Turkmenistan’s gas exports under pressure

Turkmenistan’s export options are steadily shrinking despite being one of the world’s largest natural gas reserve holders. Geopolitical conflicts, security and financing issues as well as lack of sufficient infrastructure are acting as constraints for market diversification. According to the U.S. government’s Energy Information Agency, Turkmenistan has natural gas reserves of 265 trillion cubic feet, which makes the country the world’s fourth largest gas holder after Russia, Iran and Qatar, in terms of natural gas production it remains among the top 15 countries. For instance, the Galkynysh Natural Gas Field, which is operating since 2013, is the world’s second largest gas field. But its export options are believed to be meeting considerable constraints as its biggest clients Russia and Iran are cutting back on imports of Turkmen gas and China’s purchase is also accompanied with turbulence.

Russia, due to its monopoly during the Soviet times, controls part of Central Asia-Center (SATS) pipeline system and receives gas from Turkmenistan with “buy cheap and sell dear” deal. But the export to Russia has been declining both in volume and price since 2009 owing to the global recession but also damage to some part of the SATS. Recently Turkenistan’s Oil and Gas Ministry said that Gazprom has not paid for its debts since the beginning of 2015. In response, Gazprom announced about its intention to decrease its purchase to 4bcm in comparison to 11bcm in 2014. Iran also plans to end purchases in the new future as it is aiming to ramp up its own production for export.

China has been the most successful investor in Turkmenistan but also threatens diversification by slowly becoming the sole export market for the country. On the other hand, Chinese market is in turbulence as the government recently moved to boost demand for natural gas with pricing cuts that will potentially impact cost of its imports from Turkmenistan. The country’s biggest oil and gas producer PetroChina also announced about selling 50% of its pipeline business as it fails to meet annual profit target. Other alternatives for Turkmenistan include the projects of Trans-Caspian subsea pipeline (TCP) and Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline. But both suffer from financing issues as well as security issues particularly TAPI for its transit in Afghanistan. In response, Turkmenistan is attempting to develop gas-based chemical industry instead, hoping to export such products as ammonia and synthetic gasoline derived from natural gas.

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News Briefs:

  • The United Nations nuclear inspection agency reported that Iran was designing nuclear weapons until 2009, before the U.S. and other Western states publicly acknowledged so. The report is based on the answers Iran provided according to the achieved nuclear accord over the past summer. Tehran was conducting computer modeling of nuclear explosive device before 2004 and continued its efforts until Barack Obama’s first year in office, but with no reported success in developing a complete blueprint for a bomb. However, unclear information owes to only partial answers from the Iranian side. Ended efforts after 2009 are linked to President Obama taking office in 2009 and accelerating the sanctions and cyber sabotage program against Iran’s nuclear facilities that brought Iranian officials to the negotiating table.
  • The Russian defense ministry accused Turkish President Tayyip Erdogan of being involved in oil trade with ISIS. Officials presented photographs and videos on links between Turkey and oil refineries in Islamic State-held territory in Syria, saying $3 million worth oil was traversing this route until Russian involvement in the conflict cut off roughly half. In response, Turkish President rejected the allegations saying no one has right to slander Turkey, that the country has not lost its moral values to buy oil from a terror organization. Erdogan said he’d rather resign if Moscow’s claims are proven right but challenged Russian president to step down himself if he is wrong.
  • Azerbaijan introduced 40% cut-off in transit cost of cargo transportations by large trucks to Kazakhstan’s Aktau and Turkmenistan’s Turkmenbashi ports. Cost production was linked to simplification of transit procedures and reduction of tariffs for cargo transport. Just prior to the move, the Azerbaijani Caspian Shipping Company reduced tariffs by 20% to raise attractiveness of the sea route of transporting cars from Turkey to Kazakhstan. The new tariff considers $1,200 per car with a trailer in one direction, in case of round trip $2,100. Transit of Turkish trucks was increased after Russia banned their entry on its territory.
  • Lithuania expressed concern over Russia’s deployment of troops close to the Baltic borders and unannounced military exercises in surrounding Baltic areas. Lithuanian Defense Minister said security has decreased in the region as Russia undertakes some activities close to the regional borders including Russia’s backing to establish an air base in Belarus. The official said Moscow was demonstrating its power and testing Baltic States and NATO reaction by troop build-up and military drills in Russia’s westernmost Kaliningrad region, bordering Poland and Lithuania as well as naval exercises in the Baltic Sea.
  • In fear of terrorism, Tajikistan’s parliament endorsed amendments to the country’s communication law that will require all mobile carriers to register all SIM cards sold and re-register those already in circulation. Currently more than 70% of the active SIM cards are used without identification. Tajik authorities worry that unregistered SIM cards can make their way to the hands of terrorists in Afghanistan saying they had information that Talban militants deployed close to the Tajik border were actively using Tajik SIM cards. Pakistan introduced the similar law earlier this year requiring name, number and fingerprints for using mobile in the country. But the changes are also discussed as the Tajik government’s goal to increase control over the society and better means for countering opposition.
  • Russia warned that NATO’s invitation to Montenegro to become its 29th member is provocative. The Kremlin spokesperson Dmitry Peskov noted about Russia’s attitude towards continuing expansion of NATO, which could lead to reciprocal actions from the east to prioritize and support Russian interests. Montenegro was invited to join the alliance at the meeting of NATO foreign ministers in Brussels followed by the statement that this “historic” invitation was not directed at anyone. Russian foreign ministry called the initiative a real potential to bring about confrontation rather than promoting peace and stability in the Balkans or Europe generally.
  • Kazakhstan has worked out a plan to deal with decreasing oil price in case it drops to $20-30 per barrel. The plan relies on developments in other economic sectors such as manufacturing, chemical industries, production of construction materials and mechanical engineering. To ensure the annual economic growth at the level of 5%, the country aims to increase export of processed goods at least two times to $30 billion, increase annual volume of investments by $10 billion, create more than 660,000 new jobs and double productivity. Further plans include development of export niches in the global and regional markets and concluding free trade agreements with the EEU. The government is now ordered to work on a detailed plan for improving investment climate.
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