Wednesday, 10 January 2007

ENERGY SECURITY IMPLICATIONS OF POST-NIYAZOV TURKMENISTAN

Published in Analytical Articles

By Christopher Boucek (1/10/2007 issue of the CACI Analyst)

BACKGROUND: On December 21, it was announced that President-for-life Niyazov had died during the night. Many observers nevertheless believe the announcement was delayed for some time until succession issues were worked out. The creation of the State Security Council to oversee the transition; the immediate appointment of Deputy Prime Minister Gurbanguly Berdymukhammedov to be acting president; the abrupt investigation and subsequent arrest of the constitutionally mandated successor Khalk Mazhles Speaker Ovezgeldy Atayev; and the sudden organization of large scale commemoration events all suggest prior coordination and that Niyazov may actually have died some time earlier.
BACKGROUND: On December 21, it was announced that President-for-life Niyazov had died during the night. Many observers nevertheless believe the announcement was delayed for some time until succession issues were worked out. The creation of the State Security Council to oversee the transition; the immediate appointment of Deputy Prime Minister Gurbanguly Berdymukhammedov to be acting president; the abrupt investigation and subsequent arrest of the constitutionally mandated successor Khalk Mazhles Speaker Ovezgeldy Atayev; and the sudden organization of large scale commemoration events all suggest prior coordination and that Niyazov may actually have died some time earlier. Niyazov\'s extremely personalized regime had no mechanism to handle succession or the transfer of power. Niyazov personally oversaw Turkmenistan\'s hydrocarbon export policy. No decisions were made without him, and in acknowledgement of the energy sector\'s massive wealth and importance, Niyazov frequently reshuffled the oil and gas ministry in order to prevent the emergence of any possible rivals. According to a report by Global Witness, Niyazov was believed to have personally controlled up to $3 billion generated by gas exports, allegedly maintained in the so-called Foreign Exchange Reserve Fund at Deutsche Bank. One of the major problems in assessing the Turkmen energy sector is the lack of reliable data. Turkmenistan has always been very secretive about the exact size of its oil and gas deposits, and there exists serious questions about the actual size of the country\'s reserves. Niyazov notoriously refused to allow outside and independent geological surveys, and a recent assessment was never released. Since Niyazov\'s death, it has often been repeated that Turkmenistan holds the fifth largest reserves of natural gas in the world. Ashgabat claims an even higher place, and asserts that gas sales have fueled massive growth in recent years, with GDP allegedly growing at 15 to 20 percent per year. Most recognized assessments place Turkmenistan\'s proven natural gas reserves at about 2.9 trillion cubic meters. That said, if the country is opened up for thorough exploration, major new finds are possible. While there are no independently confirmable production figures, Turkmenistan is understood to produce approximately 60 billion cubic meters (Bcm) of gas per year - somewhat less than in the late Soviet era. Turkmenistan\'s ability to exploit and export its natural gas is constrained by its geography and export options, primarily the routes and the capacity of those systems. There exist two export routes for Turkmen gas: northwards to Russia or to Iran to the south. Of these two routes, the overwhelming majority of export infrastructure is focused towards Russia, a legacy of the Soviet Union\'s integrated pipeline network. Turkmenistan exports roughly 50Bcm per year, mostly to Russia. A much smaller amount, estimated from 5Bcm to 8Bcm is exported each year to Iran. IMPLICATIONS: Turkmenistan\'s geostrategic importance, bordering Afghanistan and Iran, is increased by it vast energy resources and the central role of energy exports in European energy security. The export of natural gas generates up to 85 percent of Turkmenistan\'s annual revenue. Turkmen gas is also essential for Russia; exports from Turkmenistan provide energy to major portions of southern Russia, thus allowing Moscow to meet its income generating export demands in Eastern Europe. Furthermore, as the yields decrease in Russia\'s main gas fields and production sags due to a combination of aging infrastructure and a lack of upstream investment, Turkmen gas allows Gazprom to meet mounting European energy demands. Russia is the source of nearly 50 percent of Europe\'s total gas imports (varying by country), and according to the Economist, European demand is set to double in the next 30 years. Gazprom\'s ability to meet those demands is a result of continued access to Turkmen gas. Under the terms of a much publicized renegotiation that concluded in September, Russia agreed to raise the price it pays for Turkmen gas from $65 to $100 per 1000 cubic feet. Even at these rates, Turkmen gas is very reasonable as Gazprom in turn sells it on to consumers such as Ukraine at rates approaching $230 per 1000 cubic feet. With gas the prime income earner, both the new Turkmen government and Russia are extremely dependent on the continued flow of gas exports. For the Berdymukhammedov administration, access to export revenues will allow the patronage systems put in place by Niyazov to continue, thereby maintaining the status quo among the various competing interests at work in the country. This provides a significant incentive for the centers of power within the security establishment, and various \"bureaucratic mafias\" throughout the government to continue to see benefits in sticking together and working to maintain the system, compared to going their separate ways to seize what they can. For Russia and Gazprom, a compliant and likeminded government in Ashgabat - one that ensures that the gas keeps flowing – is the main priority. Moscow\'s increasingly linked foreign, economic, and energy policies rely on continued access to Central Asian hydrocarbons, particularly Turkmen gas. While the exact timing of Niyazov\'s death was unexpected, at the time Moscow was the best positioned to influence the unfolding events in Turkmenistan. The relationships between the Russian secret services and their Turkmen counterparts were said to be close, and this could very well be the means in which Russia is able to lend support to the siloviki apparently controlling the transition process in Ashgabat. Furthermore, prior to Niyazov\'s death, there had been allegations that Gazprom and elements of the Russian security services were working together to jointly advance Russian energy interests. In the past, Niyazov had sought to decrease his country\'s reliance on Russia by entering into export discussions with the Chinese and others. Many analysts believe that Niyazov signed contracts to provide more gas than Turkmenistan could produce, positing that Turkmenistan simply does not have the current ability to increase its production and export capacity without major investments. In April 2006, Niyazov and Chinese Premier Hu Jintao signed an agreement under which Turkmenistan would sell Beijing 30Bcm per year for 30 years. The preliminary agreement also called for the construction of a 2,000 km pipeline at a cost of $10 billion that would cross the territory of two other countries before it reached western China. One of these, Uzbekistan, may or may not be inclined to facilitate transit. While the details of the Turkmen-China deal remained unclear, according to one industry analysis it is uncertain if the fields proposed to supply the gas for this contract are up to the task. One possibility, the Dauletabad field, has been discussed a possible feed for other pipeline projects, including the Turkmenistan-Afghanistan-Pakistan (TAP) pipeline, although doubts exist whether Turkmenistan would want to use one of its prime fields for this purpose. Niyazov\'s flirtations with the Chinese may have been part of Turkmenbashi\'s attempts to pressure Gazprom to acquiesce to a price hike. Coupled with a doubtful threat to suspend continued gas exports to Russia, on paper Turkmenistan secured a 54 percent rate increase. While in principle this demonstrated the extent to which Russian gas exports are dependent upon continued access to Turkmen gas, it is believed that the contract amount existed only on paper as a face saving measure for Niyazov. Some estimates place the actual amount that Russia pays significantly lower. CONCLUSIONS: In the immediate short term, we can expect there to be no changes in Turkmenistan\'s policy of gas exports. Rather, while the situation remains fluid in Ashgabat, and until presidential elections are held in early February, the interim Berdymukhammedov government will draw closer to Russia. This is simply the result of the fact that Moscow is best positioned to both influence and provide much needed stability to the new government. Moreover, Russia is the only viable export route for Turkmen gas, a fact well known in both Moscow and Ashgabat. One of Berdymukhammedov\'s first statements was that oil and gas exports would continue uninterrupted throughout Turkmenistan\'s transition, and thus far this appears to have occurred. Early indications suggest that the acting president and his backers in the security services of the ancien régime will likely win the February elections, thereby formalizing the transfer of power, and perpetuating the Niyazovist system. As a result, it is likely that a pro-Moscow gas export policy evolves in the short term, continuing to enrich the Turkmen nomenklatura and advance Gazprom\'s profits and acquisitions. AUTHOR\'S BIO: Christopher Boucek is a Postdoctoral Researcher at Princeton University focusing on terrorism, security, and regime stability issues in energy producing nations in the Middle East and Central Asia.
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