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Turkmenistan's gas industry: on the lookout for new prospects

Nadezda Kokotovic, BREC Director for Agefi Le Journal Financier de Luxembourg

June 2021

On 26 May 2021 Brussels Energy Club held an online discussion dedicated to "Gas sector investment opportunities in Turkmenistan: TAPI and new projects of interest".

The speakers joined us directly from the capital of Turkmenistan, Ashkhabad: Guvanch Agajanov, Deputy Chairman of the State Concern "Turkmengas" and Muhammetmyrat Amanov, CEO of TAPI Pipeline Company Limited (TPCL). The meeting was held in cooperation with Turkmenistan's Mission to the EU and was attended by the Ambassador of Turkmenistan, H.E. Tchary Ataev, who also gave an opening speech, and the Ambassadors in Brussels of Afghanistan, Uzbekistan and Tajikistan. Although this country has the 4th largest gas reserves in the world (after Iran, Russia and Qatar) this was the first time that Turkmenistan has been at the center of discussion in Brussels, moderated by Marat Terterov.

This year, Turkmenistan will celebrate its jubilee 30th anniversary of its Independence. It possesses 9,8% of the total global share of gas reserves and annually produces 63 bcm. Turkmenistan’s GDP annual growth was around 6% prior to the onset of the COVID-19 pandemic (5-6% is a forecast for the coming years). For many years, Russia was a traditional market for Turkmenistan's gas and in 2019 the two countries concluded a 5 years agreement for 5,5 bcm per year. A turning point for CA gas industry happened, however, in 2009 when Turkmenistan opened a gas export route to China (30 bcm in 2019).

The Turkmenistan-China Gas Pipeline is Central Asia’s (CA) key gas export route, and will soon be able to supply up to 65 bcm. Now, the government of Turkmenistan is focused on another level of development: the diversification of its oil and gas industry and routes, and construction of large-scale facilities in the energy field.

In 2015, the East West gas pipeline (800 km, 30 bcm) was completed in order to bring gas from the major fields of eastern Turkmenistan to Caspian sea, which can then be connected to a future Trans-Caspian pipeline (TCP), intended for the supply of European market. TCP is one of two key initiatives, along with the Turkmenistan-Afghanistan-Pakistan-India gas pipeline (TAPI), whose goal is to bring Turkmen gas to new markets.

The TCP would allow Turkmenistan’s gas to join the rest of gas transmission systems in Azerbaijan and Turkey and export some 30 bcm to Europe. The first step in this direction was made in 2018 when leaders of Azerbaijan, Iran, Kazakhstan, Russia and Turkmenistan finally signed a ‘Convention on the Legal Status of the Caspian Sea’.

TAPI is the project currently developing a 1,814-kilometre-long gas pipeline from Turkmenistan through Afghanistan and Pakistan to India. It will exploit the Galkynysh gas field, the world’s second largest (up to 14 trillion mc), after South Pars/North Dome, the largest in the world, owned by Iran and Qatar. Galkynysh Phase 3, once commissioned, can produceto 33 bcm of gas per year for TAPI, asserted Muhammetmyrat Amanov, who has overseen construction of 3000 km of gas pipelines in his career. Turkmenistan’s section of TAPI is the shortest: only 214km.

The pipeline’s length in Afghanistan is 774km, and in Pakistan 826km – both sections will be operated by TPCL, a company established in 2014 by Türkmengaz (85%), AGE (Afghan Gas Enterprise), ISGS (Inter State Gas Systems from Pakistan) and GAIL (the largest natural gas processing and distribution company in India), each owning 5%. The AGE’s gas offtake will be 5% in addition to significant amounts from transit fees, while ISGS and GAIL will have equal offtake of 47.5%. Delivery to India will be undertaken at Pakistan-India border and TPCL won’t own any assets in India.

The 1st project phase will last for 36 months reaching 11 bcm offtake, and the 2nd phase is supposed to attain 29 bcm offtake after 42 months. Most of key agreements have been signed and, according to speakers, significant progress has been achieved. Financing the project will be facilitated by export credit agencies and multilateral development banks, such as the Asian Development Bank (ADB), which increased financing to US$ 1 billion, the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC), and export credit agencies. Certain international commercial banks have submitted letters confirming their interest, but now another round of talks is going to take place to reevaluate appetite of the banks after Covid and their intention to fund fossil fuel projects. TPCL will undertake early works on the Herat segment with costs estimated to US$ 600 million, in order to demonstrate all aspects of the project and increase confidence amongst the lending community. The project is supported by a world class team of advisers and the host governments, which consider it a significant step towards energy security and economic development.

TAPI can play an important role in Pakistan and India’s transition from coal to a more environmentally friendly energy. For Afghanistan’s Ambassador in Brussels, Nazifullah Salarzai, the pipeline would contribute to Afghanistan becoming a hub of trade, transit and investment. For Uzbekistan’s Ambassador in Brussels, Dilyor Khakimov, such energy projects are absolutely critical for the region.

In addition to pipelines projects, the country is doing its best to transform its gas potential into a high value production. There are several new large scale gas chemical plants in different regions, built in cooperation with multinational companies. Turkmenistan's government is inviting investors to participate in new gas chemicals projects, the bottom-of-the barrel projects in Turkmenbashi complex of oil refineries, and the development of perspective blocks in the Turkmen section of the Caspian sea. Turkmenistan is also a party to the Energy Charter Treaty, a legally binding international instrument that covers investment promotion and protection, and its conference was held in Ashgabat in 2017.

The key point raised during the discussion was a global shift towards cleaner and greener economies, as less investments are going into fossil fuels: pipelines won't be privileged in future as there is a concern about stranded hydrocarbon assets. The President of Turkmenistan, a party to the Paris Climate Agreement, took part in the UN conference on extractive industries in May 2021 with UN SG António Guterres, where he supported the transition to the low-carbon future. In that context, the country focuses on gas as a transition fuel: Turkmenistan has another 300 years to exploit its gas reserves and gas demand is expected to grow in economies of developing Asia (China, India, other Asia) as they switch away from ‎coal.

One of the concrete steps towards a low-carbon future is a large gas-to-gasoline plant that opened up recently in the Ahal region, producing 6000 tons of Euro-5 gasoline per year. Turning environmental challenges into opportunities, sharing know-how on renewable energy and energy efficiency, cooperating on energy, water, environment and the use of natural resources – these are all priorities of the recent EU strategy for Central Asia that supports Turkmenistan in its climate pledge, especially after the recent opening of the EU Delegation to Turkmenistan.

The EU has been working with the region within different energy and transport programs since 2004. Besides, there are numerous new regional economic initiatives in areas of energy and transport going on in the wider Central Asia (the CASA-1000 project, Lapsis Lazuli etc.). The world’s attention to the region, its excellent geographical position and abundance of natural resources give Turkmenistan an excellent starting position for the realization of its energy projects.


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Turkmenistan's gas industry on the lookout for new prospects, June 2021
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