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Analysis: Turkmenistan, Russia and China

Awash with oil...
by John C.K. Daly
Washington DC (UPI) Feb 25, 2008
The most fascinating energy development of the last 14 months has been the furious, if covert, struggle involving Russia, China and the United States to develop Turkmenistan's vast natural gas deposits since the death of Turkmen President Saparmurat Niyazov in December 2006.

Turkmenistan's estimated natural gas reserves are the fourth largest in the world; according to geologic analysis of Soviet data, Turkmen reserves are estimated at 10 trillion to 14 trillion cubic meters.

Niyazov's death set off an unseemly scrum among the three countries both to pay their respects and lock up the country's reserves.

In terms of sheer clout, the Russians handily won the diplomatic laurels, sending a massive funeral delegation to Ashgabat that included Prime Minister Mikhail Fradkov and former Prime Minister Viktor Chernomyrdin, while Gazprom CEO Alexei Miller led a delegation of high-ranking officials from the gas giant to court acting President Gurbanguly Berdymukhamedov. Putin immediately expressed his condolences, too.

The Chinese representation was more modest, as President Hu Jintao sent his special envoy State Councilor Tang Jiaxuan to Ashgabat for Niyazov's funeral. Tang was doubtless hoping to capitalize on Turkmen unhappiness with Gazprom's fiscal exploitation of the country's gas reserves -- in June 1999, while deputy chairman of the State Council, Tang visited Ashgabat and gave Niyazov a $12 million credit for Turkmenistan's oil and gas industry.

Washington was caught flatfooted, not even having an ambassador accredited to Turkmenistan at the time of Niyazov's demise. Washington saw fit only to send Assistant Secretary of State Richard Boucher. In status-conscious post-Soviet Central Asia, the Turkmen leadership doubtless noticed the diplomatic snub, as the U.S. State Department has 24 assistant secretaries of state.

If Tang arrived with dollars, then Gazprom, whose relations with Niyazov over the years might most diplomatically be described as strained, arrived with a lot of baggage. Since 1991, Niyazov had repeatedly pressured his markets to pay ever-increasing fees for Turkmen gas and at one point or another had unilaterally halted supplies, sometimes for years, to Armenia, Azerbaijan, Georgia, Russia, Tajikistan and Ukraine to press his point.

The only certainty in negotiating with Niyazov was his unpredictability. Gazprom is now paying $130 per 1,000 cubic meters. Gazprom also sells the majority, about two-thirds, of its annual gas production of about 550 bcm at a loss in the Russian domestic market, while Europe now represents nearly 70 percent of Gazprom's total revenue.

Russian heavy-handedness and stinginess had long caused Niyazov to consider other options for gas exports; in April 2006 he signed a deal with China for natural gas exports and the commissioning of a Turkmenistan-China pipeline by 2009 capable of carrying 30 bcm of gas annually.

As Turkmenistan already has agreements with Russia for 50 bcm and Iran for 8 bcm annually, and with Turkmenistan's annual production standing at about 60 bcm, it is obvious Turkmen production will need massive increases to meet Russian, Chinese and Iranian contractual obligations of 88 bcm annually, much less domestic consumption.

The major question now is who will provide the technology for this increase and transport, and Russia recently won a small victory when on Feb. 18 the Turkmen presidential press service announced that Russia's Stroitransgaz company won a tender for the construction of the Turkmen stretch of the Turkmenistan-China gas pipeline.

The $500 million, 120-mile pipeline with a 20-25 bcm annual throughput will link Turkmenistan's eastern Malai gas field and the gas-rich Bagtyyarlyk territory located along the Turkmen-Uzbek border. In a sign of the ongoing struggle between Moscow and Beijing, China's National Petroleum Co. has a license to develop the Bagtyyarlyk field.

Apparently Moscow's strategy is to outflank its competitors by providing advanced technology, a powerful incentive to Ashgabat to keep Moscow in the game, as Ashgabat will have to immediately increase its production within the next couple of years by nearly 50 percent if it is to honor its existing contracts.

The Kremlin has a powerful geographic advantage over the United States and China, as the Caspian provides direct maritime access to Turkmen ports.

Where does this leave the United States? Despite sending many delegations to Turkmenistan after Niyazov's death, accompanying lectures on fiscal transparency and human rights, combined with proposals for undersea Caspian pipelines when the sea's waters have yet to be definitively delineated have essentially left Washington in the starting blocks.

On Feb. 13, U.S. Secretary of State Condoleezza Rice testified before the U.S. Senate Foreign Relations Committee that the State Department intends to appoint a high-level special envoy on energy security, adding in a massive understatement that "the politics of energy is warping diplomacy in certain parts of the world."

Rice added that the appointee would concentrate on the geopolitical uses of oil and natural gas, with a particular focus on Central Asia and the Caspian region. Given Russia's current monopoly of export routes and its provision of advanced technology, combined with China's rising regional appetite for Eurasian energy, it would seem that the U.S. envoy is going to have a lot of time on his or her hands.

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