Analysis: Iran and Turkmen gas

By JOHN C.K. DALY, UPI International Correspondent  |  March 20, 2008 at 1:14 PM
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Since the death of Turkmen President Saparmurat Niyazov in December 2006, foreign companies have been falling over themselves to acquire a piece of the country's vast natural gas reserves, estimated during the Soviet era to be between 10 trillion and 14 trillion cubic meters.

Among Ashgabat's most ardent suitors are Russia, China, the United States and Iran.

Fifteen months later, after some of the dust has settled, it seems Russia has bagged the majority of Turkmenistan's future gas production, with China a distant second, while the United States and Iran have essentially been locked out of the race.

Russia's victory is largely due to its commanding presence due to Soviet-era pipelines, while China has offered billions of dollars and decades-long contracts to construct a pipeline capable of transporting 20 billion to 25 billion cu m annually.

Washington shot itself in the foot by proposing an undersea Caspian gas pipeline that would bypass both Iran and Russia, which, as Caspian nations, were hardly to look upon the project with favor. Added to that were Washington's observations that all that was required for Western capital investment to flow to begin construction was a "transparent, stable and market-oriented legal, fiscal and regulatory framework," to which Niyazov's successor, Gurbanguly Berdymukhamedov, gave a miss. Washington's wistfulness can only be heightened by the March 18 announcement in the official Neitral'nyi Turkmenistan newspaper of a new law easing foreign investment, waiving many taxes and other fees for foreign investment projects and easing the issuing of multiple-entry visas.

"This law has been drafted as part of the policy of deep reforms of our economy and is aimed at attracting foreign investment," Berdymukhamedov said in a televised speech.

Iran's problems for entering the Turkmen natural gas free-for-all were complicated by its position about dividing the Caspian offshore waters and the looming menace of Washington's 1996 Iran Libya Sanctions Act, which threatened to punish any energy company doing more than $20 million of business with Iran.

Officials in Tehran, however, figured they had two aces up their sleeve -- geography and the Niyazov-era $190 million, 124-mile Korpheze-Kurt Kui natural gas pipeline, opened in September 1998. Korpheze-Kurt Kui was Turkmenistan's first pipeline not crossing Russian territory. As Niyazov ignored ILSA sanctions, Iranian officials seemed to assume his successor could well do the same. Furthermore, if East Asia were Turkmenistan's ultimate market, then exports via Iran terminating at facilities on the Persian Gulf made perfect geographic sense.

Since 1991, however, Iran had been the principal obstacle to a final agreement on dividing the Caspian's offshore waters, insisting that all five coastal nations receive an equal 20 percent share of the sea; Moscow insisted it be apportioned according to coastline, which would have left Iran with 13 percent. Niyazov had intermittently supported Tehran's position, much to the Kremlin's annoyance, and as of this writing the issue has yet to be resolved.

Tehran's first inkling the new regime wasn't necessarily sharing its concerns came Dec. 31, when Ashgabat unexpectedly cut off exports via the Korpheze-Kurt Kui pipeline, citing the need for "maintenance." As Iran imported 20 million to 23 million cu m of gas each day from Turkmenistan via Korpheze-Kurt Kui, Iran was left scrambling to cope with the shortage. On March 17 Iranian Deputy Oil Minister Ali Kordan complained that gas exports had yet to be resumed, adding Ashgabat's decision was "not the right one."

Even worse, Gazprom solidified its hammerlock on Turkmen gas when on March 11, following a meeting in Moscow between Gazprom Chief Executive Officer Alexei Miller and top energy officials from Kazakhstan, Turkmenistan and Uzbekistan, it announced, "Based on the interests of the national economies and taking into account international obligations to ensure reliable and uninterrupted energy supplies, beginning with 2009 the sale of natural gas will be made at European prices."

The bland announcement effectively crippled both Tehran's and Washington's trump card, their willingness to pay higher rates than the tight-fisted Russian energy giant.

Far from participating in Turkmenistan's burgeoning energy market, Iran's horizons have now shrunk to simply trying to get the Korpheze-Kurt Kui pipeline's deliveries resumed. Adding insult to injury, on March 19 Neitral'nyi Turkmenistan quoted TurkmenGaz Oil and Gas Institute Director Makhtumguly Khydyrov as saying Turkmenistan is seeking to boost annual gas output from its current 80 billion cu m per annum to 130 billion cu m in the near future. If there is any solace in all this for the mullahs, it is that Turkmen natural gas exports won't be enriching the United States anytime soon, either.

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