Once seen as a small and isolated country, Turkmenistan, having gained independence in 1991, started to emerge within the economic sphere of Russia. Over the past couple of years, however, this has started to change. Thanks to Turkmenistan’s rather impressive gas and oil reserves and to China’s new role as a major energy partner, the country’s energy exports are destined for bigger growth and with new horizons to pursue. In addition, the country’s new leadership, under President Gurbanguly Berdimukhamedov, has introduced large-scale reforms aimed at opening up this Central Asian country to global markets. The year 2015 will mark a crucial turning point as regards further development.
Following the collapse of the Soviet Union in 1991, Turkmenistan was among five countries in Central Asia to gain independence.
Separmurad Niyazov, who was president at the time, implemented a policy of quasi-isolation. It was marked by the formation of a sort of “personality cult” and was based on a one party system. Very little was done in terms of fighting corruption or shifting the economy into gear. Only after his death in 2006 when a new president took the helm with a new administration did Turkmenistan turn the page to a whole new chapter in its history.
The reason must be the country’s tremendous potential, especially in the energy sector.
Turkmenistan today has proven gas reserves of up to 32 trillion cubic metres (tcm), with an annual production of 80bn cubic meters (bcm). With such reserves, Turkmenistan is fourth in the world after Russia, Iran and Qatar.
Turkmenistan’s Galkynysh field, for instance, is one of the five largest in the world.
Proven oil reserves are just as important. These are estimated at 12m tonnes – about 600 million barrels.
But until 2009, Turkmen gas exports were more or less conditioned by Russia’s needs and energy policies. In fact, the country’s gas exports between 1991 and 1997 were largely controlled by a Russian interest company now owned by Rosneft.
With Turkmen gas flowing to the markets via the old Soviet pipelines, Russia was also able to control the prices and payment method. Turkmenistan, for instance, was paid half up front (in cash) and the other half on a barter-basis.
Disputes between Turkmenistan and Russia began in 1997 when Turkmenistan cut off gas supplies. Since then, the situation experienced a great many ups and downs, despite the fact that the new president worked hard to normalise bilateral relations. Since 2009, the trade of gas between Russia and Turkmenistan has been stabilising, but experts argue that it lacks any “ambition to increase”.
In addition, the Central Asian Centre (CAC), the first export corridor for Turkmen gas – the one that glows straight to the Russian market, is very old and poorly maintained. Constructed between 1966 and 1978, it has now been rendered defunct by new systems of gas transport.
Meanwhile, a new powerful player has emerged in the country, as in many other Central Asian Republics. It is China and its need for more energy is on the rise.
For instance, China has emerged as the most successful foreign investor in Turkmenistan. In 2013, the two countries signed a strategic partnership agreement.
The China National Petroil Company, which includes capitals from companies from Korea and UAE, embarked on a colossal new investment: the construction of the China-Central Asia Pipeline, which will bring Turkmen gas to Shanghai and Hong Kong.
The initial estimation of the project was $8bn. Initiated in 2009, part of the pipeline is already in operation, connecting eastern Turkmenistan to Xinjang through Uzbekistan and Kazakhstan. Its initial capacity is 30 bcm per year, but its aim is to reach 80 bcm.
According to some estimates, Turkmenistan will supply more than 40% of China’s gas by 2020. Chinese companies are also the only foreign investors who enjoy direct access to a gas field.
But this is not enough. Turkmenistan’s is aiming to export its gas on a massive basis along other routes. One of them flows to Iran with a combined capacity of 20 bcm per year, despite Iran’s financial problems.
Another route is more ambitious. It is the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, which stretches 1,735 km. The project is rather old, starting in 1993, and has been mired in a number of problems.
However, it is backed by the United States and covered by the Asian Development Bank. It will soon be back in action next year. Estimated to cost some $7.6bn to complete, it is slated to become operational by 2018.
Meanwhile, Western markets are also on Turkmenistan’s agenda. An old idea for the creation of a trans-Caspian route which will send Turkmen gas to Europe through Azerbaijan (the Baku Tbilisi-Ceyhan pipeline) is also actively being pursued.
Initially opposed by Russia and Iran and then ostacolated by local disputes in the Caspian Sea area, it now seems possible. If all goes to plan, it will have an estimated capacity of 30 bcm per year.
This means Turkmenistan faces a new era as regards its energy industry. The period in which 40-45 bcm was absorbed by the Russian market is now history. Today’s new client environment is more pluralistic, with China absorbing 52%, Iran 22% and Russia 24%.
There are many new horizons to pursue for Turkmen exports and the role that this Central Asian country can play in the world energy market. This is largely due to a series of reforms the country’s president introduced.
In fact, since 2006, when Gurbanguly Berdimukhamedov became president, large-scale legal (namely the introduction of the criminal code) and administrative (the taxation administration) reforms where introduced to make Turkmenistan friendlier to foreign investment.
Today, many international players like ExxonMobil, Chevron, British Gas, the Turkish Polimeks Inssat and Chalyk, the Israeli Merhav, Bonygues Batiment International, Siemens, Dragon Oil, Petronas as well as CNPC and PetroChina, operate in the country.
The political system has also changed. A new constitution was introduced. The parliament’s responsibilities were expanded and it was allowed the existence of more parties even though all of them are still aligned with the presidential policies.
Although a part of the population doesn’t enjoy the riches of the country, massive public subsidies are preventing social turmoil.
However, a major enemy of the successful turn of the market economy is obstacolated by corruption. According to the Transparency International’s latest Corruption Perception Index, the Turkmenistan was ranked 168 out of 176 countries.
On a more positive note, Turkmenistan recently received positive feedback from the International Monetary Fund (IMF).
Given the fact that the implementation of the reforms has to be fruitful in the future and the fact that Turkmenistan has an enormous energy capacity, it would be no exaggeration to say that this country is an emerging giant in the world’s energy market.