Natural Gas Europe - Analyzing Turkmenistan’s Gas Exports After the Election

Below is my latest article for Natural Gas Europe - original available here:

Last month Turkmenistan’s autocratic President Gurbanguly Berdimuhammedov won a near-unanimous ‘victory’ of 97%. His opponents were state-approved factory managers and local officials – there was never any doubt about the result.

The lack of popular pressure for reforms or new policies means that few changes are expected on the policy front. However the start of a new term (what state media are dubbing an “era of great happiness”) has provided an opportunity to reshuffle the energy sector and reconfirm the country’s commitment to different energy export routes. The question of gas supply to Europe will be one of the dominant issues facing the Turkmen leader in his second term, and he is already showing new signs of commitment to that goal.

First, the reshuffles. The head of the state energy company was sacked – his replacement, Sahetmyrat Mammedov, becomes the fifth boss of Turkmengaz since Berdimuhammedov took power since 2007. “The rule of turnover prevails” in Turkmenistan’s energy sector, according to Sebastien Peyrouse, an analyst of Turkmenistan and author of a new book on the country; Turkmengaz is used as the scapegoat for any perceived shortcomings in Turkmenistan’s energy sector.

In any case, power is controlled by the State Agency for Management and Use of Hydrocarbon Resources and by Deputy Prime Minister Baymyrat Hojumuhammedov, a longtime loyalist and apparatchik. Both Hojumuhammedov and the head of the State Agency have retained their posts, suggesting business as usual for Turkmenistan’s energy sector.

For exploration and production, the ‘era of great happiness’ is likely to be business as usual. The government will retain an extremely tight leash on contracts; the process of getting a deal will be opaque, unaccountable and subject to the whims of senior officials. China’s CNPC is the only major foreign firm to have an onshore production sharing agreement; this is likely to remain the case for the medium-term, with other international companies relegated to service contracts onshore or PSAs in Turkmenistan’s sector of the Caspian Sea.

Berdimuhammedov’s new term is likely to double down on attempts to increase the country’s export options. Russia is likely to try and use the new term, and the return of Vladimir Putin to the Kremlin, to wipe the slate clean after several years of bitter recriminations between Moscow and Ashgabat.

But the Turkmen elites have long memories. Although significant amounts of Turkmen gas will continue to flow to Russia, the glory days before 2009 – when Ashgabat would send 40-50bcm, as opposed to around 10bcm now, to Russia – are unlikely to return. Russia would have to offer extremely good prices for Turkmen gas, and there is no sign that Gazprom has the appetite or the resources for that right now. 

Iran will remain a valuable market but only a secondary one. February’s temporary cut-off of Turkmen gas to northern Iran shows that the relationship between the two states will only go so far. Although Turkmenistan is relatively disconnected from international financial networks, the impact of sanctions on Iran will increasingly become a factor in its calculations.

The Turkmenistan-Afghanistan-Pakistan-India pipeline will remain under discussion: Turkmenistan has repeatedly expressed its interest in seeing the project go ahead. However the security situation in Afghanistan, as well as in Pakistan and between Pakistan and India, remains so chaotic that there is almost no chance of this project coming to fruition in the foreseeable future.

China will be an increasingly important export vector of Turkmenistan’s energy policy in the years ahead. With the Central Asia – China pipeline set to expand rapidly in the years ahead, taking up to 30bcm of Turkmen gas eastwards, Beijing will become one of Ashgabat’s most essential foreign policy partners. Energy ties likely to deepen, leading to a broader and more multi-faceted economic and political relationship. 

Engaged in a tug-of-war for Turkmenistan’s gas with the giant of the east will be Turkey and Europe. On this front, it is noteworthy that Berdimuhammedov’s first foreign trip after being re-elected was to Ankara, where he met Turkish President Abdullah Gul.

On 29 February the two leaders signed an agreement to promote “transportation of Turkmen natural gas to world markets through various routes”. Nothing specific was mentioned but this clearly refers to plans to bring Turkmen gas west, across the Caspian and Turkey to Europe. What role could Turkey play in this regard? It has no direct stake in the trilateral negotiations between the EU, Azerbaijan and Turkmenistan over building a Trans-Caspian Pipeline (negotiations which are due toresume in early March).

However, Turkey can provide extra rhetorical support for Turkmenistan’s involvement in the Southern Corridor – it may pledge to buy Turkmen gas for domestic consumption, satisfying concerns in Ashgabat that there will be no demand for its gas once Azerbaijan’s resources flood the Southern Corridor.

European officials, having kept a tasteful distance until the rigged elections are forgotten, are soon likely to return to Ashgabat to court Turkmenistan’s energy officials. This will be a slow process, but the certainty of another five years with Berdimuhammedov at the helm will underpin further progress on bringing Turkmen gas west.

There are no major changes expected for Turkmenistan’s gas export strategies, but Berdimuhammedov’s crushing ‘victory’ and apparent unwillingness to change the country’s direction has reconfirmed the energy dynamics of the next few years. China and Europe will become the main vectors, with Iran and South Asia touted as secondary alternatives. The relationship with Russia will continue to waver between conflict and cooperation, depending largely on fluctuations of power within Moscow and within Gazprom. As more of the country’s gasfields are brought onstream, these patterns are likely to become more and more pronounced.