High gas prices in Turkmenistan hamper export deals

It’s been just over a year since Turkmenistan, a country boasting the world’s fourth or fifth largest natural gas reserves, ended decades of indecision and finally announced he was serious about exporting to western markets.

For almost any other country, such an announcement would have sparked a courting frenzy from countries and companies interested in developing export deals. But in the case of Turkmenistan, the process has been slower and more difficult than might normally be expected, as recent events have highlighted.

In March of this year, Turkmen President Serdar Berdymukhamedov visited Turkey where he signed what appeared to be a landmark agreement with Turkish President Tayyip Erdogan, paving the way for a “swap deal” that would allow Turkmen gas to be supplied to Iran, which would then supply the same volume of its own gas to Turkey.

Turkish officials at the time seemed confident that a trade deal would follow quickly. The Turkish Minister of Energy, Alparslan Bayraktar, announced in a TV interview July 26 that he would fly to Ashgabat in a few days to seal a deal that would see the annual export of 1.5-2.0 billion cubic meters (bcm) of gas from Turkmenistan to Turkey via Iran. Supply could start as early as early 2025, and gas could be re-exported to Europe, he indicated. It seemed like a done deal.

But nearly two months after Bayraktar’s initial announcement, the trade deal is still awaiting signatures.

If completed, the Turkmenistan deal would be a major coup for Ankara, which has been trying since the late 1990s to bring Turkmen gas to Turkey and wants to bring in more gas from wherever it can to reduce its dependence on Russia and Iran. Legacy contracts with Russia and Iran, which account for about half of Turkey’s gas demand, expire in the next two years and, as of today, there is no indication that they will be renewed.

But it would also be a major step forward for Turkmenistan, giving Ashgabat a chance to prove it can be a reliable supplier worthy of the attention of European gas buyers. The deal could also placate Western investors enough that they would be willing to finance the construction of a dedicated pipeline across the Caspian Sea that Turkmenistan needs if it wants to export gas to Europe in large volumes.

But as was the case during the post-Soviet era, getting a firm commitment from Turkmen officials proved challenging. Bayraktar announced the pending deal ahead of his visit to Turkmenistan on July 29. His trip was scheduled to last only one day, but was extended to a second day. In the end, the minister returned to Turkey with apparently little more than an agreement for the two sides to continue talks.

Adding to the mystery surrounding the trip, reports differed on exactly what meetings took place. Bayraktar himself reported meetings with officials from Turkmengaz, Turkmenpetrol and the Turkmen parliament, along with a meet with the Minister of Energy of Turkmen, Annageldy Saparov.

Neither Bayraktar’s X/Twitter feed nor the Turkish Energy Ministry’s website mentioned any meeting with Turkmen President Berdymukhamedov. The ministry’s website simply posted a the only photo to Bayraktar and Saparov shaking hands.

The Government of Turkmenistan websitehowever, it reported that Berdymukhamedov had indeed met with Bayraktar, although unusually no photograph of the two men together was published. For two countries that pay close attention to protocol and diplomatic formalities, the reporting discrepancy marked an unusual departure from established norms.

Neither side disclosed details of why the expected swap deal to export Turkmen gas to Turkey via Iran was not completed. However, the recent experience of Azerbaijan, which managed to conclude an agreement with Turkmenistan to import gas through exchanges with Iran, may shed some light on recent developments.

In the end of 2021Baku agreed to an exchange deal under which Turkmenistan would send about 2 billion cubic meters a year of gas to northeastern Iran, which would send the same volume of its own gas to Azerbaijan.

The exchange began in early 2022, and by the middle of the year it was apparently going so well that the three partners reached an agreement for double the commercial volume. But for reasons that have never been confirmed, the doubling of volume did not happen, and by January this year commercial operations appear to have ground to a halt: reports circulated that Turkmenistan, buoyed by the initial “success” of the operation, sought to increase gas price beyond what Azerbaijan was prepared to pay. With Baku’s own production growing to a level where it could meet its domestic and export commitments without resorting to imports, Azeri officials reportedly halted the talks.

Although nothing was said, it appears that Ashgabat tried to use a price gouging tactic with Turkey.

Again, as with the Azerbaijan exchange arrangement, Ashgabat may overreach in negotiations with Turkey. While Ankara maintains its outward commitment to bring Turkmen gas to Turkey, both through exchanges through Iran and a dedicated pipeline, Ankara is not without other options.

In May, Turkey entered into an LNG purchase agreement with Exxon Mobil, the details of which have not yet been announced. And on September 2, Turkey’s state gas importer Botas signed a 10-year contract agreement with Shell for the import of 4 billion cubic meters per year of LNG – twice the planned swap imports from Turkmenistan. Two days later, Turkish officials announced that another major LNG deal was expected to be signed at the Gastech conference in Houston on September 17-20.

Turkey also has other options for importing gas through pipelines, with neighboring Iraq having significant reserves that could be transited to Turkey much easier, cheaper and more reliably than gas from Turkmenistan.

The real loser in this case is Turkmenistan, explains John Roberts, a Caspian energy analyst. “Turkey is still Turkmenistan’s best option for developing a major new export route,” he said, explaining that the nature of energy markets means that for any gas export deal to succeed, reliability is key.

“The Turkmen must prove that they are reliable partners,” he added, pointing to the number of Turkmen gas export projects that have been proposed but not progressed. “Their persistent failure to enter into firm sale and purchase agreements calls into question whether they can convince buyers that they can be trusted.”

By David O’Byrnevia Eurasianet.org

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