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Russia/Turkmenistan: The Race To Turkey's Energy Market

Washington, 21 October 1997 (RFE/RL) -- While Turkmenistan and Iran are taking important steps to promote exports of Turkmen oil and gas, Russia may nevertheless be racing ahead to corner one of the most important markets in the region, namely Turkey.

On a visit to Ashgabat earlier this month, Iranian Foreign Minister Kamal Kharazzi met Turkmen President Saparmurad Niyazov and signed protocols for several key projects.

The two sides also made progress with plans for a consortium to build a gas pipeline across Iran to Turkey, a project that could cost $2.5 billion and eventually allow Turkmenistan to sell up to 15 billion cubic meters of gas a year.

The two states agreed in addition to cooperate in the Caspian Sea and avoid conflicts over bordering oilfields. It now appears that Iran and Turkmenistan may adopt a common approach to the controversial issue of the legal division of the Caspian. An oil pipeline to the Persian Gulf was also discussed, and the details of a ceremony were worked out for the opening of the new link from Turkmenistan's Korpedzhe gas field to northern Iran in December.

But important as these developments are to Turkmenistan, there is also worry on the Turkmen side that Russia's Gazprom seems to be moving even faster to capture the gas customers that Turkmenistan would like to serve, especially Turkey. In fact, one major purpose of Kharrazi's visit was probably to assure President Niyazov that Teheran will not abandon the interests of Turkmenistan by letting Russia gain influence over the republic's strategic outlet to the south.

Gazprom's refusal to deliver Turkmenistan's gas to paying customers in Europe through its pipelines to the north has already brought the republic's exports to a crawl. But it now appears that Russia is accelerating attempts to increase its own gas sales to Turkey before the southern pipeline can be built through Iran.

Russia is focussing on three separate routes at once to increase its gas deliveries to Turkey. Two of the projects have made strides in the past two weeks, and the total volumes promised by Gazprom already exceed the 30 billion cubic meters per year it has pledged to deliver by the year 2010.

As part of an agreement with Bulgaria this month, Gazprom will provide 9 billon cubic meters of gas to Turkey along a western route around the Black Sea. Talks will begin next year on a second line over the same path to carry an additional 16 billion cubic meters a year.

Gazprom is already planning a $1 billion pipeline under the Black Sea to Turkey to handle yet another 16 billion cubic meters a year. Last week, Armenia ratified an agreement with Gazprom for a third route to carry even more gas over its territory to Turkey, although the total amount of gas envisaged remains unclear.

But what seems increasingly evident is the effect that all these plans could have on Turkmenistan, if they are realized. Gazprom's total available volumes for Turkey could approach 50 billion cubic meters, leaving little of the market for competitors.

The Petroleum Finance Company in Washington estimates that Turkey's rapidly-growing demand for gas will rise to 52 billion cubic meters in 2010 from consumption of 9 billion cubic meters now. While the increase is huge, nearly all of it could be provided by Gazprom if it gets its deliveries there first.

It is not yet known how soon Turkmenistan can join in this race. A French feasibility study for the major pipeline across Iran is expected to be finished at the end of this year.

The new 200-kilometer line from the Korpedzhe field is designed to serve users in northern Iran. At first, it may carry up to 3 billion cubic meters annually. Volumes may rise to 8 billion cubic meters by 2006. Customers in northern Iran already need about 6 billion cubic meters a year.

The completion of a section of pipeline to Turkey from Tabriz, in the west of Iran, may allow some gas to flow in perhaps a year. But whether that gas will be Iranian or Turkmen is hard to say.

Major flows of gas from Turkmenistan across Iran to Turkey could take many years, with massive investment in new pipelines and compressors. U.S. and Turkmen officials say that Washington has also not given its final word on whether U.S. sanctions might apply. The United States, concerned at what it sees as Iran's involvement with terrorism, disapproves of international trade with Iran.

In the meantime, Russia can be expected to make every effort to keep the Turkish market for itself. Sources of financing are also likely to weigh all the competing plans and favor those that have the best chances of success.

Gazprom is under tremendous pressure to increase its revenues. Russian gas production dropped nearly 7 percent in the first eight months of this year, the steepest decline since the Soviet collapse. Gazprom's role has often sparked questions as it competes with former Soviet republics while it claims t is cooperating with these same republics. The larger question behind the gas race is whether Moscow is motivated by business or the desire to gain political influence.

The answer may be both. But it also gives rise to another question. If Russia is motivated by business, why not simply agree to share the Turkish market among major gas producers and end the dilemma for pipeline finance? If Russia ever becomes serious about pursuing an agenda that is strictly business, perhaps it may entertain such an idea.