The crisis over Turkmenistan's gas, transmitted by Russia via Ukraine, demonstrates the need for other energy routes from the Caspian Sea region to Europe.
The conflict between Russia and Ukraine over gas payments and transit in which the EU has found itself embroiled leads many to wonder what other possibilities exist for piping gas to Europe. One such possibility is to find a way to pipe gas directly from Turkmenistan (where the gas originates) to Europe, avoiding both Russia and Ukraine.
The idea for the Trans-Caspian Gas Pipeline (TCGP) has been circulating for over a dozen years. Recent developments, even before the current Russia-Ukraine imbroglio, make it increasingly likely to happen. The late 1990s saw the first attempt to negotiate the TCGP with Turkmenistan by a joint venture of the US firms Bechtel and General Electric.
Three things prevented it at that time: the then-Turkmenistan president Saparmurat Niyazov's insistence on an enormous signing bonus; his inability to agree with then-Azerbaijani president Heydar Aliev on the allocation of pipeline volumes to Turkey; and the unexpected discovery of large amounts of gas in the Shah-Deniz offshore Azerbaijani deposit (which made the second obstacle irrelevant).
The first two obstacles were eliminated in principle by the succession of Gurbanguly Berdimuhammedov following Niyazov's death in December 2006. (Aliev had died three years earlier almost to the day.) The increased demand for Turkmenistan's natural gas from Europe and elsewhere has eliminated the third.
The TCGP is now integrated into the Nabucco pipeline project, which is set to traverse the South Caucasus before snaking through Turkey, Bulgaria, Romania and Hungary to terminate at the Baumgarten gas hub in Austria. The route and means for Turkmenistan's gas to cross the Caspian Sea is not yet decided. Nevertheless, gas rigs in Turkmenistan are already interconnected with Azerbaijani offshore rigs, which are in turn connected to carry that gas through the South Caucasus Pipeline into Turkey. This arrangement could be expanded.
Another possibility is liquefaction of Turkmenistan's gas for carriage across the Caspian Sea and its re-gasification in Azerbaijan. A third possibility is that an undersea pipeline from Turkmenistan joins an undersea gas pipeline already under discussion from Kazakhstan to Azerbaijan. This last pipeline would carry natural gas associated with the onshore Tengiz oil field, where consortium members have had a hard time satisfying Kazakhstan's insistence that this gas is captured rather than being flared into the atmosphere.
In June last year Azerbaijan rebuffed Russian gas giant Gazprom's offer to purchase its entire natural gas production for a fixed price over the long term, announcing its willingness to contribute gas to the Nabucco project. At the same time, Bulgaria committed to purchase more than 1 billion cubic meters of Azerbaijani gas per year (about one-sixth of the country's annual consumption), transmitted via Nabucco, beginning in 2013, when the pipeline is projected to open.
Despite disclaimers on all sides, Russia's proposal of its own "South Stream" pipeline is designed to compete with Nabucco. This project would entail a westward spur, under the Black Sea from the currently operating Blue Stream pipeline from Russia to Turkey, making landfall in Bulgaria and then taking either a northern route or one of two possible southern routes, finally terminating at either Baumgarten or Trieste, Italy.
Also Gazprom has adroitly followed what resembles a "divide-and-conquer" strategy, offering special relationships to individual European energy companies and playing them against one another so as to prevent the cooperation necessary to make Nabucco a reality.
At the same time, it has moved to control non-Russian sources of gas to Europe, for example by offering to buy any and all quantities of Libyan and Algerian gas destined for export at the source.
However, any Kremlin design to lock up Europe's energy imports (Russia provided 40 percent of gas and 30 percent of oil in 2006) has possibly run afoul of Mother Nature. At Berdimuhammedov's request, the UK consulting firm Gaffney, Cline and Associates last year conducted an audit of Turkmenistan's gas reserves. The results were not made public by the firm but leaked to the press by others.
According to those reports, the best estimate for the new South Yolotan-Osman gas field is over 26 trillion cubic meters (and up to twice that), or one and a half times the size of Russia's Shtokman field. The separate Yaslar field is about one-quarter the size of South Yolotan-Osman. These are only preliminary results for two fields, and the audit is presumably continuing.
Last summer, Azerbaijani President Ilham Aliev announced that new studies suggested his country's Shah-Deniz field probably held twice the previously believed amount, or 1.2 trillion cubic meters.
With all these new estimates, it is not surprising that the EU is pushing strongly forward now for some version of the Trans-Caspian Gas Pipeline.
In November 2007, Berdimuhammedov visited Brussels for a three-day state visit involving intensive high-level discussions with a plethora of the highest-level EU officials. A year later, he paid a five-day state visit to Germany and Austria, giving a speech in German to a bilateral economic forum in Berlin. In December, RWE, Germany's second largest gas and electricity company, formed a joint venture with Austria's OMV to link Caspian Sea region energy resources to Europe.
Then earlier this month, a delegation of RWE executives visited Ashgabat for discussions with the Turkmen president that ended on a very upbeat note.
Regardless of who is at fault between Russia and Ukraine, the present diplomatic chill in their relations, which has translated into a thermal chill in Europe, shows how timely and important it is to translate those discussions into facts on the ground.
