeline] until all agreements are finally resolved," Niyazov said recently on state television. The comments came just days ahead of a planned visit by Russian President Vladimir Putin to discuss the gas supply plan. Niyazov said Turkmenistan would go ahead with the 2,000-km pipeline only if the division of profits is fair to both sides, adding he would not agree to a "one-sided approach."

"Turkmenistan is accused of delaying the project," he said. "But we are not delaying, we are demanding that the terms agreed to when the consortium was created...be fulfilled and that the consortium meet its obligations."

Iran's opposition
Iran's Deputy Foreign Minister Mohammed Hossein Adeli said earlier this month that Tehran opposes plans for the construction of a subsea gas pipeline across the Caspian Sea�on environmental grounds.

The TCGP project is unsound from an environmental point of view, he claimed. Such a pipeline would pose a risk to several unique species of fish and birds that live in the region.

He further stated that the gas transport project is economically unsound, as it had been designed to serve political rather than corporate aims. Plans for TCGP were drawn up with the express intent of preventing Iran from playing a part in the export of Caspian oil and gas, Adeli explained.

The TCGP project is strongly backed by the US government. Washington has been adamant that Iran not be used as a conduit for the export of oil and gas from the Caspian region. To this end, it has invested enormous diplomatic effort into convincing Azerbaijan, Turkmenistan, and Kazakhstan to commit their future hydrocarbon exports to the US-backed east-west pipeline route.

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