May 21, 2007 (the date of publication in Russian)

Sergey Pravosudov


Despite US pressure, Central Asia states prefer traditional gas transit routes

The Presidents of Russia, Turkmenistan and Kazakhstan have signed a joint declaration on construction of a gas pipeline along the coast of the Caspian Sea. Besides, Vladimir Putin, Nursultan Nazarbayev, Gurbanguly Berdymukhammedov, along with Uzbekistan's President Islam Karimov, signed a similar document on increase of transit capacity of the Central Asia – Center Gas Transport System.

According to Gazprom's CEO Alexei B. Miller, the implementation of those agreements would enable – in the framework of the contract, signed till 2028 – to increase annual purchases of Turkmen gas till 80 billion cub. m. In 2006, Gazprom bought 42 billion cub. m of Turkmen gas.

Amounts of gas purchased by Russia from Kazakhstan and Uzbekistan are to increase as well.



It is noteworthy that the issue of construction of the Caspian Coast Pipeline emerged years before. It was originally promoted by late Saparmurad Niyazov. His major objective was to reduce dependence of his country from Uzbek transit, as his relations with Islam Karimov were far from propitious.

At that time, Gazprom displayed indifference to the initiative, instead proposing to expand Uzbekistan's gas transit network. Alexander Ryazanov, then-Deputy CEO of Gazprom, explained the corporation's view as follows: "The Turkmen leadership realizes that the shortest and most efficient route is across Uzbekistan. Construction of a new pipeline across the desert is much more costly. Expenses for infrastructure would be immense. The Turkmen side understands this. Viewing tensions with Tashkent, Turkmenistan would just like to acquire guarantees of transit across Uzbekistan. Russia, particularly Gazprom, could serve as such a guarantor".

Today, all the interested sides have agreed to implement both projects and to expand the Central Asia – Center pipeline network. What is new in this approach?

Gazprom's earlier reluctance to implement Niyazov's project was explained with uncertainty around Turkmenistan's resource base, as Ashkhabad was keeping the conclusion of the international audit of its gas reserves classified. Meanwhile, British Petroleum estimated Turkmenistan's reserves at not more than 2.9 trillion cub. m – while Russia's Shtokmannovskoye gas deposit alone contains 3.7 trillion cub. m of natural gas.



However, in the end of the last year, Saparmurad Niyazov made a sensational statement. He reported about the results of exploration in South Iolotan, where, as he said, a gigantic oil reserve reaches 7 trillion cub. m. Now, he substantiated the Caspian Coast project with the prospects of South Iolotan's development. By today, it remains unclear whether Iolotan's capacity is really so huge. However, incumbent President Berdymukhammedov relies also upon the Turkmen sector of the Caspian shelf. In case large-scale gas deposits are discovered here as well, their resources will be really more convenient to transport along the coastline. Meeting with Gazprom's CEO, Berdymukhammedov invited the Russian corporation to join shelf gas exploration.

A gas pipeline along the Caspian Sea already exists. However, this line, built yet in the USSR times, is technically outdated, being out of function for fifteen years. Therefore, a new line has to be constructed. It is possible that this effort will not involve Gazprom's investments: at least, Nursultan Nazarbayev says that it could be accomplished by Turkmen and Kazakh companies alone. Still, the extracted gas is going to be purchased by Gazprom, as before, to be delivered to Eastern and Western Europe.

The new Caspian Coast Pipeline, with a prospective capacity reaching 30 billion cub. m per year, would be sufficient for the planned increase of gas shipments from Turkmenistan. Still, upgrading of the Uzbek portion of the Central Asia – Center Network is also expedient. In 2005-2006, Uzbekistan offered licenses for oil and gas extraction on its territory to major Russian corporations, including Gazprom, Lukoil, and Soyuzneftegaz IOC. Relevant plans suggest necessity of increasing capacities of Uzbek pipelines as well. Kazakhstan is also planning to boost extraction. Therefore, the whole Central Asia – Center Network requires modernization.



In addition, Vladimir Putin and Nursultan Nazarbayev reached final accord on establishing a joint venture of Gazprom and Kazmunaigaz on the base of Orenburg Gas Refinery. Gazprom's share in the joint venture's stock will be comprised of fixed capital, while the Kazakh company is supposed to invest money in its modernization, thus enabling to double the amount of purchases of gas from the Karachaganak deposit in Kazakhstan to 15 billion cub. m per year.

The list of shareholders of the consortium, earlier established for development of the Karachaganak gas province, includes: ENI and British Gas (32.5% each), Chevron (20%) and Lukoil (10%). Western companies were supposed to be interested in direct transportation of the extracted gas to Europe, and therefore, in construction of the broadly discussed trans-Caspian pipeline along the bottom of the sea to Azerbaijan, in order to deliver gas via Turkey to Europe. Still, the corporations would not express any commitment for this endeavor. During the last years, Karachaganak's gas was still purchased by KazRosGaz (a 50:50 partnership of Kazmunaigaz and Gazprom), delivered along the existing Russian pipeline network, and distributed in Europe by Gazprom-Export Stock Company.

Karachaganak's Western shareholders are definitely skeptical over the feasibility of the trans-Caspian route, though this option had been discussed for over a decade. Political and economic obstacles for the trans-Caspian transit are really numerous. First of all, its construction is very costly. Secondly, the Caspian's bottom contains a number of hollows along the route, implying additional technical difficulties. Thirdly, Turkmenistan and Azerbaijan haven't yet reached accord on the division of the Caspian. Moreover, a number of shelf deposits are a subject of debate. Azerbaijan's ships, exploring the Caspian shelf, once even got under fire of the Turkmen Navy.

Still, the major problem of the Trans-Caspian Pipeline Project is insufficiency of free resources of gas for filling the projected pipeline. Turkmenistan exports gas to Russia in accordance with a bilateral agreement, suggesting annual deliveries in a range from 80 billion to 90 billion cub. m during 20 years. Meanwhile, the total amount of Turkmen gas extraction does not exceed 60 billion cub. m today, one tenth from this volume being exported to Iran. Therefore, Turkmenistan is unlikely to provide sufficient amounts of gas for shipment across the Caspian's bottom.

Still, President Gurbanguly Berdymukhammedov does not completely give up the option of trans-Caspian gas transit. The reasons are rather political than economic.



Gurbanguly Berdymukhammedov, former Health Minister of Turkmenistan, ascended to the post of President under complicated political circumstances, following the unexpected death of Saparmurad Niyazov. In his present situation, he avoids political tensions with the United States which is strongly pushing the Trans-Caspian Project. Quite reasonably, he seeks to prevent the possibility of a "colored revolution", being not much encouraged with the relevant devastating experience of Ukraine and Kyrgyzstan. To avoid Ukrainian-type disarray, he needs to consolidate his power.

Days after Berdymukhammedov's meeting with Putin and Nazarbayev, mass media highlighted the resignation of Lieutenant General Akmurad Redzhepov, who chaired Turkmenistan's State Security Council. This body was established right after the death of Saparmurad Niyazov, acquiring a formal right to replace the President and to appoint a "temporary head of state" in case of political emergency. During half a year, Berdymukhammedov had thus been directly dependent from Mr. Redzhepov, the former director of Niyazov's security, whom some Russian authors originally viewed as Niyazov's "real potential heir".

In the nearest time, significant changes in Turkmenistan's political system are inevitable. This prospect is a sufficient reason for Gurbanguly Berdymukhammedov's caution in diplomacy with all the interested foreign sides. He would not like to quarrel with Washington. At the same time, he has demonstrated his commitment for friendly relations with Moscow.

Sergey Pravosudov is the Director of National Energy Institute, Moscow

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