The recoverable offshore reserves of Turkmenistan (Central Asia) exceed 12bn metric tons of oil and 140bn cu m of natural gas, according to the latest estimates. The prospective reserves of its offshore fields exceed 6trn cu m of gas by the most modest estimates.
This makes them unique and, naturally, generates long-term strategic interest among the world’s leading oil and gas producers.
Staking Claims Only 20% of Turkmenistan’s oil and gas producing offshore areas is developed industrially. During Russian President Vladimir Putin’s extremely successful visit to Central Asia in June, the parties agreed to develop these reserves with Russia’s assistance and direct involvement.
The Turkmen and Russian shelf of the Caspian Sea has so far escaped the attention of multinational consortiums, which encourages Turkmenistan’s loyalty to Russia.
Ashgabat currently prefers bilateral projects – with Russia, Kazakhstan, Iran or directly with West European companies – in the sector, as this precludes different interpretations. This, however, does not rule out the possibility of an active dialogue with new potential partners, for example, China (it is already under way), and even future “opening” of Turkmen reserves on purely market terms.
The existing huge discount on Turkmen oil and gas compared to global hydrocarbon prices predetermines changes in the country’s export policies. This is why Russian and other oil and gas producers are ready to pay huge sums for control over Turkmen offshore fields for many years to come.
Not Everyone Is Welcome Only two foreign companies are now developing Turkmenistan’s offshore fields in the Caspian Sea. British-Arab Dragon Oil, which has been working on the Cheleken fields since 2000, and Malaysian Petronas, which began development in May 2006. Danish Maersk and German Wintershall are exploring hydrocarbon producing areas.
Remarkably, out of all international projects to produce energy on the Caspian, only the Turkmen variant envisages deep oil refining together with French investors – Total and Frances de Petrol. It will be done at a new oil refinery in Turkmenbashi (former Krasnovodsk).
In the future, the same investors will help to build a petrochemical plant there.
South of it, in the city of Cheleken, also on the seacoast, French and Iranian firms will take part in the construction of the region’s biggest LNG plant and export terminal.
Russia is also mounting its presence on the Turkmen shelf. During his talks in Ashgabat in June, Vagit Alekperov, president of Russia’s largest privately owned oil company LUKoil, obtained the Turkmen government’s preliminary consent to his company’s participation in oil and gas production in the country.
LUKoil confirmed its willingness to explore and develop offshore fields in the Turkmen sector of the Caspian Sea, Alekperov said in an interview with the local television after his meeting with the country’s president. The company made concrete proposals to the Turkmen government on how to carry out its programmes on the Turkmen shelf, he said.
Earlier, LUKoil had repeatedly been in talks with Ashgabat on joining the development of the main oil producing blocks in the Caspian Sea. Two years ago, it tried to develop the Turkmen shelf together with Dragon Oil, which is working on a block near Cheleken with estimated reserves of 661mn bbl of oil and about 100bn cu m of gas. However, Turkmenistan’s former government did not support the idea of LUKoil’s cooperation with Dragon Oil on its territory, and the transaction did not go through, pushing the price of the British-Arab company’s stock down 14% from the one that had sustained for 13 years.
LUKoil’s loss was not as significant, because the Turkmen shelf is only a small fraction of the company’s business.
Share in Consortium At the same time, Turkmen President Kurbankuli Berdymukhammedov held talks with a joint delegation of leading oil producers – Russian-British joint venture TNK-BP and LUKoil – whose representatives once again offered to help Turkmenistan to complete the exploration of and to develop its Caspian shelf.
TNK-BP chairman Robert Dudley said a consortium was likely to be set up for Turkmen projects, but the shares of individual participants had not been discussed yet. According to available information, the aggregate share of Russian participants will exceed 35%, which will be about 10% higher than in the Caspian Pipeline Consortium and almost 20% higher than in the Azerbaijani International Operating Consortium.
LUKoil’s Alekperov, in his turn, did not elaborate on the consortium’s details in the interview with the Turkmen television, but said: “We have tentatively selected three perspective hydrocarbon blocks on Turkmenistan’s Caspian shelf and had discussions with local experts.
The president of Turkmenistan has endorsed all the submitted proposals, and the company will start implementing them very soon.” Apart from LUKoil and TNK-BP, other Russian companies also offered Ashgabat assistance in developing its offshore fields. In 2002, the joint venture Zarit was set up but the project did not succeed for a number of reasons. Late President Saparmurat Niyazov said at the time: “The fields planned for development are situated close to the Iranian sea border; it would be legally and politically wrong to develop border resources before the delimitation of the Caspian Sea.” By 2007, however, Ashgabat and Tehran actually agreed on the border in the adjacent Caspian sector, which will allow developing Turkmen fields there as well.
At present the country is considering proposals from several Western companies and Russia’s energy giant Gazprom.
Interest in the abovementioned consortium and in bilateral offshore projects with Turkmenistan has also been expressed by Dragon Oil, which, despite losses after the project with LUKoil did not go through, continues developing the Cheleken block, which includes the oilfields Prichelekensky Kupol, Dzheitun (LAM) and Dzhygalybeg (Zhdanov).
In 1999, Dragon Oil signed a 25-year production sharing agreement with the Turkmen government on joint development of the block. Preliminary investment in the project was estimated at $500mn.
Chinese Trump Card… China’s influence on the Turkmen economy is not too strong now, but gas production, processing and marketing is seen as the most promising segment of bilateral cooperation. Beijing is clearly confused by Russia’s current activity in Central Asia. It fears that Ashgabat’s fulfilling of its increased obligations to Gazprom may prevent it from honouring the Turkmen-Chinese gas supply agreement.
Work on the feasibility study for a gas pipeline to China was launched last year. It will go from the gasbearing provinces on the right bank of the Amu-Darya River to the Guangdong province in southern China.
So far, there is absolutely no clarity regarding the choice of a transit country: the route could go via Kazakhstan bypassing Uzbekistan (which is much longer), or via Uzbekistan and then Kazakhstan. After the new Turkmen leader had visited Beijing, the talks on the price of Turkmen gas for China were resumed. Observers have no access to the final figures yet, but the Chinese can presumably offer more than $100 per 1,000, which can lead to adjustments in Turkmenistan’s gas exports in all directions.
Buying gas from Turkmenistan and from Russia’s Gazprom, Beijing always wants to have a coal equivalent: coal in the country is cheap and its reserves are huge. So China will never pay more for imported gas than for its own coal, no matter how crucial it is for its growing economy.
Many experts believe that it will take the two parties quite a while to agree on the final price.
Analysing the situation in the gas triangle of Russia – Turkmenistan – China, one is compelled to think that lack of clarity and haste are, to a degree, beneficial to all of the three. Why? To put it shortly, China can put pressure on Russia by showing that it has an alternative to Siberian gas – Turkmen reserves. At the same time, it cites the agreement signed by President Putin during its talks with Ashgabat.
Turkmenistan points to Gazprom’s existing and future transportation network when talking with the Chinese.
When negotiating with the Russian giant, it uses China as a trump card, as a new prospective export route.
Russia uses the “threat” of directing Siberian gas eastwards in its talks with the West. China will need huge gas imports in about 10-12 years; Russia and Turkmenistan are in no hurry, as they do not have excessive gas so far. If excesses do appear, the price will be completely different in a few years.
…and Unused Reserves A leading British Central Asia expert, David Merkel, said at a conference on Turkmenistan in Washington in March 2007 that the country’s reserves could reach 10tn cu m of gas instead of 2-3tn, even by the most cautious estimates. Its oil reserves can exceed 14bn metric tons, he said. These figures are significantly higher than those given above.
Soviet-era exploration data are not of much help, as they are very approximate.
Judging by them, the Turkmen desert holds 3tn to 20tn cu m of gas, including 70bn cu m of gas condensate. There is no separate information on offshore reserves.
However, the new Iolotan gas province, which is not yet developed, alone holds about 7bn cu m, according to the estimates made by late President Niyazov.
One can believe it or not, but it was the South Iolotan field that he expected to supply gas for China. With a lot of reservations, Russian and foreign experts agree that in the near future Ashgabat will be able to export 100-120bn cu m at best.
As to Turkmen oil export, its transit via the Russian Caspian port of Makhachkala is expected to grow. There crude will enter the Russian oil transportation system for further pumping to Ukraine on to West Europe. There are also plans to ship Turkmen oil via Azerbaijan and the Baku-Tbilisi-Ceyhan pipeline, but most analysts agree that the route across Russia will prevail.
