Accessibility links

Breaking News

Signs That Turkmenistan's Gas Sector Is In Crisis


A gas processing plant in Turkmenistan. The Central Asian country has the fourth-largest gas reserves in the world. (file photo)
A gas processing plant in Turkmenistan. The Central Asian country has the fourth-largest gas reserves in the world. (file photo)

Turkmenistan is apparently having enormous economic problems. The country's system is so opaque that it is always difficult to know much about what is going on there. But the recent decision to scrap the two entities that were overseeing the oil and gas sector and to restructure the management of that industry give the impression that the authorities in Ashgabat are getting desperate.

The hydrocarbon sector, particularly natural gas, is critical not only to Turkmenistan's economy but to its authoritarian political system also. There have been large-scale layoffs in the sector this year.

What does the restructuring mean for Turkmenistan, a country with the fourth-largest gas reserves in the world, and why were changes necessary? How bad is the situation in the country's hydrocarbon sector? And is there a way out of this for Turkmenistan?

Those were some of the questions discussed at a Majlis, a panel, organized by RFE/RL's Turkmen Service, known locally as Azatlyk.

Muhammad Tahir, soon to be RFE/RL's Washington-based media relations manager on Asian affairs, moderated the panel. Participating from Baku, where he was attending a conference, was legendary energy expert John Roberts, a resident senior fellow at Dinu Patriciu Eurasia Center and Global Energy Center at the Atlantic Council. From Scotland, our extremely knowledgeable friend Dr. Luca Anceschi, professor of Central Asian Studies at Glasgow University, took part in the Majlis again. I would have been happy to sit back and just listen to those two but I need to earn my paycheck, so I said a few things.

Roberts started the talk by going to the heart of the matter, noting, "The only real source of income that Turkmenistan has is from gas." Anceschi followed that up by saying Turkmenistan has "essentially a mono-resource economy."

So the need for restructuring of the gas and oil industry, the major provider of revenue for the country, sends a signal that there are some serious concerns within Turkmenistan.

'Deck Chairs On The Titanic'

President Gurbanguly Berdymukhammedov issued a decree on July 15 that abolished the Oil and Gas Ministry and the State Agency on Management and Use of Hydrocarbon Resources. The latter was the more important entity, being subordinate to the president's office.

But it is not clear what purpose the restructuring serves. Anceschi said the changes "probably won't affect [Turkmenistan's hydrocarbon industry] in any significant way." Roberts said, "I think you'll probably find that this is no more than moving the chairs around as the Titanic sinks. There isn't any real rational understanding."

The decree divided the state oil company, Turkmennebit, and the state gas company, Turkmengaz. It made them, as "legal successors" to the state agency, separate entities, vaguely under the control of the Cabinet of Ministers. But the decree also says "relevant work on international oil and gas projects [is] entrusted to the State Concern Turkmengaz."

Roberts explained Turkmengaz has the greater experience and has proven "in relative Turkmen terms" to be an efficient organization. This contrasts with recent problems at Turkmennebit. A multimillion dollar embezzlement scandal was recently uncovered at Turkmennebit and in late June there were reports that a reservoir tank at the Turkmenbashi oil refinery caught fire, killing at least several people less than two weeks after a new fire-fighting facility was commissioned at the refinery.

The basic functions of the former Oil and Gas Ministry now fall to the Cabinet of Ministers, specifically to Deputy Prime Minister Yashgeldy Kakaev, a veteran of Turkmenistan's gas sector. Anceschi recalled that, among the regular purges that occur in all sectors of the government and key industries, "Kakaev survived, [and] is still the man in charge of TAPI (The Turkmenistan-Afghanistan-Pakistan-India pipeline), is still the man in charge of many other projects, so it seems to me that we can consider him now the most powerful figure in the gas industry."

'Impossible Job'

Roberts said of Kakaev: "He thinks very carefully before he says anything and he is actually occasionally open to new ideas. It might be quite interesting now that he is no longer, as it were, one of the top two people, but is the undisputed person."

But Roberts cautioned, "[Kakaev] has got the most impossible job you could have in energy on his plate right now, which is mainly trying to find how Turkmenistan can break out of its energy isolation at a time when it has no cash and when international interest in Turkmenistan is probably at an all-time low."

Anceschi gave an example of what Kakaev has to deal with by noting, "revenues are actually decreasing quite drastically, whereas the amount of gas that they are selling is pretty much stable."

So barring the appearance of new gas customers, it seems there is little Kakaev, or the changes in the gas and oil industry, can do to stop Turkmenistan's economic decline.

The panel agreed that new ideas and policy changes are needed. Roberts pointed out that Turkmenistan's mentality toward gas sales needs to change.

"The Turkmen for two decades...kept wanting to think big, 30 [billion cubic meters] to India, Pakistan, and India, 30 bcm or maybe more, maybe 40 or 50, to Europe."

Roberts said Azerbaijan has approached Turkmenistan at least four times in the last two years to discuss sending "5 bcm, maybe as much as 10 bcm" but Turkmenistan appears to have shown little, if any, interest in the plan. The Turkmen government, Roberts said, "never understood that if things go bad, you need to think small."

Onshore Vs. Offshore

The subject of onshore contracts came up several times during the discussion.

Many large foreign companies have shown interest in investing in Turkmenistan but only if they could get rights to develop sites on the Turkmen mainland and share in the profits.

The Turkmen government has been loath to give any contracts to develop sites on its territory, but is less concerned at signing deals with foreign companies for exploration and development at Turkmenistan's offshore sites in the Caspian Sea. The sole exception is the China National Petroleum Corporation that works a gas field on the right bank of the Amu-Darya River.

Anceschi said, "Obstructing the entry of foreign actors to onshore development is no longer sustainable."

This would prove problematic for the isolationist Turkmen government, which obsessively controls its onshore sites and, more importantly, the opaque bookkeeping for the revenues.

Roberts suggested that granting onshore contracts might now be Turkmenistan's last hope for turning its unfortunate economic situation around, and at this point even that might not be enough.

"It's probably far too late, but should a major international company come to [President Berdymukhammedov's] attention with a suggestion for a combination of construction of a major external pipeline in exchange for a direct stake in the upstream sector, he should look very carefully and change, if necessary, whatever regulations would prohibit such an arrangement."

The panel discussed these topics in more detail and looked at other issues connected to Turkmenistan's gas and oil industry. And audio recording of the Majlis session can be heard here:

Majlis Podcast: Challenges In The Turkmen Energy Sector
please wait

No media source currently available

0:00 0:35:51 0:00
Direct link

Listen to or download the Majlis podcast above or subscribe to Majlis on iTunes.

About This Blog

Qishloq Ovozi is a blog by RFE/RL Central Asia specialist Bruce Pannier that aims to look at the events that are shaping Central Asia and its respective countries, connect the dots to shed light on why those processes are occurring, and identify the agents of change.​

The name means "Village Voice" in Uzbek. But don't be fooled, Qishloq Ovozi is about all of Central Asia.

Subscribe

Blog Archive
XS
SM
MD
LG