Turkmen Gas Reserves: A Riddle Wrapped In An Enigma…?

Via Gundogar, an article noting that questions have recently been raised about whether the gas resources of Turkmenistan are in fact as spectacularly voluminous as verified last year by the British firm, Gaffney Cline & Associates.  As the report notes:

“…Gaffney Cline certified that the new South Yoloton field held between 4 trillion and 14 trillion cubic meters (Tcm) of gas, with the most probable scenario at 6 Tcm, and that Yashlar held between 0.3 Tcm and 1.5 Tcm, with the most probably scenario at 0.7 Tcm.

These volumes would confirm the country as a leading producer on the world scene and do not even take into account other fields that remain unexplored. They would justify claims reported to have been privately made to Western leaders by the country’s former president, Saparmurad Niyazov, shortly before his death almost three years ago.

However, two-and-a-half weeks ago, and within a day of one another, there appeared an article by Arkadii Dubnov in the Russian newspaper Vremya Novostei and a separate report on the website of the German-based Eurasian Transition Group questioning such claims. This was on the basis of confidential information supposedly gleaned secretly from officials in Moscow in the first instance and in Ashgabad in the second.

To help evaluate these allegations, one could recall the adage oft-employed by Marcus Tullius Cicero: «Cui bono?» Literally translated, this means, «To whom [accrues] the benefit?» A looser and more colloquial modern translation would be, «Follow the money». So let us follow the money. Who benefits?

As a top Gaffney Cline representative explained in an e-mail published by a EurasiaNet correspondent, his firm’s auditing process followed international standards (which is why Ashgabad chose a Western firm in the first place) and involved assessing «a very considerable volume of data … [from] a wide range of types and from a range of sources: in practical terms, impossible to falsify [systematically in such a way as to] appear to be coherent and [so] mislead an expert team.» With its international reputation on the line, Gaffney Cline would have no motive at all to be complicit in such a putative falsification.

Yet there is no doubt that the publication of this information, whether it is true or false, is to Turkmenistan’s disadvantage. In fact, it complements what Russian media and officials have now insisted for many months, to wit, that Moscow has already contracted all future gas from Turkmenistan. There is a contract in principle signed under Niyazov to provide Russia with 50 billion cubic meters per year (bcm/y), but that is subject to continual negotiations and re-negotiations over price.

Because of the pricing disagreement, there have been no gas exports from Turkmenistan to Russia since an April pipeline explosion for which the former blames the latter. Following repairs, political agreements between the two sides to resume the flow have been stymied, precisely because Russia wants a price lower than it had been paying, and moreover a formula for its calculation that would permit it to vary over time. Turkmenistan still wants a fixed price at top dollar.

The ill-will that this series of events has engendered in Ashgabad has led President Gurbanguly Berdimuhamedow to seek Western contractors for repair of a separate «East-West» pipeline in the south of the country ending on the Caspian Sea, raising the possibility that the gas it carries could flow further west, across and under the sea, eventually to Europe, rather than north to Russia.

Here it is pertinent to remark on the quality of news reports on energy matters in the Russian media. By and large, these are factually correct. However, on more than a few occasions over the past several years, official English translations of Russian news stories have carried implications differing from the original Russian, ostensibly due to poor translation or differential editing.

A survey of such instances reveals that the nuances thus introduced tend almost uniformly to invite interpretations that are advantageous to Russian state interests, whether through omission by suggesting greater Russian influence on events, or through commission by offering as facts things that are not so.

This is not to say that there is a centralized propaganda strategy emanating from the Kremlin. That is a question of fact, and there is no direct evidence to confirm such a suggestion. However, the evaluation of any new information offered by such sources must take into account existing evidence for an established pattern of consistent bias, whatever may be the reasons for such a pattern, even if it is merely «group think» by Russian journalists.

For example, ever since the signature of the contract for Azerbaijan to send 0.5 bcm of gas from Shah-Deniz Phase 2 to Russia in 2010, Russian media and officials have stated at every opportunity that they will have what amounts to «first refusal» on subsequent Shah-Deniz Phase 2 production. However, no legal documents binding the Azeri side to such a bargain exist.

Nevertheless, such a claim on the Russian side is in the same line as reports about allegedly falsified numbers concerning Turkmenistan’s gas reserves. And continuing insistence from Moscow that Russia will effectively remain the sole (or main) buyer of Central Asian gas, whether from Azerbaijan or from Turkmenistan, is in the same line as suggestions that Europe should abandon any hope to import, in any significant quantity, Caspian Sea basin natural gas reserves.

In the same vein, Yashigeldy Kakaev, who directs Turkmenistan’s State Agency on Hydrocarbon Resource Management and reports directly to Berdimuhamedow, was vexed this month when Russian media quoted him correctly but only in part as saying that Turkmenistan looked forward to beginning its exports to China in the near future, while insisting that that Western partners build a pipeline to Turkmenistan’s border (where the country sells its gas by state policy).

An editorial statement about the unlikelihood of the latter would give the appearance that Kakaev downplayed ideas about pipelines such as the Europe-backed Nabucco and advocated instead China’s access for Turkmenistan’s market.

Yet the attribution of such a China-oriented view to Kakaev would be surprising, since the public record shows numerous statements by him strongly advocating a European direction for Turkmenistan’s exports. Indeed, to suggest that he favors a China-only (besides Russia) export strategy would be the very opposite of what he really said at the time, as extensively reported by other news agencies, two weeks ago at a high-level conference in Bucharest.

It is the case that a pipeline under construction from Turkmenistan through Uzbekistan and Kazakhstan to western China, scheduled for completion early next year, will have a capacity of 40 bcm/y. But in such a context, questions about Turkmenistan’s reserves pointedly invite the observer to conclude that there will be no gas for westward export to Europe after fulfillment of contractual obligations to Russia and China.

There seems to be a risk that some US companies may take the bait. These companies have suggested to the Turkmenistan government that, if they should receive production-sharing agreements, then they would like to participate in exports to China. This idea makes no commercial sense to officials in Ashgabad, however, for they do not need such help; the Chinese are capable of providing it and are already doing so.

On the other hand, energy officials in Turkmenistan are very aware of bilateral Russian-Chinese energy cooperation now being launched at the highest level as a knock-on from Russian Prime Minister Vladimir Putin’s recent visit to Beijing. Indeed, they recognize that Turkmenistan’s own interest is not to be locked between the two large countries, which could easily collude against it. They thus know that they need export markets, not only other than Russia, but also other than China.

These Turkmenistani officials are, then, precisely those who would have reason to fear that Western players believe the new allegations about falsification of reserves, which Russian players have a motive to make to appear credible. Yet they will not risk angering Russia with a small agreement for exports to Europe.

It follows that piecemeal offers from the West are unlikely to provide sufficient incentive for so radical a re-orientation of Turkmenistan’s export policy in practice.

Ashgabad is waiting (and hoping) for a consolidated and practical offer from European and/or American companies that, by its very magnitude, will motivate a seismic shift westward in the geo-economics of the Eurasian hydrocarbon energy complex, and natural gas in particular, finding Turkmenistan in the first rank of those happy to participate in such an initiative, which would create its own momentum.”



This entry was posted on Monday, November 9th, 2009 at 10:16 am and is filed under China, Russia, Turkmenistan.  You can follow any responses to this entry through the RSS 2.0 feed.  You can leave a response, or trackback from your own site. 

Leave a Reply

You must be logged in to post a comment.


About This Blog
Wildcats & Black Sheep is a personal interest blog dedicated to the identification and evaluation of maverick investment opportunities arising in frontier - and, what some may consider to be, “rogue” or “black sheep” - markets around the world.

Focusing primarily on The New Seven Sisters - the largely state owned petroleum companies from the emerging world that have become key players in the oil & gas industry as identified by Carola Hoyos, Chief Energy Correspondent for The Financial Times - but spanning other nascent opportunities around the globe that may hold potential in the years ahead, Wildcats & Black Sheep is a place for the adventurous to contemplate & evaluate the emerging markets of tomorrow.