The
energy-rich Central Asian nation of Turkmenistan ranks fourth globally in terms
of asserted natural gas reserves with around 50 trillion cubic metres (tcm),
according to the latest announcements of the state energy company Turkmengaz.
The current
production is about 75 billion cubic metres (bcm) per year, with plans to
increase that total to 230 bcm by 2030.
According
to the British accounting company Gaffney, Cline & Associates,
Turkmenistan’s largest gas field Galkynysh holds over 24 tcm alone, making it
the second largest field in the world after Ghawar in Saudi Arabia. Two other
fields, Yashlar-Minara and Bagtyarlik, each hold 1.45-5 tcm and 1.3 tcm,
respectively.
The
government in the capital Ashgabad opted to develop these giant fields through
concessions and service contracts with Petrofac, LG International, CNPC and
Hyundai Engineering and Construction Co. for a specific time frame instead of
the popular Production Sharing Agreement model (PSA).
China is
Turkmenistan’s first and most important client, however, Ashgabad has long
aspired to export its gas resources to Europe.
The
Trans-Caspian Gas Pipeline is a proposed 300 km underwater pipeline that would
stretch between Turkmenistan coastal city Turkmenbashi to Baku in Azerbaijan and
may also include a connection between the huge Tengiz field in Kazakhstan and
Turkmenbashi.
The project
is destined to transport natural gas from Turkmenistan and Kazakhstan to
Europe, bypassing Russia and Iran, and is considered an eastward extension of
the Southern Gas Corridor comprised of the South Caucasus Pipeline (SCP),
Trans-Anatolian Pipeline (TANAP), and the Trans-Adriatic Pipeline (TAP).
Its
projected capacity is 30 bcm per year, at an estimated cost of $5 billion.
The project
was first suggested in 1996 by the United States. In February 1999, the Turkmen
government agreed with General Electric and Bechtel Group for a feasibility
study on the pipeline. At a 1999 OSCE meeting in Istanbul, Georgia, Azerbaijan,
and Turkmenistan signed a number of agreements concerning the construction of
several projects that included the Baku-Tbilisi-Ceyhan and Trans-Caspian
pipelines.
The project
stalled, however, due to fierce Russian and Iranian opposition and the
unresolved legal status of the Caspian Sea, as well as the major discovery of
the Shah Deniz gas field in Azerbaijan.
On
September 12, 2011, the EU Foreign Affairs Council agreed to give a negotiating
mandate to the European Commission for negotiations with Azerbaijan and
Turkmenistan on the Trans-Caspian pipeline, but three key questions still
remain regarding its construction:
-
Commercial
production of natural gas, in order to justify the construction and operation
of the pipeline;
-
Sufficient
demand to support stable sales on commercially attractive terms for the
government of Turkmenistan and the companies involved in production;
-
Investors
interested in developing infrastructure that will deliver Turkmen gas to
Europe.
Turkmenistan
has the reserves, as indicated above, but the second question needs to be
answered to enable the third.
The project
was flatly rejected by Russia and Iran, as both are transit countries for
Turkmen gas. Moscow that a gas pipeline would endanger the prosperity of the
entire region and prove to be environmentally unacceptable.
Russia has
also taken the legal position that a potential pipeline project, regardless of
the route on the seabed, would require the consent of all five Caspian littoral
states – Russia, Iran, Azerbaijan, Kazakhstan, and Turkmenistan – to proceed.
Iran
continues to legally recognise treaties signed by the Soviet Union and Iran between
1921-1940 are still in force and any action taken without the consent of all
littoral states would be illegal. The issue is regulated by articles 79 and 87
of the UNCLOS (United Nations Convention on the Law of the Sea) of 1982, which
states that every littoral state, while making use of its sovereign right to
explore its seabed and the natural resources that lie beneath it, as well as to
prevent any potential pollution or environmental damage, it cannot prevent the
laying and/or preservation of cables and pipelines.
The route
of any pipeline on the seabed is subject to the consensus of the littoral
state. Russia, Kazakhstan and Azerbaijan have ratified the Convention, which
was signed by the Soviet Union, whereas Turkmenistan and Iran have not. The Convention
is therefore not applicable in the Caspian Sea and the consensus of all
littoral states is required in order to proceed with the construction of a
pipeline. If all the countries involved had ratified the Convention, the
realisation of the Trans- Caspian would be much simpler, at least from a legal
point of view.
As long as
the legal status remains unresolved, the issue of the Trans-Caspian will
continue to linger unless Russia and Iran decide to shift their positions,
which is not likely to happen.
The
economic context remains a challenge with global oil prices still low and the
ongoing embargo against Qatar, the biggest LNG producer and exporter in the
world. From a market perspective, building a pipeline to bring remote Turkmen
gas supplies to Europe appears extremely expensive, when oil prices remain low.
Furthermore, does Europe really need Turkmen gas at this point and time?
Shah Deniz
II gas will come online in 2020, with 10 bcm reaching Turkey, Greece, Albania,
and Italy. When the capacity later doubles to 20 bcm per year, Bulgaria will
also import 2 bcm per year through the Interconnector Greece Bulgaria, while
Russia remains the main natural gas supplier for Europe.
Europe’s
Mediterranean flank is already heavily reliant on LNG imports, with Greece,
Italy and Spain importing LNG from Algeria and Qatar. Last but not least, it
seems that gas from the Eastern Mediterranean region will come sooner than
expected, either from Zhor field in Egypt or from Block 6 in Cyprus.
As a
result, the key question remains: Is the Trans-Caspian still vitally important
for Europe anymore?
* Marika Karayianni is
a Caspian Energy Expert
https://www.neweurope.eu/article/trans-caspian-gas-pipeline-really-important-europe/