BACKGROUND: On November 14-16, 2012, Turkmenistan organized the 17th International Oil & Gas Conference (OGT) and Exhibition 2012 entitled “the Main Trends of the Development of the Oil and Gas Industry of Turkmenistan and International Cooperation.” Over the past seventeen years, OGT has become an important regional and international event that provides access to the latest information on national and regional developments in the oil and gas sectors. The conference focused on assessing the achievements in the oil and gas sectors, covering all aspects of exploration, production, storage, transportation, distribution and oil and gas processing. High level Turkmen officials talked about the investment opportunities in Turkmenistan’s refining, gas processing and petrochemicals industries, seeking to attract foreign direct investment and future prospects of Turkmenistan’s oil and gas sector.

Under the coordination of the Asian Development Bank (ADB), a high level delegation from TAPI member countries went to Singapore, London and New York City in October 2012 to seek funding and create a consortium for constructing and operating the TAPI pipeline. On March 13-14, 2013, Turkmenistan organized a major oil and gas conference in Dubai and re-iterated its plans to diversify its energy export routes in the near future.      

International oil companies (IOCs) maintain a strong interest in Turkmenistan’s major lucrative oil and gas fields despite the government’s unwillingness to give these IOCs access to the country’s onshore resources. The government firmly believes that Turkmenistan can reach the production target of 250 bcm by 2030 without granting any Production Sharing Agreements (PSAs) or concessions to IOCs for development and ownership of onshore resources.

In July 2012, Turkmenistan committed to supply 65 bcm to China by 2020. According to CNPC’s (China National Petroleum Corporation) General Manager in Turkmenistan, over 40 bcm in total was supplied to China since the Turkmenistan-China pipeline was inaugurated in 2009. As per the estimates of Gaffney, Cline & Associates, Turkmenistan’s Galkynysh (former South Yoloten) gas field contains the world’s second largest gas deposit of over 24 trillion cubic meters of natural gas.

During the OGT 2012, Turkmenistan’s authorities announced plans to start production in Galkynysh in 2013. The state company Turkmengaz granted service contracts worth US$ 9.7 billion to companies such as Petrofac International LLC and Gulf Oil & Gaz Fze (UAE), CNPC Chuanging Drilling Engineering Company Limited (China) and a Consortium of LG International Corporation and Hyundai Engineering Co. Ltd. (South Korea) for industrial development of the Galkynysh field. Kakageldi Abdullayev, former Acting Minister of the Oil & Gas Industry and Mineral Resources and current Chairman of Turkmengaz, said Turkmenistan is currently operating about 60 out of 160 known gas fields in the country.

The World Investment Report (WIR) 2012, released by the UN Conference on Trade and Development (UNCTAD) for 2009-11, notes that Turkmenistan ranks among top ten countries following Hong Kong, China, Belgium, Singapore and a few others that attracted the highest level of investment. According to WIR, the estimated investments in Turkmenistan reached US$ 3.168 billion in 2011, US$ 3.631 billion in 2010 and US$ 4.553 billion in 2009.

Turkmen energy officials have stated that of all investments in Turkmenistan, 57 percent was channeled toward the energy sector. However, it is not clear whether these figures also include China’s US$ 8 billion loans to Turkmenistan in 2010-11 in exchange for gas supplies. Given the figures above, it appears that Turkmenistan is both attracting enough investment and possesses sufficient gas deposits to live up to its commitment to produce 250 bcm by 2030.

IMPLICATIONS: However, Turkmenistan’s ambitious production plans and constant rhetoric about the “vast” investment opportunities in Turkmenistan will not suffice to convince potential investors as long as IOCs are not offered access to onshore resources. Despite the government’s ambitious production plans and extensive regional tours in search of investors, Turkmenistan’s business climate remains challenging with limited opportunities for IOCs, as noted in the Business Monitor International’s (BMI) Turkmenistan Oil & Gas Report Q2 2013. In order to attract genuine foreign direct investment into the country and meet the annual production target of 250 bcm in 2030, Turkmenistan is confronted with the choice to grant IOCs upstream concessions or face the challenge of extracting gas by itself and let IOCs operate under service contracts only.

Major IOCs are reluctant to participate in projects such as TAPI and the Trans-Caspian pipeline unless given upstream concessions or other arrangements that would guarantee potential returns. “Moving from where Turkmenistan is today to where you want to be in 2030 will require long-term partnership and tens of billions of US Dollars of investment” said Douglas Uchikura of Chevron Onshore Europe.

The two U.S. giants Chevron and ExxonMobil, Britain’s BP, Germany’s RWE and Malaysia’s Petronas are seeking a role in this project but no breakthroughs are expected in negotiations in the near future. Expecting no concession offers or PSAs from the government, ConocoPhillips closed down its office in Ashgabat and left Turkmenistan in the fall of 2012. Others are maintaining a toehold in Turkmenistan’s market under small service contracts, hoping that the investment climate for onshore resources improves and that the government changes its policy of “selling gas at the border.” BMI advises that “increasing foreign participation in the gas upstream would ensure Turkmenistan has access to the technical and capital requirements to best commercialize its substantial gas resources.”

According to the International Energy Agency’s (IEA) forecasts, Turkmenistan’s production level will reach 138 bcm in 2035, which is considerably lower than the government’s forecasted 250 bcm in 2030. The U.S. Senate Foreign Relations Committee report, "Energy and Security from the Caspian to Europe" released in December 2012, also states that the energy majors such as IOCs not only have the necessary technology and expertise to develop Turkmenistan’s challenging gas fields, but an energy major’s ownership of part of the gas through PSAs will be necessary to make advance sales to privately finance the Trans-Caspian and TAPI pipelines.

Turkmenistan’s insistence on selling gas at its borders and the inability of its energy officials to offer alternative options for building any multinational pipeline projects jeopardize the construction of major gas pipelines like TAPI. Pakistan and India are slowly losing hope in TAPI due to Turkmenistan’s sluggish decision making process and inability to reach a price deal with neighboring Afghanistan, and have already started looking for alternatives to TAPI. On March 11, 2013, Mahmoud Ahmadinejad and his Pakistani counterpart Asif Ali Zardari officially inaugurated the final construction phase of the close to US$ 6 billion Iran-Pakistan (IP) gas pipeline project, expected to carry over 7 bcm of Iranian gas to Pakistan annually from 2014. Despite U.S. objections, Iran is seeking to extend this pipeline to India and can possibly offer a more realistic alternative to TAPI by bypassing the unstable Afghanistan. On the other hand, Afghanistan is also planning to survey and develop more of its own gas deposits in its northern regions close to Turkmenistan’s giant gas fields of Dovletabat and Galkynysh.

CONCLUSIONS: Turkmenistan’s energy conferences and investment forums are increasingly becoming an arena for the government to gather major international oil and gas companies without offering realistic opportunities to invest in Turkmenistan. The government’s efforts to create incentives for foreign direct investment by avoiding double taxation and providing guarantees against nationalization are only minor steps in improving the investment climate. The government needs to create a genuine business-friendly environment to reap the benefits of its oil and gas sector. The prospects for implementing gas pipelines such as TAPI are complicated given the security concerns in neighboring Afghanistan and a lack of political will on Turkmen side. If the current situation continues, it will take decades before the country reaches a production level of 250 bcm per year. Establishing long-term partnerships with IOCs is important in order to reach what some energy experts term “off-the-charts” production levels. Turkmenistan cannot merely rely on “selling gas at the border” and needs to proactively develop a realistic business model and export infrastructure to take advantage of its energy resources.

AUTHOR’S BIO: Tavus Rejepova is a freelance contributor based in Ashgabat, Turkmenistan.