The challenges of bringing Turkmen gas to Europe

Turkmenistan stands to be a critical gas supplier for the EU, with advanced potential for enhancing the energy base of the European Commission’s proposed Southern Gas Corridor (SGC). However, regional energy geopolitics involving China and Russia with Turkmenistan’s state hierarchy impedes Turkmen gas exports to Europe. Energy savings made through EU expertise could interest the Turkmen state in the SGC for two reasons: more income by feeding saved energy resources into the SGC, and more investments in Turkmenistan’s infrastructure.

The SGC is a gas project that aspires to partly diversify the EU’s energy sources, offering an alternative energy route that bypasses Russia and the transit countries of Ukraine and Belarus. Physical interconnections are already in place between Azerbaijan and neighbouring countries such as Georgia and Turkey through the Baku-Tbilisi-Erzurum (BTE) pipeline. This route currently transfers up to 6 billion cubic metres per annum, with the potential to expand its capacity to 20 bcm per year. The Trans-Anatolian (TANAP) and Trans-Adriatic (TAP) pipelines are also expected to complete the Southern Gas Corridor. Both pipelines are scheduled to be constructed by 2019, with a total capacity of 31 bcm for TANAP until 2030, and 20 bcm for TAP. Possible extensions of their capacities could also be achieved with the addition of gas compressors across the pipelines.

The SGC will also require interconnections with off-shore pipelines from other neighbouring energy producers, mainly from Central Asia. Turkmenistan is a critical player in this equation. It has the world’s fourth-largest gas reserves, which currently amount up to 17.5 trillion cubic metres according to the 2014 Statistical Review by BP, or proven reserves of up to 21 trillion cubic metres according to the Turkmen hydrocarbon exploration agency, Turkmengeologiya.

Turkmenistan is already interested in diversifying its energy routes through a Trans-Caspian pipeline (TCP) to Europe. Overreliance on selling energy supplies to Russia has meant that the reduced exports along the Central Asia-Centre pipeline to Russia have had an impact on Turkmenistan’s gas rent revenues. To that end, this year Turkmenistan is in the final stage of completing the East-West pipeline, which will link its biggest gas field, Galkynysh in the country’s south-east, to the Caspian Sea. The capacity of the pipeline, which is expected to be up to 31 bcm, will provide a large boost to the pipelines at either extreme of the country, one at the Caspian and the other exporting to Uzbekistan.

One of the main challenges to the realisation of the TCP is the historic problem concerning the legal status of the Caspian. While Russia and Iran argue that it is a lake and therefore its sub-water resources need to be shared among all littoral countries, the rest of those countries consider that the 1982 Law of the Sea needs to applied, in which each littoral country has to demarcate their Exclusive Economic Zone and territorial waters. In addition, Turkmenistan disputes Azerbaijan’s right to sovereignty over the gas fields of Azeri, Chirag and Kyapaz around the unrecognised median zone between the two countries. Despite efforts by the European Commission to encourage a solution between Azerbaijan and Turkmenistan, progress has been slow and no concrete plans have yet been arranged.

There is an even more fundamental challenge impeding the interconnection of Turkmenistan with the SGC. The EU promotes the liberalisation of domestic energy markets in the southern Caucasus and Central Asia, but Turkmenistan is unwilling to open up its energy market. A transition to market rules would compromise energy rents for the regime and state elites. On the other hand, energy deals with closed, centrally-managed economies, such as China, require no such definitive regulation, and their elites are of a similar mind to Turkmenistan’s.

Additionally, pipeline politics along the SGC, including Russian antagonism, further discourages Turkmenistan from engaging in comprehensive energy interconnection with the southern Caucasus. Turkmenistan considers that Russian counter-proposals, i.e. the Turkish Stream, could compromise the stability of energy demand along SGC. Instead, energy relations with China look to offer more predictability. Turkmenistan established gas relations with China in 2007 through the Trans-Asian Gas pipeline via Uzbekistan, and China has since secured equity in upstream gas assets in Turkmenistan, mainly through the Chinese Gas Company CNCP.

Mitigating domestic energy consumption could offer the chance at significant income for Turkmenistan’s state elites, as resultant energy surpluses could be exported and the incurred income reinvested in energy exploration and the refurbishment of existing energy routes. The EU can capitalise on the argument of energy savings by offering its expertise in energy efficiency to the Turkmen administration. In addition, these energy savings could secure more gas for the prospective TCP to feed into the SGC. As energy efficiency is a highly technical issue, European bureaucracies and experts are best placed to help deal with the challenges of developing this policy sector. Through projects of this nature, the EU could establish a more systematic presence in a segment of the Turkmen administration and compensate for its physical absence in the country.

To conclude, there are significant challenges in bringing Turkmen gas to Europe. Antagonism from Russia and the influence of other regional actors with less regulatory requirements pose challenges for the EU in obtaining gas imports from Turkmenistan. Yet prospective energy savings through EU expertise could motivate the Turkmen state to build its domestic energy efficiency capacities in order to offer gas exports to Europe and enhance the viability of a TCP towards Azerbaijan.