For years Turkmenistan has been unsuccessful in diversifying its natural gas exports, but that is slowly changing. In the last months, we have witnessed Ashgabat exploring new markets for its gas, reigniting old ones, and increasing its exports through unconventional routes.

Turkmenistan relies heavily on China for its exports of natural gas. Beijing accounted for around 85% of Turkmen natural gas exports in 2022 and this dependency is set to continue in the foreseeable future. Russia is historically its second most important client, but in this case, purchases are done for political rather than for economic reasons. Moscow, itself a producer, does not need Turkmen gas but buys it to be in good terms with Ashgabat – and use it as a political tool when needed. Despite this, the Turkmen authorities have mostly failed, or not tried hard enough, to find alternative markets for its gas. This is gradually changing.

Ashgabat is now looking both to its east and west to find destinations for its natural gas. Azerbaijan, Iran, Iraq, Uzbekistan, Kazakhstan and Europe are now new or potential importers of Turkmen gas.

Azerbaijan

Despite producing close to 47 bcm of natural gas in 2022, and exporting around half of it, Azerbaijan has had to look elsewhere to import gas to satisfy its domestic demand. Turkmenistan, after an improvement of bilateral ties over the Caspian Sea, emerged as one of the alternatives for Baku. But, not sharing a land border, both countries do not have a direct pipeline connection. How to export Turkmen gas to Azerbaijan then? Iran was the answer.

In late 2021, Turkmenistan, Azerbaijan and Iran signed a gas swap deal that would see Tehran import Turkmen gas in its eastern border and export the same amount of its gas to Azerbaijan through its western border. A win-win situation for all parties involved. Iran is able able to supply gas to its energy-deprived northeast, Azerbaijan imports gas for domestic consumption and Turkmenistan is paid to sell gas.

Although the agreement envisaged a maximum amount of 2 bcm to be imported by Azerbaijan, in 2022 the total figure fell short of 1 bcm, only reaching 857 million cubic metres (mcm). But that is now changing. The present year has seen a significant increase in the amount of gas being sold via this route and it has already reached 732 mcm in the first six months of 2023. If the volumes remain constant during the second half of the year, Turkmenistan could potential export up to 1.5 bcm of gas to Azerbaijan, almost doubling what it sold in 2022.

Iran

Tehran used to be one of Ashgabat’s main clients. Its Turkmen gas imports reached 10.2 bcm in 2011 and were significant up to 2017, when Turkmenistan cut its supplies accusing Tehran of owing around $1.8 billion of unpaid bills. Ties remained strained for years, with no gas flowing into Iran, until this year, when Iran finally settled its debt. After a six-year hiatus, Iran has resumed importing Turkmen gas.

Test deliveries of 10 mcm of gas per day were successfully completed this summer and, according to the Iranian authorities, an agreement was reached to import gas under a short-term and a long-term scenario. Further details have not been disclosed, but if the amount of 10 mcm was sustained through time, for which there is no evidence yet, that would amount to around 3.6 bcm annually. That is far from the 20 bcm capacity of the two pipelines connecting Turkmenistan to Iran, but remains an interesting development, nonetheless.

Iraq

Iraq has played an indirect role in the resumption of the flow of gas between Turkmenistan and Iran. Baghdad owed Tehran $2.76 billion in gas and electricity, and it was only when they agreed to settle their debt, having received authorisation from the United States, that Iran did the same with Turkmenistan. But that is not all.

Iraq’s energy network relies heavily on Iranian gas, which accounts for 40% of the electricity produced in the country. But supplies have been disrupted of late due to disagreements with Tehran over the fees and the impact of US sanctions. This has forced the Iraqi authorities to look further afield for sources of natural gas. And that is when Turkmenistan comes into the picture.

In July this year the Iraqi Prime Minister held an emergency meeting and instructed his government to find alternative gas suppliers, namely Qatar and Turkmenistan. The following month, representatives of state-owned Turkmengaz and the Iraqi government signed a preliminary agreement to import Turkmen gas to feed its power plants. Both parties are currently working on a memorandum of understanding that will contain further details, including the volume of supplies. It is expected for a final agreement to be reached before the end of the year.

As is the case with Azerbaijan, Turkmenistan shares no land border with Iraq and has no direct pipeline connection. Iran emerges once again as a key party in the transaction. For “Turkmen gas” to reach Iraq a similar swap deal must be struck between Ashgabat, Baghdad and Tehran. No information regarding amounts has been disclosed, but it is worth noting that Iraq imported over 9 bcm of Iranian gas in 2022. The potential volume of gas supplied by Turkmenistan is therefore likely to be less than that figure.

Uzbekistan and Kazakhstan

Supplying gas to Azerbaijan and Iraq requires Turkmenistan to involve third parties, but that is not the case with neighbouring Uzbekistan. Both countries have been enjoying close ties since President Shavkat Mirziyoyev came to power in Uzbekistan in 2016, and energy cooperation is one of the best examples.

Despite being a producer of natural gas, and exporting part of it to China, Uzbekistan has had to face important shortages of fuel in the last winters. The case became extreme last year, which prompted the then head of the Uzbek Presidential Administration, Sardor Umurzakov, to pay an unexpected visit to Ashgabat in December 2022 to buy gas. The trip culminated in a deal that would see Turkmenistan supply 1.5 bcm of gas to its neighbour during the following three months.

Two months earlier, during a visit of the Turkmen president to Astana, Kazakhstan also signed an agreement to import Turkmen gas. Back then, President Kassmy-Jomart Tokayev stated that in the long-term the figure could reach 1.5 bcm per.

Back to Uzbekistan. The deal achieved by Umurzakov benefitted everyone then: the Turkmen gas would alleviate shortages in Uzbekistan while Turkmenistan would sell a relatively small amount of gas when none was expected before. However, a few weeks into the agreement, things turned sour. An abnormal cold, coupled with the poor state of the Turkmen pipeline as a result of corruption, forced supplies to Uzbekistan and China to be halted for six days. Turkmenistan had then to ship liquified natural gas to its neighbour via trucks. The disruption cost Ashgabat around $60 million. An embarrassment for the Turkmen authorities who later purged those at Turkmengaz held responsible.

The issues with last winter’s supplies have not put the Uzbek authorities off, however. Last month, Tashkent and Ashgabat reached an agreement for Turkmenistan to supply a further 2 bcm of gas next winter. There should be no lack of anti-freeze in the Galkynysh field this time around.

Europe

The possibility of Turkmen gas reaching Europe through the Caspian sea has been discussed for decades. The idea resurfaced lately as a result of the war in Ukraine. For most of the time, Ashgabat has kept a somewhat ambivalent stance on the matter, declaring it would support it but not taking any decisive steps. The financing a Trans-Caspian pipeline has always been one of the key obstacles, as well as Russian and Iranian opposition. Turkmenistan has never been in a position to finance the project, while it also has no desire of confronting Moscow on the subject. This attitude has exasperated two of the countries that are set to benefit from the initiative as transit partners: Azerbaijan and Turkey.

Last December a much-awaited tripartite summit took place in the Turkmen resort of Avaza between the presidents of Turkmenistan, Azerbaijan and Turkey. The Azeri and Turkish sides were hoping for a breakthrough on the transportation of Turkmen gas westwards through the Caspian. But that did not materialise. Months later the Azeri president indirectly blamed the Turkmen side for the lack of progress on the Trans-Caspian route.

“This project [the Trans-Caspian gas pipeline] as an idea is based on the gas resources of Turkmenistan. Therefore, it’s not up to us to initiate it or invest on it,” declared Ilham Aliyev before adding that he had doubts about its financing due the stance of European banks on fossil fuels and the transition towards renewable energies.

Following Aliyev remarks, the Turkmen Ministry of Foreign Affairs released an unusual statement in response in which it referred to Azerbaijan’s role in the matter (“today the construction of the Trans-Caspian pipeline is directly related to the delimitation of the seabed between Turkmenistan and Azerbaijan”). It also stood firmly behind the Trans-Caspian pipeline, labelling it “an absolutely realistic project.” In case there were any doubts, it concluded by stating Turkmenistan’s commitment to “the strategy of diversifying energy flows, expresses its readiness to continue cooperation with partners in the implementation of the Trans-Caspian pipeline project.”

The press statement represented an important change in the tone of the Turkmen authorities, but that does not mean the Trans-Caspian pipeline is any closer than it was before. In its full-fledged form, it remains a very distant possibility.

Conclusion

Much has changed in the last year regarding Turkmenistan and its gas exports, whether potential or real. This includes the Turkmenistan-Afghanistan-Pakistan-Indian pipeline project (TAPI). Prior to the emergence of these alternatives, the Turkmen authorities’ pet project was ever-present in state media. That has now changed. The chimeric TAPI has almost disappeared from the state discourse and only features sporadically. That in itself is a significant change, one that could point towards the Turkmen government having become slightly more pragmatic. Or maybe they simply realised TAPI is an unfeasible project.

Azerbaijan, Iran, Iraq, Uzbekistan, Kazakhstan, Europe and other possible markets like Tajikistan or Kyrgyzstan have all emerged in the last year and half as new export destinations for Turkmenistan’s gas. Some of them (Azerbaijan, Iran, Uzbekistan and Kazakhstan) are already purchasing it while others (Europe, Iraq or other Central Asian countries) remain potential clients, some more likely than others. Things were different in the years leading to 2022, when China, and later Russia, were the only buyers of Turkmen gas.

Nevertheless, the amounts that these new markets can absorb remain modest. Turkmenistan will continue to rely heavily on China, with Russia as its second client, although Moscow already decreased its imports from 10.5 bcm in 2021 to 5 bcm in 2022 and it may continue to do so. However, pursuing smaller but more pragmatic alternatives in detriment of Quixotesque dreams like TAPI is already a change. If this is sustained through time and Turkmenistan builds a network of regular clients, it could lead to a real diversification. For the time being this is still at an early stage and the volumes are yet to become significant but, as a British supermarket chain tells its customers, “every little helps.”

(Photograph from turkmenistan.gov.tm)