#63 The Energy Champion

Every time we hear about Russia in the news in reference to oil and gas, it seems to be about Russian muscle flexing. In the past few years alone, Russia has used her vast energy reserves as a weapon in times of disagreement against not only the European Union, but also Georgia, Ukraine, her ally Belarus and, most recently, Estonia. But credit must be given where credit is due: Moscow is in a league of its own when it comes to securing her energy interests.

The proof? Just today (May 12, 2007) Russia announced an agreement with Kazakhstan and Turkmenistan to build a new natural gas pipeline north from the Caspian Sea, carrying gas from Turkmenistan through Kazakhstan to Russia. This is a major smack in the face of the EU, which had hoped to lessen their dependence on Russian gas by finding an alternative supplier in the form of Turkmenistan. This was to be done by creating a new pipeline under the Caspian Sea that would go through Turkey to Europe, thereby bypassing Russia. The gas routes as they stand today can be seen in the picture above (source: the Economist).

Even if the idea proposed by the EU were to take hold, some analysts doubt whether it would make a significant difference. ICG energy analyst Charles Esser pointed out that the EU could count on at most 20bn cubic metres of gas per year from a Caspian pipeline, which amounts to no more than 4% of EU consumption in 2004. Nevertheless, given the fact that the exact amount of gas present in Turkmenistan is unclear, a significantly high number could lead to the expansion of current plans and seriously reduce EU dependency on Russian gas in the long term. In any case, the deal announced today is a clear victory for Russia, as it effectively means that Turkmen and Kazakh gas will only be exported to Europe via Russia, putting the Europeans at the mercy of Russian caprice more than ever before.

China will no doubt see this deal as a loss as well, since they too were vying for direct control of Turkmen gas in their global quest to secure their energy needs in the most far-flung of places. In April 2005, deceased Turkmen President Saparmurat Niyazov had blessed the construction of a pipeline to China that would send 30 billion cubic meters of gas to China starting in 2009. Whether this deal will now go through is uncertain, though it seems unlikely that the Russian-Turkmen agreement will affect it. It does, however, give Gazprom and Russia a powerful bargaining tool in any future discussion, negotiation or conflict with China.

Say what you will of the Russian mafia-like monopolizing tactics, but effective they most certainly are.

#37 Turkmenbashi Lives On

With the death of Turkmen "President-for-life," Saparmurat Niyazov, last December, hope emerged that maybe Turkmenistan would be able to finally get a taste of Democracy. The election as new President last Sunday of heir-apparent, Gurbanguly Berdymukhamedov - who won with the surreal number of 89.23% of the votes in a matter of only four hours of voting, with a 95% turnout according to the Central Election Commission - has put a quick damper on such hopes. On a more positive note (for Turkmenistan, that is), the continuation of Niyazov's legacy will mean that Turkmenistan will likely become neither a Russian nor a European proxy state.　

There was talk that the death of Niyazov provides a golden opportunity for the European Union to lessen its dependency on Russian gas, while also allowing for Russia to regain some of its lost Cold War influence in the hermit state. With Turkmenistan being home to the fifth-largest natural gas reserves in the world (proven reserves of 3 Trillion Cubic Meters) and substantial oil reserves as well (Turkmenistan has proven oil reserves of 546m barrels, estimated reserves of more than 2 bn barrels, and large areas that are yet to be explored), the Central Asian nation is of extreme interest particularly to the EU. It could serve as the perfect partner in the realization of an energy corridor from Central Asia to Europe.　

There are, however, doubts about Turkmenistan's oil and gas reserves, or at least the potential to make use it. Former vice Prime Minister and head of the Central Bank of Turkmenistan, Khudaiberdy Orazov, noted that "Everyone had to make do with information from Niyazov about Turkmenistan's gas reserves, which were said to be 22 trillion or even 44 trillion cubic meters. But in reality the only gas field in Turkmenistan was opened under the USSR and has been being exploited ever since...It is completely possible that Turkmenistan has a lot of gas. But first it has to be found, a gas field has to be opened, and extraction has to begin. And no one has done that for 15 years, and in the meantime the Geology Ministry has been disbanded and many specialists have left for Russia or let the profession lapse."

If we are to assume that the country is capable of becoming a major player in the world's energy market, recent signs provide no clue as to who will benefit most. Turkmenistan is scheduled to continue providing Gazprom with 50 billion cubic meters of gas a year at below-market prices through the old Soviet-era pipeline and, starting from 2009, the Chinese are to receive 30 billion cubic meters of a gas a year. On the political front, the current festivities in the Turkmen capital, Ashgabat, don't provide any hints either, as they are attended by leaders and senior diplomats from a wide range of countries, including European officials, Russian Prime Minister Mikhail Fradkov, US Assistant Secretary of State Richard Boucher, a vice-chairman of China's parliament, Turkish Prime Minister Tayyip Erdogan, the leaders of Ukraine and Georgia, and even Iranian President Mahmoud Ahmadinejad.

Turkmenbashi lives on for now, meaning little change within the country and no foreseeable near term impact on the energy and geopolitical chess boards. However, in the hopeful words of an unnamed Western Diplomat in Ashgabat who defended the policy of engagement, "You can take an obese person and tell them that they need to lose weight. Until you see the pounds coming off there's so proof they've absorbed the message...but a crash diet is bad, because you're looking for sustainable change." In other words, the West is choosing to grant Berdymukhamedov and co. the benefit of the doubt for now, allowing for time to implement the necessary changes. Or if you look at it another way, they are hoping to befriend the new leader so as not to alienate the gas-rich nation and increase their own chances of striking some juicy deals.

See also Post #5 Turkmenistan up for Grabs

#5 Turkmenistan up for Grabs

Although generating surprisingly few headlines, the death of Turkmenistan's authoritarian president Saparmurat Niyazov is a very big deal. Granted, Commandante Fidel's loss (we believe he is still alive of course, but clearly not in a condition to rule the way we are used to of him) is a more high profile case, but Turkmenistan has much more to offer the world in economic terms.

Turkmenistan is home to the fifth-largest natural gas reserves in the world (proven reserves of 3 TCM) and holds substantial oil reserves as well (Turkmenistan has proven oil reserves of 546m barrels, estimated reserves of more than 2 bn barrels, and large areas that are yet to be explored). Niyazov ruled Turkmenistan with an iron fist for 21 years, commanding more than only the post of President of the nation. This has meant that there is now a serious possibility of chaos in the nation as, according to Turkmen law, the president is succeeded by the head of the People's Assembly - a post that was held by Mr Niyazov himself!

A serious possibility is that Russia's long arm will reach deeper into Turkmen affairs, given Russian Foreign Minister Sergei Lavrov's swift response that "We hope a new leadership will act to benefit co-operation with Russia and to benefit the region as a whole." Perhaps all the days, cities, airport and meteorite that were named after Niyazov will now be renamed in the honour of soon to be departing Comrade Putin. The many statues might even suddenly find themselves with blond hair and blue eyes.

But on a more serious note, if Russia does gain more influence in Turkmenistan, this does not bode well for Europe's energy addiction. If, on the other hand, Europe steps in quickly to ensure a swift transition in the country, it might have found itself the perfect alternative to the fix provided by the mafia pushers in Russia. A big plus; Turkmenistan does not need Russia, thanks to her own rich energy resources, and can thus become a loyal ally if Europe plays its cards right...and quick.

See also post #37 Turkmenbashi Lives On