January 18, 2012
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Turkmenistan Seeks Euro Pipeline

John Robert, Platts

Turkmenistan has delivered its clearest statement to date that it wants to see the development of a direct gas export pipeline system to carry thecountry's gas to European markets.
 A commentary on the official Turkmenistan.ru web site on Saturday
stressed the importance of "the shortest and most convenient routes" to new markets, but it did not directly say that Turkmenistan was looking for either a trans-Caspian gas pipeline to Azerbaijan or its onward connection to Europe via the Caucasus. Instead it spoke of the need for "diversification of energy supply and involvement of new countries and regions in the geography of energy routes."
         "The statement is a clear indication that the Turkmens are looking much more actively to Europe," Dr Jennifer Coolidge, Executive Director of Caspian and Gulf Consultants, which specializes in analysis of Turkmen energy affairs,said.
The statement was unexpected because it came just a few days after Turkmenistan President Gurbanguly Berdymukhammedov visited Moscow for talks which Russia announced had paved the way for joint development of a new $1.2 billion East-West pipeline within Turkmenistan.
 In an apparent reference to Russia's halting of all gas exports to Europe via Ukraine on January 7, the statement said new routes were needed "to diversify supply of Turkmen natural gas and build the reliable and stable system to transit Turkmen energy to international markets."
     The foreign ministry commentary also indicated Turkmenistan's unhappiness over price negotiations with Russia. The statement attacked the idea that international consortiums of gas producers should serve as "supranational
regulators of the price policy" -- an apparent criticism of Russia's work in promoting the Gas Exporting Countries Forum – and specifically attacked monopoly practices in gas trade whilst praising competition.
  "The only true scheme to fix the natural gas prices is direct agreements between sellers and buyers," the statement said.
     Turkmenistan has a particular dispute with Russia in this regard, as Turkmen gas has been a staple of Ukraine's gas supply for decades. But in recent years Turkmenistan has had to sell this gas to intermediary Russian
companies -- first Itera, then EuralTransGas and currently RosUkrEnergo --only to see Russia then selling this Turkmen gas on to Ukraine at much higher prices.  
Dr Coolidge considered that the sharp tone of the statement should be considered a declaration by Turkmenistan that it was not prepared to have its policies determined by Russia on either the issue of export routes or the price for Turkmen gas exports.
"Coming immediately after the Moscow visit, it is a clear indication of sending Turkmen gas to Europe directly and of securing greater independence on    pricing." she said.
She added that Turkmenistan remains concerned as to whether it will in fact receive the price for 2009 deliveries that it had negotiated with Russia    before the Ukraine dispute in January.
She said the consideration of new routes "fits into the discussions that the Turkmen authorities have been having with Austria's OMV and Germany's RWE on a Caspian Energy Corp."
 The Caspian Energy Corp.'s stated aim is to assess prospects for development of a trans-Caspian gas pipeline. This would then be able to hook into the existing South Caucasus Pipeline from Azerbaijan to Turkey, enabling it to connect up with the planned Eur7.9 billion ($10.6 billion) Nabucco pipeline project, in which both companies are also involved.
  The EU-backed Nabucco pipeline is intended to carry Caspian gas on strictly commercial terms all the way to the Austrian hub at Baumgarten, with European Union officials specifically arguing that Nabucco should be seen as a way of attracting large volumes of gas -- eventually as much as 60-120 Bcm/year -- from Turkmenistan, as well as Azerbaijan, to Europe.
 During Berdymukhammedov's Moscow visit, an aide to Russian President Dimitry Medvedev said March 25 that the two presidents would sign during one of their future meetings an agreement on developing a major internal pipeline intended to connect the giant South Yoloten field with coastal producing
regions near the Caspian port of Turkmenbashi.
But on March 30, the Turkmen authorities announced that Berdymukhammedov had instructed the "Turkmengaz" state concern to announce an international tender for design and construction of the 30 million mt/year East-West gas
pipeline with a length of 800-1,000 km.
Such a pipeline would play a vital role in ensuring that any
trans-Caspian pipeline system to Europe would be able to access the giant South Yoloten field, which the UK's Gaffney Cline declared last September contained a minimum of 4 trillion cubic meters of gas-in-place.
 Russian accounts had said the aim of the east-west line was to provide a feeder for the planned Caspian Coastal pipeline, intended to run from the Turkmenbashi area to Russia.
 The April 4 statement stressed the importance of a planned conference in Ashgabat over April 23-24 at which Turkmenistan hopes to gain further global support for its proposals to enhance "reliable and stable transit of energy to international markets under the aegis of the UN." The conference is also expected to serve as a sounding board for companies seeking to take part in the East-West pipeline tender.
Turkmenistan's stress on international corporate involvement in the East-West pipeline marks a further stage on the country's journey away from total state handling of major energy projects. It has opened up its offshore to foreign PSAs, or production sharing agreements, and is currently working with the China National Petroleum Corp. on a major project to deliver up to 40 Bcm of gas from eastern Turkmenistan to China, with first deliveries scheduled
for the end of this year.  
  Foreign companies will thus be looking to see whether the conference might yield any signs that Turkmenistan might be ready to consider further onshore PSAs.  
 "The bottom line is Turkmenistan's dramatic need to increase gas production. The country needs up to $10 billion/year in gas investment, and this means signing production sharing agreements -- whether for offshore or onshore prospects -- with international energy companies," Dr Coolidge said.  

- Copyright 2009, Platts. All rights reserved.


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