Turkmenistan, Nabucco, Azerbaijan, and Russian natural gas

Robert Cutler has an interesting article in Gundogar recently in which he asks, concerning the recent articles questioning the size of Turkenistan’s gas reserves “Who stands to gain?” from the imbroglio. His conclusion is that it is likely the Russians, and certainly not the Turkmen.

The story, in brief, is that after a steadily rising projection of the size of the gas reserves in the country, the Turkmen President called in a Western auditing firm to look over the books and validate that the projections were real. The British firm, Gaffney Cline & Associates, came, looked at two fields, South Yolaton and Yashlar and certified, a year ago that they held probably 6 and 0.7 Tcm each. To put this in context, it would make South Yolaton the fourth or fifth largest gas field in the world, and would mean that Turkmenistan might have reserves as large as 80% of those reserves in the entire Russian nation. Turkmenistan is currently getting its gas from the Dovletabad field and it is this that was supplying natural gas to Russia and points west prior to April this year.

Two stories one Russian and one German recently suggested that the information on which the audit was based was bogus – a claim that the auditing firm disputes. They pointed out

"There is a very considerable volume of data to be assessed on a project of this nature. This data [comes] in a wide range of types and from a range of sources," Gillet (Jim Gillet of Gaffney Cline - ed) explained. "Therefore, in practical terms, it would be impossible to falsify it all [in a way] such that it could still appear to be coherent and could mislead an expert team. This is why companies like [Gaffney Cline] are used by organizations, such as stock exchanges and banks, to provide independent and expert opinion on such issues." The current context is that Turkmenistan is moving away from the relatively expensive dependence on Russia to handle all its exports of natural gas. It is therefore seeking help in building a gas pipeline that would tie into Nabucco, the pipeline that would circumnavigate Russia and bring natural gas into Western Europe.

So far the Nabucco pipeline has not been able to generate enough natural gas supply to justify its existence.

Nabucco aims to diversify gas supplies by bringing Caspian and Middle East gas to Austria via Turkey. The pipeline venture, led by Vienna-based OMV, is vying with Asian and Russian projects for access to Azeri, Turkmen, Iranian and Iraqi gas.

Nabucco, set to start operating in 2014, will get its first gas from Iraq and Azerbaijan, Dolezal said. Reinhard Mitschek, the project’s managing director, said earlier this month that 8 billion cubic meters of gas would come from Iraq in 2015, more than a quarter of the pipe’s total volume, and that Shah Deniz would provide the same amount.

The link, which will send as much as 31 billion cubic meters of Caspian-region gas a year to Europe, has been delayed by a lack of commitments from customers, suppliers and transit nations. First deliveries were originally planned for 2013.

Russia badly wants to ensure that this regional natural gas continues to flow west through its gateway. Thus it has been bringing pressure to bear on both Turkmenistan and Azerbaijan to continue to direct all their deliveries to them. And so, to date, while the Turkmen has continued to speak favorably about Nabucco, for over a year, through July and to date Turkmenistan has yet made no firm commitment, even while claiming that it has the resource to supply Nabucco:

The Turkmen president pointed to the newly discovered gas fields, Yolatan and Othman, in the southern parts of his country, and said that huge gas reserves of the two fields have made it possible for Turkmenistan to join major international gas pipeline projects. 

Reminding that the Nabucco pipeline is at the center of the international community's attention, he added that development of gas and oil fields, construction of new facilities for refining oil and gas, construction of gas terminals, employment of modern technologies in his country's oil and gas sectors are among Ashgabat's priorities.

Ashgabad (the Turkmen capital) needs more Western support, and must convince investors that it has the long-term supplies to be able to do so.

Having made a commitment to China for up to 40 bcm per year, and having committed 20 bcm to Iran, and with commitments of up to 50 bcm to Russia, could Turkmenistan also be able to provide the gas for Nabucco? (As I noted production for the Chinese is coming from a different set of gas fields).

And here, as Robert Cutler points out, there is a benefit to Russia (or Gazprom) sowing some disinformation. If investors can be caused to doubt the credibility of the long-term supply to Nabucco, then it won’t get built, and Turkmen gas will continue to flow West through Russia.

Gazprom also has a secondary claim in that it cites a prior agreement that Russia be able to buy all of the Turkmen supply.

In fact, it complements what Russian media and officials have now insisted for many months, to wit, that Moscow has already contracted all future gas from Turkmenistan. There is a contract in principle signed under Niyazov (the former Turkmen President - ed) to provide Russia with 50 billion cubic meters per year (bcm/y), but that is subject to continual negotiations and re-negotiations over price.

Russia is also trying the same approach to the natural gas that will come to Nabucco from the Azerbaijan production from Shah Deniz (a field with about 1 Tcf of reserves). Robert Cutler notes:

For example, ever since the signature of the contract for Azerbaijan to send 0.5 bcm of gas from Shah-Deniz Phase 2 to Russia in 2010, Russian media and officials have stated at every opportunity that they will have what amounts to «first refusal» on subsequent Shah-Deniz Phase 2 production. However, no legal documents binding the Azeri side to such a bargain exist.

The Russian struggle to deny supplies to Nabucco sufficient to stall its construction, while more successful until now, appears to be fraying a bit at the edges. The very size of the natural gas deposits would indicate that Turkmenistan can meet all its current and anticipated commitments, and that the doubts raised about the reserves are meeting more questions than immediate acceptance. (Though firing the guys in charge didn’t help bolster the credibility of the Turkmen argument).

In the meanwhile Turkey has been negotiating with Iran, and it appears that some of the natural gas in the South Pars field (one of the three larger – at 14 Tcm - than South Yolaton) may come to Turkey (around 35 bcm) with Turkey sending forward what it does not use into the Nabucco line.

In short in this continuing saga the current week looks to have been better for the Nabucco pipeline and the West, and not so good for Gazprom – but don’t even think of counting them out yet!!

All of this gets kind of confusing. The Turkmenistan reserves are likely not up to what they say, so they probably aren't going to have enough to give everyone. There is likely to be a shortfall somewhere.

At the same time, it seems like we are not reading about big ramp ups in natural gas production anywhere else either. What we are seeing, it seems like, is a lot of LNG capacity going in. For example, Russia seems to be working toward LNG from Yamal.

In general, it is still hard for companies to find investment capital. Isn't there going to be a shortfall of natural gas production to put in all the pipelines different groups are talking about? Certainly not all of the pipelines will work. Is it the ones that get built first that will work?

I think the reports of Turkmen gas being inflated are -REAL-.
Not a Gazprom/RU "ploy" of sorts.

We have a MAJOR geo-political chess match going on, in Eurasia.
-MUCH- bigger then Turkmenistan.

By some accounts, Russia has given upto $1.5 BILLION [US] in military gear to Armenia.
[this story reports $800M]
Azerbaijan Slams Russia Over ‘Armenia Arms Supplies’

I suspect that at least some, maybe most, went to Nagorno-Karabakh "gov".
This would make sense.

It would be a way for Russia [because of Nabucco] and Armenia, make Azerbaijan "pay" a heavy toll in troop loss, in any attempt to reclaim the land by force... or even by "peace treaty". If N-K resorts to an insurgency. The "president" of N-K is -NOT- going down without a fight.

Sarkisian ‘Satisfied’ With Karabakh Troop Inspection

Not least because: The war never really ended.

Given all the "Diplomatic motion" regarding Nabucco, and Armenia planning on opening its Boarders with Turkey, the whole Nagorno-Karabakh issue is now "front and center".

The U.S. is trying to toss "everyone" a few "bones".
To Armenia: The "Genocide Resolution"

Add that the EU is trying to get the most out of Turkey, before it grants EU membership.
"Turkey urges France not to block EU bid" http://www.eubusiness.com/news-eu/turkey-france.1c5

Add to this, widely spread rumors that the US has told Azerbaijani Gov in private that if they invade N-K we will recognize N-K as an independent state: U.S. Embassy Denies Karabakh Recognition Threat http://www.rferl.org/section/Azerbaijan/151.html

I believe we [the US] are doing this to prevent another "Yugoslavia" type event. But, in the end, even if the "Recognition threat" rumors ARE true, I would bet they are a bluff on the part of the US. Because: EU support to the US in Af/pak region is VITAL. Nabucco is VITAL to the EU. And, Azerbaijan is VITAL to Nabucco.

And given that Nabucco is seen as a THREAT to Russian foreign policy, and national Economy... If I am Putin, the best way for me to kill the pipeline would be to arm radical "nationalist" and then "stoke the flames". And N-K is -FULL- of people JUST like that. See also: the Russian war with Georgia. [Sure Saakashvili is a JACK-az! But, it was a well made trap Russia laid for him to run into.]

Wile Russia is DEF in a "weaker" position given the effect of the finical crisis, it can still "ruin the game". And arms trades to the "wrong" people, would be an easy way to do that. And given -ALL- the "Hard/soft power" ways Russia is attempting to disrupt things... to me, the idea that Russia/Gazprom would use a "fake story" to undermine Nabucco, seems thin.

Rusia can bring ruin to Eurasia, and kill Nabucco by proxy wars. Why "plant" a "fake news report"? A "TRUE" and "open to the world" audit would disprove the rumors rather quickly.

But: consider that Turkmenistan's President FIRED the people he did, in the way he did...and the events that led up to that happening... Something doesn’t smell right.

Somewhat off topic, but somewhat relevant:
Here is a [-VERY-] short list of "key" events/actions that chould soon happen.

1. Turkey opens border W/ Armenia, Turkey agrees to Nabucco, Turkey gets EU Membership.
Being granted EU membership, takes DOMESTIC POLITICAL heat off of Turkey
for opening border with Armenia, and "betraying" Azerbaijan.

2. Armenia open borders, gets better trade ties w/ "western support"
[Possible offer to start on a path to Nato membership + Nabucco pipeline]
Takes DOMESTIC POLITICAL heat off Armenia, for opening border W/ Turkey,
without Turkey saying Armenia suffered "genocide" during WW1

3. Armenia withdraws military support from Nagorno-Karabakh
Takes DOMESTIC POLITICAL heat off Azerbaijan, As Azerbaijan can then "re-claim" Nagorno-Karabakh

4. US house/Congress, passes resolution that Armenians suffered "genocide" in ww1.
-PUTS MASSIVE HEAT- on Obama from Turkey and Azerbaijan.
But: EU membership for Turkey, and N-K lands reclaimed by Azerbaijan are seen as "worth the domestic political discomfort" by Turkey and Azerbaijan.

5. Obama signs/states publicly [he did as "Candidate Obama" this time -AS PRESIDENT-]
"Armenia Genocide at the hands of Turkey WW1 resolution"
In turn: U.S. and EU nations get lucrative Energy contracts in Azerbaijan, +nice prices for the gas.
US gets more EU troop support in Afghanistan + diplomatic assistance in Pakistan and Eurasia for helping w/ Nabucco.

Thanks for helping to illustrate the complexity of the situation. In an earlier post I had cited some of the reasons given for the purge.

President Gurbanguly Berdymukhamedov has sacked the heads of Turkmengaz, Turkmenneft and Turkmenneftegazstroy for showing an "irresponsible attitude" toward their jobs. . . . . . Nura Mukhammedov is replacing Dovlet Mommayev as the head of Turkmengaz. Mommayev had held the post only since July. . . . Mommayev was around long enough to be guilty of "a number of shortcomings and omissions." Orazdurdy Hojamuradov was relived from his post of chairman of Turkmenneft "due to transfer to another job." Berdymukhamedov charged Hojamuradov with "not taking the necessary measures to increase oil production" and allowing the state-owned enterprise’s production to be eclipsed by foreign companies that are "twice as efficient." . . . . Ptamurad Durdiyev was sacked from Turkmenneftegazstroy. According to Berdymukhamedov, the state oil and gas construction company is failing to "cope with its tasks."

The purge is reputed not to be over yet.

It gets a HECK of a LOT more complex then what I've said before. lol.
I do release we talk about "energy" here,
but Oil/gas and conflict do have a tendency to fallow each other.

One thing to keep in mind:
The "leaders" there, go coo-coo more often then Swiss clocks.

Over the past few months the area has seen a lot of shelling, [mortars/cannons] and sniper fire on the borders. A few others walked/drove over IED's/Mines. Mainly around Agdam, and Fizuli. Off the top of my head, I think I recall about 14 troops from both sides killed in the past 12-18 weeks. A few others "defected" [kidnapped?] to either side. Who starts the shooting... depends on what side you ask.

Things that need to be considered,
With regards to understanding events and potential timings:

"Nagorno-Karabakh" translates into "The hills". So, -IF- Azerbaijan -IS- going to invade, its going to be an uphill invasion. This is not going to be an enjoyable experience for those who get the orders. If you take a quick gander at the terrain, you'll see it’s a Mortar/sniper paradise:


Wile Azerbaijan has a much more advanced military force then Armenia, you have to take weather into account as well. So, the time of season should be expected to play a role in any political choices and invasion timing. -IF- they invade... and -IF- they have logical minds, planning the invasion.

Examples: You don’t want to invade a high elevation mountain range, with only a few [poorly maintained] roads, in the dead of winter/spring. You'll want your men and tanks to have good traction. Also, they will probably want to go in the middle of the night, since both sides have borders lined with deeply dug in trenches.

So you might want to keep your eyes out for "New Moon" cycles, Monthly precipitation/temps ect: http://www.weather.com/outlook/travel/businesstraveler/monthly/AJXX0005?...
And of course, any diplomatic developments... or lack there of.

I found this link giving a little background regarding Nagorno-Karabakh. I have not been following things in that area, and I expect a lot of other readers haven't been either.

Thanks for the link Gail. Odd what jumped out at me when I read about that little troubled piece of world realestate--that the U.S. and Canada are remarkably homogenous and stable. It will take some doing to turn our into region that sort of fragmented mess. Local control isn't all plusses.

Re: Armenia withdraws military support from Nagorno-Karabakh

Can't see that happen. N-K population is 95% Armenian now.
Azerbaijan lost the N-K war, and Azerbaijani population was cleansed out, leaving ghost towns like Agdam behind. Hard to imagine sudden change of heart on Armenian side.

This is an immensely important story that has received far too little attention to date in the media (though Jerome and others have discussed it here at TOD, along with articles in Drumbeat). IF the EU will continue to be dependent on other countries for natural gas (meaning they don't transition most current natural gas consumption to some other energy source), then Nabucco is an extremely high priority project that must have the full attention of the EU energy ministry and heads of state.

The British firm, Gaffney Cline & Associates, came, looked at two fields, South Yolaton and Yashlar and certified, a year ago that they held probably 6 and 0.7 Tcm each. To put this in context, it would make South Yolaton the fourth or fifth largest gas field in the world, and would mean that Turkmenistan might have reserves as large as 80% of those reserves in the entire Russian nation.

According to BP Russian reserves are 43.3 Tcm. Turkmenistan has 7.9 Tcm (uplifted from 2.4 a year ago on the back of the GC report).


Yes but if South Yolaton has 6 that doesn't leave much for the rest - including where they are currently getting the gas for Western Europe and China.

Its the 80% bit I don't get, 7.9Tcm is just 18% of Russian reserves.

Yes but that is just the recent additions. In an earlier post I had listed some of the other fields that there are in Turkmenistan. Bear in mind that they are currently producing up to 50 bcm for Europe from the Dauletabad-Donmez field, which may hold as much as 40 Tcfm. The IEA said that there was 20 Tcm there before South Yolotan and Osman, and they have since found South Gutlyayak.

The Chinese were given the fields East of the Amu Darya which includes Samandepe and Altyn Asyr (Golden Age) gas fields, which latter includes the Bereketli, Pirguyy, Yanguyy and Sandykly gas fields, which are still being evaluated.

There are also major gas fields in the Amu Darya Basin including Gagarin and Yelkui, which are to be developed, and more recent discoveries at Beshir, Chayyrly, Sarykum, Severnyy Yankui, Yuzhnyy Shorkel and Byashgyzyl.

A few points by Cutler are wrong or need to be explained :

1/ Nabucco consortium says the pipe will get its first gas from Iraq -but it probably won't.

The main problem here is a political one : there is no agreement so far about the oil&gas revenues between the central government (Baghdad) and the KRG autority (Kurds) ruling the gas area. This trouble was the reason why DNO stopped its oil exports last summer.

The other problem is technical : is there enough gas available from Khor Mor and Chemchemal fields for exports as one third at least of the expected gas is already booked for local power plants ? Probably not.

OMV and other members of the venture know all this stuff but they have to keep the line as they need to convince investors the pipe will be fill as planed.

2/ Nabucco will get no gas from Azerbaijan as long as Turkey is playing hardball with Baku about the transit fees (of the gas to be exported to EU through Nabucco) and the gas prices (to be sold on its local market).

Turkey's intransigence is definitely Nabucco main hurdle today. This comes from Turkish new ambitions :
First, Turkey wants to be an energy hub, able to re-export gas wherever wanted, and not only a transit corridor. So it clashes with EU energy policy -and feed the quagmire with Azerbaijan).
Second, Turkey wants to be more influent in the Caucasus, and to be seen by EU as a mediator for peace and stability in the area. That's why Turkey works on a deal with Armenia -which infuriates Azerbaijan and complicates the gas deal with Baku.

We can guess the tricky days for Nabucco won't stop soon as Turkey is backed on its double-level policy by Russia. It is in Russia's interest to nurture the situation : both countries are now developing a strategic partnership, mainly in energy (the Samsun-Ceyhan pipeline MoU was announced in this sense).

However, Turkey is playing with fire as the expected rewards for backing the Russian projects are not understandable or not secured : the South Stream pipeline will go through Turkish waters in the Black Sea, but it will definitely be a "bypass" of Turkey to Europe. There is no biding agreement about Rosneft/Lukoil participation in the Samsun-Ceyhan project -so it can stay an empty shell.

3/ Azerbaijan will send 0,5 bcm of gas to Russia starting 2010 -which can be seen as a retaliation for Turkish attitude about transit fees and gas prices.

But the gas will come from Shah-Deniz phase One, note phase Two as Cutler said. This is the point : phase 2 will be acted once a deal is found between Turkey and EU/Azerbaijan. Without any agreement, phase Two will is postponed and Nabucco stays a dream.

4/ Knowing how much gas will be available from Turkmenistan is not a prority as for now there is no legal way for Ashgabad to export its gas through the Caspian Sea.

Even if Turkmenistan gets support from EU, it won't solve the problem : the legal status of the CS hasn't been decided so far (is it a sea, or a lake?). It can be fixed only by consensus between the 5 countries sharing the banks –as expected Russia opposed any decision. This means no pipe can be built there.