Turkmenistan needs to revisit its gas policy

A perusal of the negotiation processes of all the major pipeline projects in South Asia indicates a peculiar oscillating pattern. Namely, the negotiation processes have moved back and forth depending on wide-ranging commercial, geopolitical and security factors within the exporting, transit and consumer countries. Thus, owing to Iran’s long-standing isolation, potential consumer countries have recognised Turkmenistan’s role as an alternate gas exporting country that could satiate their increasing demand for natural gas. Estimates by BP shows that Turkmenistan has about 617 trillion cubic feet of natural gas.1 Therefore, unlike other proposed cross-border energy projects in South Asia, the negotiations on the TAPI pipeline project moved swiftly.2 But the successful conclusion of nuclear negotiations between Iran and the West has brought Iran back as a global energy player.3 Within India, consequently, Iran’s re-emergence on the global energy scene has reduced the country’s dependence on the TAPI pipeline project for its future gas imports.4

Despite the rationale5 behind joining the TAPI project, reports during the post 2012 phase began to indicate that the actual construction of the pipeline may face obstacles due to the rigid position adopted by the Turkmen Government on commercial aspects of the project.6 Due to this, the initial momentum gained in the negotiations process prior to 2012 could not be sustained. Further, the slow development of the project could also be partly attributed to the non-participation of international oil and gas companies owing to Turkmenistan’s reluctance to allow them to acquire stakes in the upstream sector.7 This fundamentally goes against the essential parameters of profitability that drive companies and nations towards project participation.8 One indicator in this regard is the absence of interest from major oil and gas companies during a road show on the project held in Singapore.9

Realising its folly, the Turkmen government, as reported in Natural Gas Asia 2016, recently relented to the long-standing demands of project participants on acquiring stakes in the proposed project.10 Perhaps, the changing realities of the global gas market have finally dawned upon the Turkmen policy makers and this in turn is pushing them to introduce piecemeal reforms in their energy sector.11 For India, which is likely to become the major consumer of Turkmen gas, this is a welcome development. Apart from issues related to profitability, the issue of acquiring stakes also assumes a geopolitical angle. During his field work in New Delhi, the author was told by a respondent that one way of ensuring security of supply for this pipeline project would be through India owning stakes in Turkmenistan’s upstream sector. He noted that this arrangement could help in ensuring that any deliberate gas supply disruption from Pakistan could be avoided. Over time, India and other countries should gradually encourage Turkmenistan to allow international oil and gas companies to acquire stakes in its onshore oil/gas fields as well. Doing so would provide a major fillip to the actual construction of the pipeline project.

Another factor that continues to deter international oil and gas companies from participating in the project relates to the modalities of gas exploration in Turkmenistan’s upstream sector.12 Unlike the global practice of awarding oil/gas exploration companies with the standard Production Sharing Contracts (PSC), the Turkmens are merely offering a Technical Service Contract (TSC).13 It is believed that this is a deliberate move on the part of the Turkmens to retain control over their energy sector.14 But little do they realise that by doing so they are only scuttling the prospects of comprehensive development of their energy sector.

Incidentally, until recently, this was also a policy that Iran had followed with respect to the development of its energy sector.15 But to make its energy sector more attractive for international investors, Iran has begun to introduce incremental changes in its gas exploration policy.16 With a better part of the US-led sanctions removed and its internal gas sector reforms already in place,17 Iran is set to become an important energy hub for prospective consumer countries.

Turkmenistan must take the cue from Iran in order to be able to make its upstream sector more attractive. With natural gas becoming accessible at reasonable costs in the global market,18 Turkmens need to realise that the position that they commanded once has changed and that in the present circumstances potential consumer countries have more options than the TAPI project alone.19

To ensure that the TAPI project is implemented successfully, all stakeholders must show flexibility, concessions and minor adjustments in their negotiating positions.20 The Baku-Tbilisi-Ceyhan pipeline completely changed the commercial landscape of Azerbaijan and helped connect a relatively isolated Central Asian state with the rest of Europe.21 In a similar way, the TAPI project has the potential to be a game changer for Turkmenistan. To further boost confidence among potential investors, it is imperative that Turkmenistan continues to adopt best global practices in its gas sector.

The writer is a Fellow at Observer Research Foundation Mumbai

Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.

• 1. British Petroleum, BP Statistical Review of World Energy, June 2015, Accessed on 27 August 2016.
• 2. Sanket Sudhir Kulkarni, “India’s Decision Making on Cross-Border Natural Gas Pipelines (1989-2012),” Strategic Analysis, Vol. 40, No. 5, pp. 405-24.
• 3. Shaheer Momeni and Taheer Momeni, “JCPOA: A New Dawn for Iran’s Oil and Gas Industry,” The Diplomat, 29 January 2016, Accessed on 27 August 2016.
• 4. This is quite apparent from the article by Khaled Ahmed on the emerging energy dynamics in South Asia after the lifting of sanctions on Iran. See Khaled Ahmed, “Welcoming Iran to South Asia,” The Indian Express, 6 August 2015, Accessed on 27 August 2016.
• 5. Kulkarni, Note 2.
• 6. “No international pipeline firm ready to implement TAPI gas project,” The Economic Times, 16 October 2012, Accessed on 12 August 2016.
• 7. Ibid.
• 8. Tatsuo Masuda, “Security of Energy Supply and the Geopolitics of Oil and Gas Pipelines,” European Review of Energy Markets, Vol. 2, No. 2, 2007, pp. 1-32.
• 9. Note 6.
• 10. “Turkmenistan in Talks with IDB, Saudi, Japan for TAPI Financing,” Natural Gas Asia, 21 May 2016, Accessed on 12 August 2016.
• 11. Olzhas Auyezov, “Turkmenistan should ease gas investment rules, U.S. official says,” Reuters, 3 December 2015, Accessed on 27 August 2016.
• 12. Note 6
• 13. Note 11.
• 14. Abbas Ghandi and C. Y. Cynthia Linn, “Oil and Gas Service Contracts around the world,” University of California, Davis, 14 March 2014, Accessed on 24 August 2016.
• 15. David Ramin Jalilvand, “Iran’s gas exports: can past failure become future success?” NG 78, The Oxford Institute of Energy Studies, June 2013.
• 16. Anthony Dipaola and Bruce Stanley, “Iran to Pay Oil Companies Larger Fees in 20-Year Contracts,” Bloomberg, 20 October 2015, Accessed on 27 August 2016.
• 17. “Iran Endorses New Oil Contracts,” Natural Gas Europe, 8 August 2016, Accessed on 29 August 2016.
• 18. This runs consistent with Charles Ebinger’s definition of energy security. For details, see Charles Ebinger, Energy and Security in South Asia: Cooperation or Conflict (Washington D.C.: Brookings Institution, 2011), p. 2.
• 19. Sanket Sudhir Kulkarni, “Flexibility among participating nation: Key to TAPI’s Success,” IDSA Comment, 23 December 2015, Institute for Defence Studies and Analyses, New Delhi, Accessed on 29 August 2016.
• 20. Ibid
• 21. Svante Cornell and Fariz Ismailzade, “The Baku-Tbilisi-Ceyhan Pipeline: Implications for Azerbaijan,” in S. Frederick Starr and Svante Cornell, eds., The Baku-Tbilisi-Ceyhan Pipeline: Oil Window to the West (Central Asia-Caucasus Institute & Silk Road Studies Program, 2005), pp. 61-84.