When you imagine a closed country in the world, North Korea usually comes up – mainly because of its leader Kim Jong Un, Pyongyang’s nuclear capabilities and the Western blockade of its involvement. What usually does not come to mind is the country that is considered the second most closed, Turkmenistan – even though it is a country that is in sixth place in terms of gas reserves (3.8% of all reserves in the world). Turkmenistan does have oil reserves of 600 million barrels, but recently, in the shadow of the global energy crisis caused by Russia’s invasion of Ukraine, it has become the focus of interest for leaders who are interested in importing natural gas from it.
Unlike most of the countries of the world that were troubled by Russia’s invasion of Ukraine in March, in Turkmenistan, which perpetuates its neutral position at every opportunity, they concentrated on another event: the president who has been in office for 15 years, Gurbanguly Berdymukhedov, decided to make way for the leadership of his introverted son, Sardar. As usual, in the elections that took place in March of this year and the results of which were quite predictable, Sardar won 72.97%, and entered the presidential residence in the capital, Ashgabat.
As far as the credit rating is concerned, Turkmenistan’s situation is quite stable. In the last two years, the Fitch agency has set a rating of B+. Turkmenistan’s rating indicates, according to the analysts, that there is a danger in giving it credit, but it meets its financial obligations.
The Turkish rush to obtain natural gas
Following Turkey’s dire financial situation, which is getting worse due to rising energy prices, Ankara is in a real panic for natural gas. The Minister of Energy, Fatih Donmez, did say last week that Turkey is interested in extending the import contracts from Russia, Iran and Azerbaijan, but the rising energy prices and regional tensions require Erdogan and his people to recalculate the route. Therefore, for the first time in more than 20 years, the vice president, Fuat Oktay, announced last month that Ankara is examining the possibility of importing natural gas from Turkmenistan through Azerbaijan.
Oktay did not directly refer to Turkey being a significant “transit station” for natural gas to Europe, but the facts are that the Trans-Anatolian (TANAP) pipelines that connect from Turkey to Greece, and the Trans-Adriatic (TAP) pipelines that connect to it and continue from Greece to Albania, Bulgaria and Italy – constitute great potential for Turkmenistan. As part of the plans to find a European solution to the shortage of Russian gas, in Brussels we have already discussed the issue of increasing the current pipeline capacity.
The vice president of Turkey commented on the way natural gas is transported from Turkmenistan. He listed three options: a pipeline, an exchange agreement, and a combination between tankers and a pipeline.
“The President of Turkmenistan fully supports the examination that is being carried out on the issue,” noted Oktay. The plan that Ankara is considering apparently includes the deployment of a 77-kilometer long pipeline from the Magtimguli reservoir in the economic waters of Turkmenistan and the Azeri-Chirag-Gonsheli reservoir in the economic waters of Azerbaijan. From this reservoir there is already an existing pipeline infrastructure to the shores of Azerbaijan. According to the estimates of the Trans-Currency Storage Company (TCP), such a pipeline may transport 10-12 BCM per year.
The exchange agreement that Oktay talked about probably deals with the possibility of expanding the gas exchange agreement between Turkmenistan, Iran and Azerbaijan, according to which the Turkmen transfer 1.5-2 BCM of gas per year to Iran, which takes the same amount to Azerbaijan. Such an option may benefit Tehran, which will “benefit” from European dependence on its gas supply. The third combined option of a pipeline and tankers seems less likely due to the need to invest 10 billion dollars in the construction of gas liquefaction facilities, and regasification. It is not impossible that Oktai was referring to compressed natural gas for which the construction of the infrastructure is cheaper – but still expensive.
Competition with Russia for gas exports
Turkmenistan, as mentioned, defines itself as neutral, but within the framework of Soviet history – the authorities maintain very close relations with Moscow. President Sardar Berdimuhamedov, for example, acquired an academic education at the Academy of Diplomacy of the Russian Foreign Ministry between 2008-2011. This connection was put to good use by Russian President Putin last month, when the first shipment of goods was made by train from Chekhov in the Moscow region to India, via Kazakhstan, Turkmenistan and Iran. This is one route from a complex of the Russian program “International North-South Transport Corridor” (INSTC), through which Moscow seeks to circumvent the sanctions against it.
Despite the close cooperation between Ashgabat and Moscow, natural gas has become a source of significant competition between the two countries. Russia’s invasion of Ukraine created a “chain effect” in which sanctions were imposed on Moscow, and Russia responded by “lowering the switch” to a significant part of the gas it supplies to EU countries, while expanding the scope of natural gas sales to China.
Since December 2019, Russia has been supplying China with gas through the Power of Siberia pipeline. The pipeline enters from the Russian Far East and runs along the Chinese coastline through Beijing, all the way to Shanghai. The southern section of the pipeline is expected to start operating in 2025. As far as the Russians are concerned, they are far from returning the investment in the project. According to Chinese customs data, the volume of gas imports since the beginning of the “Power of Siberia” activity was 3.81 billion dollars – when Moscow invested no less than 55 billion dollars in the project.
However, Russia has many reasons for optimism: in the first half of 2022, China imported 7.5 BCM of natural gas for about $1.66 billion from Russia – paying almost three times the same period last year for a volume of imports that increased by 63.4%. And this is where the damage to Turkmenistan is manifested. Ashgabat did indeed supply Beijing with natural gas worth 4.52 billion dollars in the first half of the year, but despite the increase in gas prices – this was an increase in the volume of revenues by “only” 52% compared to the corresponding period last year.
Turkmenistan not only knows China’s goal of diversifying its energy sources, but also knows that the original gas agreement between Beijing and Moscow includes a future target of 38 BCM – five times the current import volume. The Turkmen government boasted in June that since the establishment of the Turkmenistan-Uzbekistan-Kazakhstan-China (TAGP) gas pipeline in 2009, they have exported 334 BCM of gas to China, with 34 of them in 2021, but President Berdimuhamedov and his people are surely worried about the future.
Russia and China are already holding talks on establishing the “Power of Siberia 2” project, which will pass through Mongolia. According to a report in the “Financial Times”, in Mongolia, which may reap profits from the project, construction work is expected to begin within two years.
The Taliban in Afghanistan have played the cards
Unlike Russia’s successful infrastructure boom, Turkmenistan’s major plan to export gas to India could turn out to be a failure. In December 2015, work began in Turkmenistan to build the TAPI pipeline, which is intended to transport Turkmen gas to India, via Afghanistan and Pakistan. The work in Afghanistan did indeed begin in February 2018, but the Taliban coup last year “killed” the cards.
While the Taliban government is talking about its ambition to renew the establishment of TAPI, the total length of which in the four countries is 1,814 km, they are also talking about the possibility of importing gas and oil from Russia. With Russia, Jamal Nasir Grewal.
The Taliban government suffers from serious cash flow problems, and according to estimates, owes its neighbor Tajikistan tens of millions of dollars for electricity it supplied to Afghanistan. Therefore, the feasibility of implementing the TAPI program does not seem particularly likely at this stage in the absence of funding sources. On the other hand, as Russia has invested a huge amount in the establishment of the “Power of Siberia” pipeline to China – it is not impossible that it will take on the costs of exporting gas to Afghanistan, thus creating energy dependence of Kabul on Moscow.