Russia, since the beginning of 2008, agreed to increase the price of Turkmen gas to 130 dollars per thousand cubic meters. Since the beginning of the second half of this year the price will increase to the $ 150. In addition, starting in 2009, Russia has agreed to acquire the Kazakh and Turkmen gas on European prices. This decision is taken in Russia primarily as a guarantee to ensure the flow of Turkmen gas in the Russian direction.

It is noteworthy that starting from this year production of natural gas within Russia and has been declining and so, for fulfilling demands of the domestic market, as well as agreements with Western partners, Russia needs a steady flow of natural gas from Central Asian countries. So, the first step to ensure imports from these countries was done in 2007, when Russia, Kazakhstan and Turkmenistan signed an agreement on construction of Caspian pipeline.

Some observers believe that Russia, together with the proceeds of gas from these countries also try to prevent a possibility of building a Nabucco gas pipeline, the European project, planned as an alternative transport infrastructure to those which are on Russian territory. In this case, while Russia buys from Turkmenistan 50 billion cubic meters of gas per year; there may be a situation in which Turkmenistan will simply have nothing to be transported in a westerly direction. In addition, the price proposed by Russia for the purchase of this gas can turn Nabucco project being uneconomic.

Despite the assumption that Russia will be able to fully regulate the flow of natural gas from Turkmenistan through the implementation of the activities, Turkmenistan waives desire to diversify export routes for its natural gas to the world markets. In addition to existing pipelines in Russia and Iran, Turkmenistan plans to build a pipeline to a destination in China and has already signed a contract with that country to supply 30 billion cubic meters of gas for a period of 25 years.

It’s also considered the possibility of constructing a Turkmenistan-Afghanistan-Pakistan-India pipeline and has already signed an agreement to start work among these countries. One of the main alternatives considered construction of the TransCaspian pipeline, which is seen as an integral part of Nabucco pipeline. During a recent visit of the European Union Commissioner Benita Fererro-Waldner to Turkmenistan, it was agreed that the country is ready to export up to 10 billions cubic meters of natural gas per year.

As shown, it needs to increase the production of natural gas in Turkmenistan with the purpose of covering all directions with necessary volumes. Currently the country produces 60 billion cubic meters of gas annually, 10 billion of which for domestic consumption, another 50 billion goes for export. In this case, the current exports may be enough only to cover export agreement with Russia. Gas for other markets simply cannot be made. In this case it is necessary to attract foreign capital and technologies to increase production of gas, since Turkmenistan is simply unable to produce for all the routes.

Right now Turkmenistan made a number of steps to improve the business climate in the country to order attract foreign capital into the country. In particular, international audit companies invited to define deposits of natural gas in Turkmenistan. To this day deposits were assessed only according to official figures by the Turkmen government. However, independent audit estimates had not been ever described. The current pragmatic leader of Turkmenistan Berdymuhamedov invited foreign companies to identify and analyze the exact volume on some natural gas fields. This decision of Berdymuhamedov can be assessed as that country’s desire to open their borders to foreign capital, and hence increase production.

This step is also supported by  Turkmen government to increase in domestic energy prices. Prior to that, the price of gasoline in Turkmenistan was one of the cheapest in the world and under such circumstances is hardly that any Western investor would agree to make investments. It also draws attention to attempts to liberalize the foreign exchange market in Turkmenistan. In this country there are two different exchange rate and the first steps have been taken to reduce the difference between them. In addition, work has started on preparing a new constitution. And although previous constitution was adopted in 2006, it had already considered "obsolete".

On April 17, 2008, a conference held in London on "Oil and Gas of Turkmenistan - 2008". It was attended by such companies as BP, Chevron Corporation, Exxon Mobil, Marathon Oil Corporation, Total, Conoco Phillips, Worley Parsons and others.

During conference Turkmenistan official government representatives acquainted with the prospects of development of oil and gas sector in the country, as well as investment conditions. Such that, it was stated that in Turkmenistan, both on land and at sea, found more than a thousand prospective oil and gas structures, openly over 150 deposits and only 50 of them are under development. Under the plans, by 2030 already provides to bring oil production to 110 million tons and natural gas to 250 billion cubic meters. From the reality of implementing these plans will also depend on export diversification and the possibility of Turkmen gas.

In this case raises an interesting situation, Russia decided to increase prices for the purchase of Turkmen gas in order to lower competitiveness, and thus the possibility Nabucco project may have reverse reaction. Indeed, the opportunity to receive higher income from the sale of natural gas could push Turkmenistan to actively seek partners to increase gas production, which in turn need to diversify routes. In this case, the attempt to Russia by increasing the price of Turkmen gas to impede construction of Nabucco could have the opposite effect. It is noteworthy that one of the conditions put forward by signing a contract with Turkmenistan on the construction of the pipeline Turkmenistan-Afghanistan-Pakistan-India is the fact that the price of gas will not be lower than 300 dollars per thousand cubic meters. This amount can serve as a signal to Russia as well as for other potential buyers who intend to buy gas on alternative pipelines.

Today we can say with certainty only one, after a change of government in Turkmenistan, a gas policy in this country has become the initial goal and Turkmenistan will try to derive maximum benefit from the export of such strategic raw material.

Rovsen Ibrahimov, PhD.

rovsen@azerimail.net

This commentary is from previous USAK’s Energy Review Newsletter
http://www.turkishweekly.net/energy
To receive current edition subscribe to usak.energyreview at gmail dot com