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Turkmenistan Turns To Europe As Iran, Russia Shut Off Their Gas Markets

By Fuad Mukhtarli August 23, 2017

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The existing infrastructure creates favorable conditions for transportation of Turkmen gas to the European market along the Azerbaijan-Georgia-Turkey route

Turkmenistan, with estimated gas reserves of 50 trillion cubic meters that account for about 10 per cent of the world gas reserves, lost two major markets, Russia and Iran, in 2016 and 2017 respectively. The country has no access to open seas and must ship its gas to international markets through neighbors, including Iran which was the Central Asian country’s biggest gas customer.

At odds from January 2007, after Ashgabat suspended natural gas supplies to Iran's northern regions, Turkmenistan and Iran now seem to end gas trade forever. On August 1, Iran commissioned the 170-km Damghan-Neka pipeline with a capacity to transfer 40m cubic meters of gas per day that feeds gas from giant South Pars field in the Persian Gulf to the city of Sari in Mazandaran province.

“With the construction of the Damghan-Neka gas pipeline, there will be no reduction or drop in gas pressure in the northern cities in the winter. With the opening of the pipeline, Iran no longer needs to import gas from Turkmenistan. With the opening of the pipeline, the concerns and anxieties of the citizens about gas disruptions in northern Iran, especially in the winter, will also be resolved,” spokesman for parliament’s Energy Commission Asadollah Qareh-Khani said.

Turkmenistan stopped gas supplies to Iran in January 2017, demanding that the Islamic Republic settle a debt which allegedly remained outstanding from previous imports. Ashgabat claims Iran owes it $1.8 billion from sales between 2007 and 2008 when freezing winters led to severe shortages across 20 Iranian provinces, forcing the country to raise gas imports from its northeastern neighbor.

Iran imported about 35-40 million cubic meters of gas a day from Turkmenistan under a deal which has stood for the past 20 years, until earlier this year when Iran’s Oil Minister Bijan Namdar-Zangeneh threatened that if Turkmenistan insisted on halting gas supplies, Iran would stop its energy deal with the country altogether.

Iran has imported natural gas from Turkmenistan since 1997 for distribution in the north of the country, the furthest area from its vast gas resources located in the south. With the coming on stream of this project, gas supply to the northern provinces is no longer dependent on gas imports.

Meanwhile, Russia’s gas giant Gazprom stopped buying Turkmen gas early in 2016 over a price dispute and now Turkmenistan can only pump gas to China via the pipeline. With Russia and Iran halting Turkmen gas and TAPI expected to be available in 2020, Ashgabat has been deprived of export capacities.

Against this background, many oil and gas experts viewed the Turkmen president’s visit to Azerbaijan in August as a change in the position of official Ashgabat. Forecasts are made that Turkmen gas would be transported to Europe via Azerbaijan along the Caspian seabed.

While proposals on the Trans-Caspian Gas Pipeline project have been regularly on the agenda, official Ashgabat was not interested in this issue, so it only remained as an idea to find investors who would organize the delivery of Turkmen gas to Europe and the contracting companies that would transport that gas through deep waters of the Caspian Sea.

The major buyer of Turkmenistan's gas in the independence period was Russia’s Gazprom, and the latter’s monopolist position on the Turkmen market has had a serious negative impact on the formation of Ashgabat's energy policy. In other words, until 2006, the Kremlin prevented Turkmenistan’s involvement in the Trans-Caspian project, the main alternative to Russian gas.

However, the international demand for Turkmen gas in recent years has enabled the country to diversify gas sales, and China and India are currently the main consumers of Turkmen gas. Turkmenistan's access to the Asian market for natural gas has diminished its interest in Europe.

Experts estimate that Turkmenistan can supply gas to Europe while maintaining energy markets in Asia. In order to achieve this, Turkmenistan can export 30 billion commercial gas extracted from eastern deposits of the country. It is possible to export gas to Europe through the 770km-long eastern-western route with 1,420-mm pipeline. Turkmenistan-Iran-Azerbaijan route is considered as one of the most optimal options for Turkmenistan to join the Southern Gas Corridor.

However, the completion of the most of the Southern Gas Corridor project and the West's support for it said made President Berdimuhamedov reconcile with the reality, and Ashgabat is aware of the Europe’s need for Turkmen gas and does not want to miss this opportunity.

The existing infrastructure creates favorable conditions for transportation of Turkmen gas to the European market along the Azerbaijan-Georgia-Turkey route. If the Turkmen government agrees to it, the US interest in building the Trans-Caspian pipeline project, which seeks alternative sources of Russian gas, may grow.

If the Trans-Caspian gas pipeline worth $11 billion is realized, Turkmenistan will be able to sell its gas at a higher price in the European market as with the recent US sanctions against Russia, Gazprom would not be able to buy Turkmen gas for re-sale in Europe.

Gazprom, which has isolated Turkmenistan in the energy market for many years, has itself become isolated, in which case Berdimuhamedov’s visit to Azerbaijan may actually be understood as his desire to refuse from Russia in the energy market and seek new partners in the West.

If there is a change in the position of Ashgabat, this may result in the removal of Russia from Turkmenistan's energy market. Consensus with Turkmenistan meets both economic and political interests of Azerbaijan.

Thus, the realization of the Trans-Caspian project can transform Azerbaijan into both a transit and gas exporter country, as well as provide Azerbaijan with additional sources of income. Second, the need for the Southern Gas Corridor may strengthen Azerbaijan's geostrategic position in the region.