Despite recent discoveries of new, rich natural gas deposits, Turkmenistan is unable to fully express its energy potential. It is, above all, the lack of infrastructure and tensions over the Caspian Sea that are slowing down its potential on international markets. Energy diversification, along with the search for new investors to aid domestic growth, are major challenges for the country’s future in this industry.
A gas-rich country
According to OPEC, as at 2015, Turkmenistan’s crude oil reserves amounted to 600 million barrels while, in the same year, oil production reached 261,000 barrels per day. However, the most important resource for the Turkmen economy is natural gas, of which the country has reserves of 265 trillion cubic feet. The Galkynysh gas field, discovered in 2006 in the south-east of the country, is considered the second largest in the world and its development is still in progress. Thanks to its enormous reserves, Turkmenistan is currently the sixth largest natural gas exporter in the world. According to the IEA, natural gas exports account for 31% of the country’s GDP, with 70% going to China and the remainder to Russia and Iran.
Separation from Russia and the advance of China
Russia itself, until recently, was one of the main buyers of Turkmen gas. Since 2009, Moscow has started to reduce its imports. "Ashgabat has identified China as a possible replacement for the Russian regression and has launched new exports via the Turkmenistan-China gas pipeline", explained Martin Vladimirov, Energy Analyst at the Center for the Study of Democracy in Sofia. In 2015, the Central Asia-China Pipeline (CACP) transported 27.7 billion cubic meters of gas to the Asian giant, and by 2020 its capacity should reach 65 billion cubic meters. "Ashgabat however, " continues Vladimirov, "has not chosen to free itself from its dependence on Russian exports, thanks only to China. Therefore, Turkmenistan has chosen to apply a policy of diversification of gas exports, which also includes Iran and the European Union, via the eventual Trans-Caspian Pipeline, and India, via the TAPI".
The trade triangle with Iran and Turkey
To better understand the role of Turkmenistan in the international energy market it is also necessary to look at the “trade triangle‘ with Iran and Turkey. Tehran’s economy is indeed growing and, in order to meet the increased domestic gas demand, the country relies heavily on imports from Turkmenistan. "Turkmengaz," emphasizes Vladimirov, "exports 7.2 billion cubic meters of natural gas to Iran, which uses it to cover the deficit in the northern areas of the country, where consumption is highest. In this way, Tehran can maintain its contractual obligations with Turkey. Iran, in fact, exports 7.8 billion cubic meters of gas to Turkey, an amount almost equal to that of imports from Turkmenistan".
TAPI and TCP, the uncertain future of the new gas pipelines
In December 2015, Turkmenistan announced the launch of works on TAPI, the gas pipeline which, running from the Galkynysh gas field, is expected to reach India, via Afghanistan and Pakistan. Its construction, however, has been impeded by tensions in the region. "Afghanistan remains a turbulent country in which the program for withdrawing US troops has deterred Chevron, Exxon and Total from participating in the consortium for the construction of the gas pipeline", emphasizes Vladimirov. In all likelihood, Turkmengaz will therefore lead the works. Moreover, to bear the costs, the Turkmen government could even turn to international institutions and foreign companies, starting with those of China, the only ones to have received the license for the development of onshore gas fields. "If the TAPI is completed," continues Vladimirov, "it would not only lead to new jobs, but it would also force traditional enemy countries to cooperate in order to ensure infrastructure security".
Also seemingly difficult to achieve is the Trans-Caspian Pipeline (TCP) which would enable Turkmenistan to approach the European market by connecting to the Azerbaijani gas pipelines. The TCP is expected to have a capacity of approximately 1 trillion cubic feet, but its construction is currently prevented by disputes over the Caspian Sea. "Iran," explains Vladimirov, "wants to preserve its influence over Turkmenistan as the main access route to the Turkish market and Russia does not want its position in the European market to be challenged by a competitor as great as Turkmenistan". Moreover, for now, the project’s high costs have halted the interest of private investors.
Infrastructure and energy policies: the country's weaknesses
On the domestic front, however, Turkmenistan lacks infrastructure, which has so far limited its export capacity. The country has, however, recently started the construction of the East-West Pipeline to allow the transport of large amounts of gas from the wealthiest eastern areas to the western areas bordering the Caspian Sea.
The ineffective management of hydrocarbon resources, often used to fund public spending and generous public subsidies, is also impeding the growth of Turkmenistan. “Following the sudden economic crisis", concludes Vladimirov, "the government’s medium-term goals should be to speed up the process of granting licenses for its vast onshore gas fields".