TRANS-CASPIAN EXPRESS

At the end of March, U.S. President Donald Trump made an unexpected statement regarding the long-standing idea of ​​transporting Turkmen gas through the Caspian Sea and further along the Southern Gas Corridor. In addition, the American president urged Turkmenistan to start implementing the project as soon as possible. "I hope that Turkmenistan will be able to take advantage of new opportunities to export gas to the West in connection with the recent determination of the legal status of the Caspian Sea," the congratulatory message of American president addressed to President Gurbanguly Berdimuhamedov says.

Obviously, the oil and gas industry is one of the key elements of the Turkmen economy, and the republic’s government has been instructed to develop it, including the search for new hydrocarbon fields. But what is the role of such an ambitious and difficult project as the Trans-Caspian pipeline in these plans?

Perspectives of gas production

In November 2018, President Berdimuhamedov demanded that the state corporation Turkmengeologia duly conduct a systematic geological study of the subsoil and raw materials, along with improved management of the industry. At a meeting of the Cabinet of Ministers on March 7, president ordered the deputy prime minister to ensure the efficiency of the Turkmengaz, Turkmenneft and Turkmengeologia state-run enterprises. Berdimuhamedov also ordered to accelerate the development of investments aimed for the upgrade of the national oil and gas industry, diversification of local energy supplies to world markets, as well as the construction of production facilities for oil and gas products.

At the end of March, the oil and gas industry of Turkmenistan accomplished yet another successful job when the well No. 301 at the Galkynysh field produced a large industrial flow of natural gas capable of producing 1.9 million cubic meters of gas. By the way, this is not the first success of Turkmen producers at Galkynysh since the beginning of 2019. In January, a large industrial flow of natural gas with a daily flow rate of 1.94 million cubic meters was secured at well No. 262. Currently, drilling operations are conducted at eight other wells in Galkynysh field.

Why is the success at this field so important  for Turkmenistan? Galkynysh is the second largest natural gas reserve in the world after Iranian South Pars. British Gafney, Cline & Associates increased the estimated reserves of this field (together with the accompanying Yashlar field) from 26.2 trillion cubic meters to 27.4 trillion cubic meters. The growth of reserves is due to the successful exploration results at associated field Garakel.

The Galkynysh block unites large fields of South Yolotan, Osman, Yashlar, as well as a number of smaller ones. According to Turkmen geologists, all of them can be a single geological deposit.

Currently, gas from the Galkynysh field is supplied to the local market and exported to China via a 55 bcm pipeline through Uzbekistan and Kazakhstan. In addition, the gas from Galkynysh is a resource base for deliveries through the TAPI gas pipeline (Turkmenistan - Afghanistan - Pakistan - India) with annual capacity of 33 billion cubic meters.

Gas from this field is supposed to be exported to European markets, and the Trans-Caspian gas pipeline looks like the most promising option, which has been discussed for several years between Turkmenistan, Turkey, Azerbaijan, Georgia and the EU. The annual throughput capacity of the pipeline, which should run through the Caspian Sea is expected to be up to 30 bcm.

Unprofitable export

Despite such bright prospects, the real picture of the export of Turkmen gas still looks very distressing. The only importer of gas (about 35 bcm) from Turkmenistan is China. In fact, the country is completely dependent on one buyer. At the same time, according to information from open sources, gas exports to China do not bring large revenues to the state treasury, since part of them is directed to repay loans granted to Turkmenistan by Chinese banks to develop the Galkynysh gas field and to build gas pipelines.

Construction of the TAPI pipeline is not smooth either. Turkmenistan has high hopes and serious ambitions in this project. After all, this is not only a gas pipeline, but also a whole list of various energy and infrastructure initiatives, the implementation of which can bring global changes to the entire Asian region.

The operator of the project is TAPI Pipeline, 85% of which is owned by Turkmengas Concern, the rest is equally shared between Indian Gail, Pakistani Inter State Gas Systems (ISGS) and Afghan Gas Enterprise (AGE). The commissioning of the gas pipeline is scheduled for the end of 2019 - the beginning of 2020, and the launch dates were postponed repeatedly. The projected life of the pipeline is 30 years. The total cost of the project is estimated at $7 billion.

However, the main problem in the implementation of the project is related to security due to the unstable situation in Afghanistan, which complicates the attraction of investments. In addition, there are ambiguities with the volumes of gas planned via TAPI.

Nevertheless, despite the delays, there is still some progress. Construction of the Turkmen section of the pipeline began in December 2015. In Afghanistan, the opening ceremony of construction works took place on February 23, 2018, but it is not yet clear at what time they will end. India has already built the entire infrastructure on the border with Pakistan, which also seems to be actively preparing to start works on laying its own section of the main gas pipeline and expects that the gas pipeline from Turkmenistan to the border with India will be fully operational by 2020, but it is still doubtful whether this work will be possible.

Meanwhile, Turkmenistan invited Saudi Arabia, Japan, Bahrain, the United Arab Emirates, Uzbekistan, Azerbaijan and Russia to participate in the project, including in funding of the project. But so far only Riyadh has expressed its willingness to provide financial support. In November 2017, the Saudi Development Fund allocated $40 million for the purchase of gas pipes intended for the construction of the Turkmen part of TAPI. Saudi Arabia’s Minister of Energy, Industry and Mineral Resources, Khaled al-Faleh, in his March interview with Al-Riyadh, said that the country's leading state-owned company, Saudi Aramco, was considering the Caspian countries, and in particular Turkmenistan, as the largest owners of natural gas and is exploring opportunities to participate in financing of the project. According to Faleh, the participation of Saudi companies in such a gigantic project will be a major contribution of Saudi Aramco to the global trade in natural gas, mainly between Europe and Asia. "The Kingdom has plans for a serious strategic presence in Central Asia, including Azerbaijan, Kazakhstan and Turkmenistan. This includes major investments in projects from field development to the refining of oil and gas," Al-Faleh said.

Misty Trans Caspian

TAPI is progressing slowly but steadily, while nothing changes with the Trans-Caspian gas pipeline project. Despite strong political support of the project from the U.S. and the EU, the prospects for its implementation look rather vague. Ashgabat is clearly not in rush to support the underwater project to deliver Turkmen gas to Europe, and ending the "gas war" with Russia may delay the solution of the issue for an indefinite time.

In January 2016, Gazprom refused to buy gas from Turkmenistan, taking a "contract pause" until the end of 2018, as the Russian company did not like the price. No agreement has been reached since to reduce the contract price. In mid-2015, Gazprom Export (a structural division of Gazprom, R+) filed a lawsuit demanding a revision of the gas price effective since 2010. The amount of demanded compensation by the Russian company is estimated at about $4 billion.

However, considering the latest events, the parties seem to reach a deal soon. Repeated meetings of the CEO of Gazprom with the leadership of Turkmenistan gave a positive result. In the near future, Gazprom expects to resume purchases of Turkmen gas. "We see great prospects for expanding our cooperation in the gas sector, and the most important thing is the understanding that we will literally continue our work under the contract for the purchase of Turkmen gas,"  Gazprom’s Chairman of the Board Alexey Miller said in his interview with Turkmen television channel Vatan.

In fact, A. Miller summed up the meeting with the President of Turkmenistan Gurbanguly Berdimuhamedov, which took place on March 27 in Ashgabat. However, he did not specify conditions that the parties agreed to renew the contract.

Resumption of cooperation will be beneficial to both parties. This will give Ashgabat a chance to diversify gas exports and reduce dependence on the Chinese, and Gazprom will be able to fill, for example, the Turkish Stream, which is scheduled for the end of 2019, with Turkmen gas. In addition, gas cooperation may well be extended if the Russian concern is attracted to develop the Galkynysh field.

On the other hand, by purchasing Turkmen gas, Russia may cancel plans for the construction of the Trans-Caspian gas pipeline, thereby preventing the emergence of a serious competitor from the Caspian region in the European market.

At the same time, Turkmenistan does not deny the project yet. On the contrary, in February 2019, Adviser to the President of Turkmenistan Yakhshigeldi Kakayev, speaking at the plenary session of the 5th meeting of the Advisory Council on the project to create the Southern Gas Corridor in Baku, said that the Trans-Caspian gas pipeline could make a valuable contribution to the energy security of Eastern Europe.

"One of the projects that can make a valuable contribution to the energy security of Eastern European countries is the Trans-Caspian gas pipeline. Turkmenistan has sufficient resources to provide the markets of European countries with natural gas," said Y. Kakayev. According to him, such a project will make it possible to establish gas supplies to Europe through the Trans-Caspian gas pipeline.

"Turkmenistan confirms readiness to resume negotiations on this project. I am confident that the meeting of the Advisory Council on the project to create the Southern Gas Corridor will be another step in the successful implementation of the Trans-Caspian gas pipeline project," Y. Kakayev said.

Apparently, Turkmenistan is going to make a serious decision in the coming months regarding the future of its gas exports. Considering that the construction of the Southern Gas Corridor is almost complete, after which the project participants will look for additional sources of gas to be able to expand the SGC's annual throughput capacity twice (up to 20 bcm), then meditation left very little. It is crucial not to miss the moment now.