In the last years the Central Asian states Turkmenistan, Kazakhstan and Uzbekistan and also Azerbaijan have tried to find new customers, beside Russia, for their natural gas. Their goal is to sell natural gas in the future for European prices. How promising are these plans? A background article by Yulia Stevenson
The proven natural gas deposits of the Central Asian region are total at around 13.2 trillion cubic meters, comprising seven percent of global reserves; potentially exploitable natural gas deposits, however, could even exceed 30 trillion cubic meters. By 2030, the potential export volume of these countries could be 160 billion cubic meters. These would be enough for example to satisfy more than the half of the needs of China's gas imports of 240 billion cubic meters.
Who has gas and how much of it?
Turkmenistan has the greatest amount of natural gas of the Central Asian region with eight trillion cubic meters, six trillion cubic meters of which were discovered in 2006 alone with the discovery of the Yolotan-Osman field. Since then, these estimates have increased to 21.2 trillion. The natural gas resources of Turkmenistan would thus equal those of Qatar. Kazakhstan´s verifiable natural gas reserves are about two trillion cubic meters, whereas the estimate natural gas deposit stands at six trillion cubic meters. A big part of the Kazakhs' natural gas is produced as a by-product of oil processing and is strongly dependent on investments in the production of oil.
Although Uzbekistan´s proven deposits of 1.7 trillion cubic meters are insignificantly lower than those in Kazakhstan, Uzbekistan is the smallest gas exporter in Central Asia because of its high local needs. Azerbaijan was a gas importer ten years ago. The discovery of the Shah Deniz-Field 1999, an offshore gas field of 1.4 trillion cubic meters in the Caspian Sea, transformed Azerbaijan into a gas exporter.
Russia as an existing customer
In the first decade after the dissolution of the USSR, the Russian government did not allow Turkmenistan to export their gas to Europe through Russian pipelines in order to protect their own exports. In this way, Turkmenistan was forced to sell its gas to Russia and other CIS states at low prices.
Even during Vladimir Putin’s terms in office, direct exports from the Central Asian states to Europe and China were discouraged so that Russia could extend its influence on the global market. For this purpose Russia concluded agreements with Uzbekistan and Turkmenistan between 2002 to 2003, both states committed to exporting all their free natural gas capacity to Russia. Uzbekistan should have been able to export up to 16 billion cubic meters of gas, and Turkmenistan able to export between 80 and 90 billion. Russia only agreed to buy the free capacities as long as the price for natural gas from these states did not exceed 100 to 150 US dollars for 1,000 cubic meters. Gazprom sold its gas to Germany for 318 US dollars for 1,000 cubic meters in 2009. After Turkmenistan demanded 220 US dollars for 1,000 cubic meters, the Turkmen exports to Russia dramatically decreased instead of the agreed 80 to 90, only 10.5 billion cubic meters were exported in 2010.
Exports towards East Asia
Since the opening of the natural gas pipeline from Turkmenistan to China through Kazakhstan and Uzbekistan in the end of 2009, China became another important importer of Central Asian natural gas. The intended capacity of this pipeline was 30 billion cubic meters every year. According to new information published by the Chinese state oil company CNPC, the pipeline's yearly capacity will eventually expand to up to 65 billion cubic meters. While 30 billion cubic meters shall flow from Turkmenistan to China in 2012. As soon as the planned capacity is reached in 2015, this pipeline will supply China with 40 billion cubic meters of Turkmen national gas and will also carry an additional twelve to 15 billion from Kazakhstan and ten billion from Uzbekistan.
Because of the energy partnership with the Chinese, the Central Asian states are in a better position for negotiations with Russia, as they can demand higher prices for their exports. The cooperation has one disadvantage for the Central Asian states: The prices China is ready to pay for the natural gas imports, currently negotiating 150 US dollars per 1,000 cubic meters, which, exceeding the Russian offer, is markedly lower than the prices on the European market: Germany has paid more than 400 US dollars per 1,000 cubic meters of Russian gas since July 2011.
However, the Central Asian states don't want to be dependent on China after their ‘liberation from Russia’ and therefore seek additional customers in East Asia; a pipeline which could bring Turkmen gas to Afghanistan, Pakistan and India is currently being discussed.
The European Union as a future customer
The Central Asian states need the European Union as a customer to negotiate permanently better prices for natural gas exports to Russia and Asia. For that reason, they try to develop the infrastructure to Europe.
Azerbaijan decided to take its fate into its own hands after the Nabucco-Pipeline was repeatedly postponed; on December 26, 2011 Azerbaijan and Turkey signed a declaration of intent about the construction of a Trans-Anatolian Pipeline through which the natural gas of the Shah Deniz field could flow to Europe. This five billion dollar pipeline project is expected to transport six billion cubic meters natural gas to Turkey and an additional ten billion through Turkish territory via Interconnector to Greek and Bulgaria from the year 2017 on. The capacity of the pipeline may later expand up to 24 billion cubic meters.
In order for Turkmenistan and Kazakhstan to export their natural gas to Europe while avoiding Russian territory, the infrastructure in the region itself needs to be developed. In June 2010, Turkmenistan began construction of the East-West-Pipeline which could hypothetically pump around 30 billion cubic meters of gas from the east of the country to the Caspian Sea starting in 2015. Furthermore, Kazakhstan, Turkmenistan and Azerbaijan are negotiating about the construction of an infrastructure which could bring Turkmen and Kazakh gas through the Caspian Sea to Azerbaijan. From Azerbaijan, the natural gas can be piped on towards Europe.
Outlook into future
The European Commission pleaded for more commitment to cooperation with the gas producers, so that they will be more strongly bonded to the EU. This should facilitate reaching agreements on delivery quantity, which are needed for the creation of the Southern Corridor.
The efforts of the European Union and the Central Asian states indicate that infrastructure will be constructed from the Caspian Sea to Europe. All parties involved will profit: The EU could diversify its supply sources to be less dependent on Russia whereas the Central Asian states could sell their natural gas to market conforming prices and achieve higher profits.