Baku, Ashgabat, Ankara breathe new life into trans-Caspian gas pipeline An observation by Caliber.Az

The global geopolitical transformations, triggered by the war in Ukraine, have reinvigorated discussions about the transportation of Turkmen gas to Europe through the trans-Caspian route. This time, Ankara is promoting such an initiative, with Baku ready to support the project as a transit country and Ashgabat ready to provide the resource base. The project was discussed during the recent summit of the heads of state of Türkiye, Azerbaijan and Turkmenistan held at the Turkmen resort “Avaz” on December 14. Turkish President Recep Tayyip Erdogan, during a meeting with the youth of the Turkish city of Mardin recently made the announcement of a new (trilateral) summit, where they will discuss a road map for the export of Turkmen gas.

The Caspian Sea region, rich in its energy potential, first opened its resources to the world after Kazakhstan and Azerbaijan signed comprehensive agreements with a consortium of the world’s leading oil companies in the early 1990s. In the following years, large-scale intelligence work, the availability of reliable information about raw material reserves, as well as huge investments in the mining and transport infrastructure of Azerbaijan and Kazakhstan would multiply the interest of European importing states to diversify their energy supplies from the region. And now, after the final rupture of commodity cooperation with Russia by the collective West, the Caspian Sea region has been given a key role in ensuring the energy security of the Old World.

For a number of objective reasons, the process of development of oil and gas fields in Turkmenistan and the subsequent formation of oil and gas transport infrastructure was tied to Russia and China, with significant investments coming from the Persian Gulf countries, and marginally from Iran. These countries were also the main markets for Turkmen energy raw materials. Over the last decade, Azerbaijan has remained the western vector of Turkmen oil and oil products supply, with a total of 32 million tons of Turkmen oil exported to world markets through the Baku-Tbilisi-Ceyhan pipeline. In turn, since 2008, Turkmen fuel and oil products from the port of Turkmenbashi by rail and ferry transit were sent to the oil terminal Black Sea in the Georgian port of Kulevi and then further exported to Europe.

However, on the gas track, Turkmenistan’s activity was limited by the existing pipeline system with access to the Russian Federation, as well as seven branches towards China. Turkmenistan’s proven reserves of natural gas are 19.5 trillion m³, making it the fourth largest country in this regard in the world. The average annual production in this republic is also the highest in the Caspian Sea region today and exceeds 83 billion m³. However, about two-thirds of these volumes are assigned for delivery to China, with the rest transferred to Russia, Myanmar, Kazakhstan, Uzbekistan, a little to Iran and further to Azerbaijan. In particular, within the framework of the swap agreement signed a year ago between Ashgabat, Baku and Tehran, Azerbaijan may receive up to 1.5-2 billion m³ of Turkmen gas annually. However, for the first three quarters of this year, these deliveries amounted to about 632 million m³.

In the last decade, Ashgabat planned to maximize gas production, including through the development of the new and large “Galkynysh” field. This would compensate for the reduction of pressure on old Soviet-era fields and increase exports to the south. Unfortunately, it has not yet been possible to build the necessary infrastructure for the pipeline “Turkmenistan, Afghanistan, Pakistan, India” (TAPI) which would have a capacity of 33 billion m³ per year.

Thus, the “gas pie” of Turkmenistan is still not completely divided geographically and is waiting for its portfolio investor. In the beginning of the 2010s, this role could have been filled by Western energy companies within the framework of the Nabucco project, under which “blue fuel” (natural gas) from Iraq, Iran, Azerbaijan as well as Turkmenistan could have been supplied to European consumers. However, the unwillingness of European companies to invest in pipeline infrastructure, as well as disputes over pumping tariffs, the final price of gas and the feasibility of a pipeline network stretching over 3,300 km and costing €14 billion (as reported by The Guardian in 2011) conclusively buried this initiative.

The unresolved status of the Caspian Sea has long been a serious obstacle to the implementation of the trans-Caspian gas trans-shipment project, as well as the categorical objections to the construction of an underwater pipeline which, according to Russia and Iran, would cause irreparable damage to the environmental security of the entire region. The core reason for these objections, of course, was related to the Russian Federation’s not wanting a serious competitor in the form of Nabucco to emerge on the horizon who could be able to compete with their monopolist “Gazprom”, which until 2021 provided more than 50% of all natural gas supplies to Europe.

However, today the European gas map is completely reformatted, with Russia’s share of the supply of “blue fuel” to the West having decreased from 50% to about 8% and going down to zero in the future. Instead, EU ports are being replaced with infrastructure and terminals for the reception of liquefied natural gas (LNG) from the Persian Gulf countries and the United States, and alternative pipeline gas supplies from North Africa, the Middle East and the South Caucasus are being expanded. Azerbaijan plays a significant role here, which plans to increase the supply of gas through the “Southern Gas Corridor” (SGC) system to 20 billion m³ per year in five years. Furthermore, Azerbaijan possesses another branch for the supply of “blue fuel”, and since the end of 2006 the “Baku-Tbilisi-Erzurum” pipeline has been pumping through Georgia to the Turkish market. This pipeline, with a capacity of 25 billion m³ per year, also plays a key role in the diversification of gas supplies to the West.

On the other side, we have the implementation of the Russian-Turkish project to turn Türkiye into a gas hub. This country intends to expand its pipeline network, gas storage facilities and other related infrastructure. In the future, the increase of the Trans-Anatolian Gas Pipeline’s (TANAP) capacity to up to 60 billion m³ of gas per year is also a possibility. Comparable modernizations of increased capacity of the compressor stations can also be realized on the Trans-Adriatic Pipeline (TAP).

In this context, the prospects of increasing gas supplies not only from Azerbaijan but also from Turkmenistan are very positive, should the interested parties agree on the construction of the Trans-Caspian Gas Pipeline with a capacity of about 30 billion m³ of gas per year. The leaders of Azerbaijan, Türkiye and Turkmenistan discussed similar prospects in mid-December in the course of their meeting at the resort near Turkmenbashi.

“Following the meeting of the ministers for energy of the three countries, the presidents of Azerbaijan, Türkiye and Turkmenistan will hold a new summit and decide on a road map for the export of Turkmen natural gas to Europe. The Turkish minister for energy, together with his team, has been instructed to conduct preliminary work with colleagues from Azerbaijan and Turkmenistan, followed by a new meeting of the heads of state and I hope that we will make a decision on the road map”, President Recep Tayyip Erdogan recently said. Speaking about the possibility of Turkmen “blue fuel” supply to Europe, the Turkish president emphasized the potential of a gas hub, which is planned to be established on the territory of Türkiye.

What are the real possibilities for starting the formation of a trans-Caspian infrastructure that allows Turkmen gas to be transferred directly to Azerbaijan (bypassing the Iranian swap) and further westward?

Unlike in the period when the Nabucco project was discussed, such chances are very high today. First of all, on the territories of Azerbaijan, Georgia and Türkiye, a powerful gas transport infrastructure, the South Caucasus Pipeline, exists beside the “Baku-Tbilisi-Erzurum” gas pipeline. Secondly, in 2018, one of the most difficult issues concerning the regional policy was solved: five Caspian Sea countries signed the “Convention on the Legal Status of the Caspian Sea”, which allows the laying of underwater infrastructure to the signatories of the convention, subject to environmental protection standards. Finally, disputes between Baku and Ashgabat over the ownership of the “Dostlug” oil and gas field have been resolved: the parties have agreed on the allocations of its joint development, including the production of about 60 million tons of oil and 100 billion m³ of gas, and this raw material can also fill the gas pipe. In turn, US Assistant Secretary of State for European and Eurasian Affairs, Karen Donfried, believes that given the current geopolitical contradictions with Moscow, the US is ready to make maximum efforts for the diversification and security of energy supply. Having supported the supply of Turkmen gas to Azerbaijan and Europe, this is now a priority of US policy.

As for specific routes for the export of gas through the Caspian Sea, interesting alternatives have also emerged. At the end of October, the “Trans Caspian Resources” company presented their project of the 78-kilometer Trans-Caspian Gas Connection Pipeline to supply 10-12 billion m³ of gas from the existing offshore platforms of Turkmenistan to the Azerbaijan-owned “Shahdeniz” platform and further to the Sangachal terminal, from where Turkmen gas can be transported via the existing system of the South Caucasus pipeline. The main advantages of this project are its low cost and relatively fast implementation.

However, a larger-scale project, estimated at approximately $5 billion and entailing the construction of a 300-kilometer underwater pipe from the Eastern to Western shores of the Caspian Sea, which will allow the pumping of 30 and more billion m³ of gas, remains on the agenda. The capitalization of this project is relatively high, and as it was announced many years ago, Baku and Ashgabat do not intend to invest in its implementation on their own. In this case, it is necessary to create a consortium consisting of western oil companies, as well as to organize credit support from EU financial institutions, to conclude a multilateral long-term contract for the purchase of gas. In fact, solving this issue will be the key argument that will outweigh all doubts and risks in the implementation of the trans-Caspian gas project.