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A tale of four pipelines: The international politics of Turkmen natural gas

Article by Dr Luca Anceschi

July 12, 2019

A tale of four pipelines: The international politics of Turkmen natural gas

On 23rd February 2018, the leaders of Turkmenistan and Afghanistan, alongside top government representatives from Pakistan and India, gathered in Herat to inaugurate the Afghan sector of the Turkmenistan-Afghanistan-Pakistan-India [TAPI] natural gas pipeline.[1] This large-scale infrastructure project, to be powered exclusively by Turkmenistan’s reserves, pursued the establishment and eventual integration of a substantive natural gas market connecting partners across the Central/South Asia divide.[2] The advancement of construction works in the pipeline’s Turkmen sector, announced with propagandistic pomp by Turkmenistan’s official media, represented the event that led members from the four governments to meet in Herat to celebrate the opening of a new phase for this project.[3]

TAPI offers a very telling microcosm to analyse Turkmenistan’s idiosyncratic external relations and their uneasy relationship with the energy policy pursued by the regime headed by Gurbanguly Berdimuhamedov. To date, there is no confirmation that the works in the pipeline’s Turkmen sector have actually started, and no photographic evidence of their advancement can be found; more widely, there is no definitive information on the consortium’s financial viability and profit structure. TAPI is nevertheless presented as a top foreign policy priority by the Turkmen government, which persistently argues about the project’s centrality vis-à-vis Turkmenistan’s energy policy framework.[4] As the Turkmen economy continues to be dominated by the gas sector—which accounted in 2014 for 35 per cent of Turkmenistan’s GDP, 90 per cent of total exports, and 80 per cent of fiscal revenues—the promotion of Turkmenistan’s energy policy agenda has to be seen as a vital component in the viability of the Turkmen economy at large.[5] The virtual nature of TAPI’s progress, in this sense, points to the crystallisation of a fundamental inconsistency within the mechanisms whereby the Turkmen regime endeavours to translate its statements into actual policy.

This short essay intends to unveil some of the idiosyncrasies that regulate the foreign policy/energy policy nexus in Turkmenistan, arguing that Berdimuhamedov’s perpetuation of rentier economics in Turkmenistan has constrained foreign policy-making to the goal of merely achieving security of energy demand.[6] Turkmen diplomacy became in this sense instrumental to the identification, construction and opening of export routes, with energy infrastructure development emerging as the central international concern of the Turkmen state. The placement of energy policy at the epicentre of the survival agenda of the elites in Ashgabat instigated in turn two destabilising mechanisms, which will be investigated in conjunction here: the enhancement of Turkmenistan’s international isolation on the one hand, and the progressive increase of energy insecurity across the Turkmen territory on the other.

From Gazprom to CNPC: Turkmenistan’s gas trade between two monopolies                                

Protracted infrastructural dependency on the centre of the Union of Soviet Socialist Republics (USSR) represented one of the most draining economic legacies that the Soviet dissolution bequeathed to independent Turkmenistan. Independence transformed intra-Union trade into a matter of international affairs: while it presented on the one hand Turkmenistan with a revenue bonanza through the adjustment of Soviet commodity prices to international standards, it continued on the other to enforce Russia’s transit monopoly over the commercialisation of Turkmen gas.[7] Throughout the long presidency of Saparmurat A. Niyazov, who ruled from independence until his sudden death in December 2006, Turkmen gas trade was predominantly conducted through the Central Asia-Centre pipeline, built in the Soviet era to integrate Central Asian gas reserves into the pipeline network of the Ukraine SSR and, most importantly, the Russian Soviet Federative Socialist Republic (RSFSR). The opening of two short pipelines connecting Turkmen fields with Iran—regulated by a wider gas-swap deal—could dilute only in part Gazprom’s control over the terms of Turkmenistan’s gas trade.[8] As part of policies seeking to establish and maintain a relationship of controlled political and economic disentanglement from Russia, the reduction of this transit monopoly represented a key objective pursued by Turkmen diplomacy after the adoption, in December 1995, of a UN-recognised neutral foreign policy course.[9] At domestic level, however, the Niyazov regime ignored the entrenchment of a further dependency, namely that which predicated Turkmenistan’s economy viability on the availability of natural gas revenues. Throughout the 1990s and until the death of Turkmenistan’s first president, the regime in Ashgabat failed to introduce any meaningful reform to domestic production structures, cementing even further the rentier nature of Turkmenistan’s post-Soviet economy.

The early Berdimuhamedov era saw the operationalisation of a major natural gas pipeline connecting the Bagtyýarlyk contract area in eastern Turkmenistan with the Xinjiang Uygur Autonomous Region in western China, and then onto the Chinese gas pipeline network. There are two immediate features that identify the completion of this pipeline—entered into line in December 2009—as an important watershed in the development of Eurasian gas trade. To begin with, the Central Asia-China pipeline has to be seen as the first large-scale infrastructural project completed in the post-Soviet era that challenged Gazprom’s monopoly over the transit of Eurasian gas.[10] Secondly, its ownership structure, in which China National Petroleum Company (CNPC) acquired upstream stakes in the Bagtyýarlyk contract area, innovated on the Turkmen energy practice inasmuch as it allowed, for the first time since independence, the participation of a foreign energy company in the development of Turkmenistan’s onshore gas reserves.[11]

In the medium-term, however, the entry into line of this pipeline substituted Turkmenistan’s over-reliance on Russian gas purchases with an even more damaging dependency framework, wherein gas trade with China rose to become the single most important entry in the whole Turkmen stage budget. Gazprom’s withdrawal from the Central Asian gas market—underpinned by ongoing price disputes with local partners and, most importantly, the rise of China as a key customer for the Russian company—and the periodic instability that characterised its energy ties with Iran, left China as Turkmenistan’s de facto only gas customer. The consistently monopsonistic nature of Turkmenistan’s natural gas trade is captured graphically by the following figure, which illustrates the transition from nearly total dependency on Russian purchases (87.2 per cent of overall quotas traded in 2009) to reliance on energy commerce with China, which amounted to a staggering 94.6 per cent of total gas traded by Turkmenistan in 2018.[12]

The unsustainability of the commercial outlook evidenced in the figure becomes even more apparent when considering the legislative framework regulating Sino-Turkmen gas trade. As part of the produce-or-pay agreement finalised in the late 2000s, Turkmenistan was committed to direct to China increasingly substantive gas quotas at heavily discounted prices, in order to repay the US$10 billion debt it contracted during the construction works of the Central Asia-China pipeline.[13] The figure suggests that gas trade with China increased ten times in absolute size between 2010 and 2018, while total volumes of gas exported by Turkmenistan decreased rather significantly throughout the same timeframe. In this context, Turkmenistan economic viability became the function of its trade with China.

The logic of debt repayment, as a consequence, pushed the Turkmen economy on the brink of collapse, as confirmed by media reports of periodic eruption of food insecurity across the Turkmen territory, the continuous restructure of the Turkmen public sector and, most importantly, the termination of the generous system of state subsidies in place since the Niyazov era.[14]

A combination of short-term (allow onshore exploration rights to foreign companies) or longer-term (economic diversification away from hydrocarbons) measures is required to alter Turkmenistan’s current economic predicament. However, the Berdimuhamedov regime is refusing to even consider these alternatives: Turkmenistan’s crisis can in this sense be addressed through unimaginative solutions, which all connect to one economic mantra: selling more gas through more export routes.

TCGP and TAPI: The future of Turkmenistan’s gas exports between myth and reality                           

As the Berdimuhamedov regime proved to be impervious to the logic of economic opening intrinsic to globalisation and, most notably, continued to manage in absolutely not transparent fashion its revenues flows—the Turkmen government has not established a sovereign wealth fund to administer the capital derived from energy exports—the rudimentary version of rentier economics crystallised in Turkmenistan proved essential to ensure regime stability at a time of economic crisis.[15]

There is therefore very limited prospect for a concerted abandonment of rentier economic strategies in Turkmenistan; the construction of new pipelines has to be regarded in this sense as an inevitable development to ensure Turkmenistan’s economic survival in the short run. At the time of writing, the Berdimuhamedov regime has reportedly committed to explore two possible routes to expand the export options available to the Turkmen natural gas industry: either connecting Turkmenistan with Western markets through the construction of a trans-Caspian pipeline or, alternatively, reaching out to customers located in the Indian subcontinent through the operationalisation of the TAPI pipeline project.

Despite its size and expected export capacity, TAPI remains a virtual pipeline, the relevance of which seems to be exclusively linked to its discursive importance rather than to the effective contribution it can make to trans-regional energy trade.[16] Notwithstanding its limited financial resources and marginal experience in the management of mega-projects, Türkmengaz—Turkmenistan’s natural gas state concern—emerged in 2015 as the leader of the consortium established to deliver TAPI.[17] Türkmengaz’s limited input into project delivery has so far impeded the identification of financial backers for the very expensive pipeline and, most notably, resulted in a series of logistic blunders associated with the completion of the Turkmen sector of the pipeline project.[18]

The finalisation of the Convention on the Legal Status of the Caspian Sea in August 2018 injected new life in a series of infrastructure projects intending to export natural gas extracted in Turkmenistan to European markets. Robert Cutler correctly remarked that the current iteration of the Trans-Caspian Gas Pipeline (TCGP) project seems to be somewhat more feasible than its predecessor.[19] The current consortium has recognised that this pipeline—the financial suitability of which does however remain elusive to say the least—will not be producer-built due to Turkmenistan’s refusal to offer production-sharing  agreements’ (PSA) rights to onshore developments and that the TCGP demand structure needs to be re-modulated through the identification of two access points for Turkmen gas. The new legislative environment set up by the 2018 Convention reduced some of the obstacles that so far obstructed the advancement of cooperation between Turkmenistan and Azerbaijan vis-à-vis the construction of a trans-Caspian pipeline.[20] At the same time, however, the convention subjected the ultimate advancement of any shared project to any environmental concern expressed by the other Caspian states.[21] The Russian Federation, in this sense, may continue to have a final say over trans-Caspian gas transit.

As the preservation of Turkmen authoritarianism continues to be predicated upon the persistence of rentier economics, the state’s economic foreign policy will continue to be linked, at least in the immediate future, with the identification of new export routes for Turkmen gas. Reconciling the foreign policy priorities of a regime that has so far thrived on isolationism with the economic imperatives of an autarkic state poorly integrated with the global economy has to be in this sense as the most daunting challenge faced by Gurbanguly Berdimuhamedov and his associates.  


Photo by Peretz Partensky, published under Creative Commons with no changes made.

[1] Bruce Pannier, Afghan TAPI Construction Kicks Off, But Pipeline Questions Still Unresolved, Qishloq Ovozi Blog, RFE/RL, February 2018, https://www.rferl.org/a/qishloq-ovozi-tapi-pipeine-afghanistan-launch/29059433.html

[2] For a comprehensive look at size, location, and exportability of Turkmenistan’s gas reserves—currently regarded as the fourth largest in the world—see: Marika Karagianni, Turkmenistan looks to gas expansion, Petroleum Economist, February 2019, https://www.petroleum-economist.com/articles/politics-economics/middle-east/2019/turkmenistan-looks-to-gas-expansion

[3] See, for instance, the report on the TAPI Steering Committee meeting held in Mary (Turkmenistan) in early 2018, in which the participant congratulated Turkmenistan in the advancement of the construction works in its own sector, V Mary sostoyalos’ zasedanie Rukovodyashchego Komiteta po proekty gazoprovoda TAPI, Turkmenistan Segodnya, February 2018, http://tdh.gov.tm/news/articles.aspx&article11441&cat14

[4] See for instance, Turkmenistan uchastok TAPI postroyat za dva goda (Turkmen section TAPI will be built in 2 years), Türkmenistanyň Nebitgaz, November 2015, http://www.oilgas.gov.tm/blog/40/

[5] World Bank, Turkmenistan Partnership Program Snapshot, April 2015, http://documents.worldbank.org/curated/en/904321485161087742/World-Bank-Group-Turkmenistan-partnership-program-snapshot

[6] In Hossein Mahdavy’s classic definition, rentier economies ‘receive on a regular basis substantial amounts of external rents […] paid by foreign governments, concerns or individuals’ (Patterns and Problems of Economic Development in Rentier States: The Case of Iran. In: Cook, M.A. (ed.) Studies in the Economic History of the Middle East. London: Routledge 1970, p. 428). In addition to the externality of the rent, it is the modality of its domestic use that characterises this typology of economic structure. Hazem Beblawi identifies the government and its ancillary institutions of a rentier state as the principal recipient of the external rent (‘The Rentier State in the Arab World’. Arab Studies Quarterly 9 (4) 1987: 385). While no currently existing state presents all the features included in scholarly description of the rentier model, post-Soviet Turkmenistan represents a particularly relevant case of post-Soviet rentierism. Its economic development has been shaped by a visibly rentier logic, heavily dependent on the rent generated by natural gas controlled kleptocratically by the regime in Ashgabat and featuring at the same time an over-inflated public sector and, until a few years ago, an extensive system of subsidies for the larger population.

[7] Tarr, David G. 1994. The terms-of-trade effects of moving to world prices on countries of the Former Soviet Union’. Journal of Comparative Economics 18 (1): 1-24.

[8] Brill Olcott, Martha. 2006. International gas trade in Central Asia: Turkmenistan, Iran, Russia and Afghanistan. In Victor, David G., Jaffe, Amy M. and Hayes, Mark H. (eds.): Natural Gas and Geopolitics from 1970 to 2040. Cambridge: Cambridge University Press, pp. 202-33.

[9] Anceschi, Luca. 2009. Turkmenistan’ Foreign Policy. Positive Neutrality and the Consolidation of the Turkmen Regime. Abingdon: Routledge.

[10] For more on Russia-Turkmen energy relations, see: Øverland, Indra. 2009. Natural Gas and Russia–Turkmenistan Relations. Russian Analytical Digest, 56.

[11] Emirati energy company Dragon Oil has long explored, under PSA conditions, numerous gas fields, part of the Cheleken contract area, in the Turkmen sector of the Caspian Sea.

[12] Data for the 2006-2016 series replicate those illustrated in my 2017 Central Asian Survey article (see footnote 17 below). Data for 2017 and 2018 are taken from the 67th and 68th editions of the BP Statistical Review of World Energy, respectively published in 2018 and 2019.

[13] Kuchins, Andrew, Mankoff, Jeffrey and Backes, Oliver, 2015. Central Asia in a Reconnecting Eurasia – Turkmenistan’s Evolving Foreign Economic and Security Interest. Washington, DC: CSIS Report, p. 13.

[14] Ryskeldi Satke, Understanding Turkmenistan’s Food Shortages, The Diplomat, December 2018, https://thediplomat.com/2018/12/understanding-turkmenistans-food-shortages/; Turkmenistan: Economy, Finance Ministries Merged to Save Money, Eurasianet, October 2017,  https://eurasianet.org/turkmenistan-economy-finance-ministries-merged-to-save-money; Turkmenistan combines transport ministries, Railway Gazette, February 2019, https://www.railwaygazette.com/news/news/asia/single-view/view/turkmenistan-combines-transport-ministries.html; Turkmenistan Cuts Last Vestiges of Program for Free Utilities, RFE/RL, September 2018, https://www.rferl.org/a/turkmenistan-cuts-last-vestiges-of-program-for-free-utilities/29511308.html

[15] An interesting discussion of current modalities of rentier economic development is presented in: Gray, Matthew. 2011. A Theory of “Late Rentierism”in the Arab States of the Gulf. Center for International and Regional Studies Occasional Paper 7, Georgetown University School of Foreign Service.

[16] The TAPI pipeline—with an estimated total cost of US$ 10 billion— is expected to carry annually no fewer than 33 billion cubic meters (bcm) of natural gas over a 1078 km route. All of the project’s gas is to be supplied by the Galkynysh field (south-east Turkmenistan), with a distribution of volumes traded determined as follows: Afghanistan will buy 0.5–1.5 bcm per year, while India and Pakistan will each receive annual volumes of 14–16 bcm; Anceschi, Luca. 2017. Turkmenistan and the virtual politics of Eurasian energy: the case of the TAPI pipeline project. Central Asian Survey 36 (4): 409-29.

[17] Micha’el Tanchum, Turkmenistan Pushes Ahead on TAPI Pipeline, The Diplomat, September 2015, https://thediplomat.com/2015/09/turkmenistan-pushes-ahead-on-tapi-pipeline/

[18] Bruce Pannier, Analysis: TAPI and other Turkmen Tales, Qishloq Ovozi Blog, RFE/RL, December 2018, https://www.rferl.org/a/tapi-turkmen-tales-pipeline-qishloq-ovozi-pannier/29632356.html

[19] Robert Cutler, Third time lucky for Trans-Caspian Gas Pipeline?, Petroleum Economist, June 2019, https://www.petroleum-economist.com/articles/politics-economics/europe-eurasia/2019/third-time-lucky-for-trans-caspian-gas-pipeline

[20] For the document’s full text, see: Convention on the Legal Status of the Caspian Sea http://en.kremlin.ru/supplement/5328

[21] Anceschi, Luca. 2019. Caspian Energy in the Aftermath of the 2018 Convention: The View from Kazakhstan and Turkmenistan. Russian Analytical Digest, N° 235.

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