Turkmenistan’s copious reserves of natural gas have long afforded residents an unusual luxury: free gas for cooking and heating their homes. But the subsidy encourages waste, which is encapsulated in an anecdote wherein a Turkmen family never bothers turning the gas stove off because it has to pay for matches.
Unsurprisingly, the waste is expensive, perhaps costing the nation of 5 million up to $5 billion a year. So Turkmenistan’s strongman president says homes should be fit with gas meters and consumers will have to start paying.
Speaking at a government meeting on January 17, President Gurbanguly Berdymukhamedov called on local journalists to run a series of television programs and publications on conserving gas, Turkmen state television reported.
"The installation of the meters will allow people to economically consume natural gas, while the maximum payment for using the gas will not create difficulties for the population, for each family," the Associated Press quoted Berdymukhamedov as saying. From AP:
The move comes in the wake of signs that Berdymukhamedov's authoritarian government sees the subsidized domestic energy market as too heavy an economic burden, and is making profitable energy exports a bigger priority. […]
The government has made it clear in recent months the domestic subsidies are too costly. At a conference in October attended by Berdymukhamedov, one delegate publicly announced that free gas to the country's citizens cost Turkmenistan $5 million each year.
Neither Berdymukhamedov nor his government offered any clarification about when the changes would take effect or how much consumers would be charged.
A long-stalled project to deliver Turkmen gas to Europe is again in the spotlight after a European Union official said the idea remains on the table.
Denis Daniilidis, the head of the EU mission in Ashgabat, told an oil and gas conference in the Turkmen capital on November 19 that negotiators are finalizing a deal to construct a pipeline from Turkmenistan to Azerbaijan across the Caspian Sea, bypassing Russia, Russia's RIA Novosti news agency reported.
According to the diplomat, negotiators are working on "some outstanding issues,” RIA said. The EU, Turkmenistan and Azerbaijan will sign an agreement on related environmental issues this year, he added.
The trans-Caspian pipeline project is part of the EU-sponsored Southern Corridor that would deliver natural gas from Central Asia, the Caucasus and the Middle East to Europe while easing Europe’s dependence on Russian gas. Russia and Iran oppose the construction of any pipeline across the Caspian Sea, citing the unresolved status of the sea and maritime borders. But both have done little in 22 years since the breakup of the Soviet Union to remedy the issue, and both have been accused of creating obstacles to alternative energy corridors.
Uzbekistan's state-run oil and gas company increased the price it charges domestic customers for natural gas by 8.5 percent on October 1, moving further to close the giant gap between domestic and export prices.
Uzbekneftegaz announced on its website in late September that it will now charge local consumers, including domestic industries, 151,740 sums ($70.70 at the official exchange rate) per thousand cubic meters (tcm) of natural gas. According to calculations by the private Novyy Vek daily, that’s an 8.5-percent rise. The paper notes the domestic tariff also rose 14 percent in April and has risen 45 percent over the past 12 months.
Uzbekistan sells gas at $290 per tcm to Kyrgyzstan, a Kyrgyz official told Kazakhstan's Tengrinews this summer. So the subsidized domestic price is less than a quarter of what Tashkent earns from selling gas abroad.
That might explain widespread shortages of gas and electricity in rural areas each winter, as Tashkent increases exports to neighboring countries and China.
According figures cited by Novyy Vek, domestic consumption stands at around 50 billion cubic meters (bcm) annually. Output fell by 0.2 percent to 62.9 bcm in 2012.
China’s President Xi Jinping has started his first visit to Central Asia in Turkmenistan, where he has sealed a major new deal, securing Beijing’s status as the chief client of the country’s lucrative and expanding gas sector.
Xi and his host, President Gurbanguly Berdymukhamedov, agreed to roughly triple Turkmen gas exports to China by 2020. "Energy cooperation is a highlight in China-Turkmenistan relations, which fully testifies to the high level of political mutual trust between the two sides," Xi said in comments published by Chinese state media. In return, Turkmen state media quoted Berdymukhamedov as saying that China is a priority for Turkmenistan.
On September 4 the two leaders launched processing facilities at the world’s second-largest field, Galkynysh, in eastern Turkmenistan. "The combined capacity of the new facilities is designed to ensure reliable and long-term supplies of Turkmen natural gas to China," Turkmenistan’s TDH state news agency reported.
Turkmenistan is already China's largest foreign gas supplier: It delivered over half of Chinese imports, or 21.4 bcm in 2012, and has been ramping up gas deliveries since China completed a 1,833-kilometer pipeline connecting the two countries in 2009. Before Galkynysh came online, Ashgabat was already contracted to increase exports to 40 bcm by 2020, according to Reuters. A new deal signed during Xi’s visit will see Turkmenistan deliver 65 billion cubic meters (bcm) annually by 2020.
When China opened a gas pipeline from Turkmenistan in 2009, Ashgabat got what it had long wanted: independence from Russia with an alternative market for its abundant natural gas reserves. What wasn’t obvious was just how hooked energy-hungry China would become on Turkmenistan.
Turkmenistan is now, by a great margin, China’s largest foreign supplier of natural gas: over 21.3 billion cubic meters (bcm) in 2012, or 51.4 percent of imports, according to data published by the BP Statistical Review of World Energy. That’s about three times more than Qatar supplies China (see chart). And the number is set to skyrocket with the opening of the giant Galkynysh field this autumn, which will also feed the 1,833-kilometer Turkmenistan-Uzbekistan-Kazakhstan-China pipeline.
China still produces the majority of its own gas domestically. Of the 146.6 bcm it consumed last year, it produced 107.2 bcm, up from 80.3 bcm in 2008 (an increase of 33.5 percent), according to the BP Statistical Review. But its imports are growing fast: In 2008, China imported 4.2 bcm; last year, it imported 39.4 bcm (an increase of 838 percent).
Russian hydrocarbons giant Lukoil is upping gas production in Uzbekistan. But as that gas is shipped abroad, local shortages are prompting Uzbek consumers to double their intake of dirty coal.
The private Uzdaily.uz website reported this week that Lukoil boosted gas production to about 4.3 billion cubic meters (bcm) in 2012, up from 2.6 bcm the year before. Output at the Khauzak-Shady-Kandym-Kungrad field jumped by 24.2 percent and production at Gissar, which started operating in late 2011, reached almost 1 bcm.
Uzdaily.uz said Lukoil plans to extract 4.4 bcm this year, 5.2 bcm next year and 8.2 bcm in 2015. Uzbekistan's total gas production stayed roughly level at 62.9 bcm in 2012, according to government stats cited by RIA Novosti.
One might think all this gas would help ease Uzbekistan’s chronic energy shortfalls. But growing gas exports seem to be contributing to widespread shortages and an increasing reliance on coal.
Citing a source at the state-run Uzbek Coal company, Tashkent’s mildly critical independent Novyy Vek weekly reports that, across the country, residents doubled coal consumption last year. Uzbek Coal projects consumption to jump by almost 300 percent to 2.4 million metric tons by 2020. Uzbekistan produced about 3.9 million metric tons of coal in 2012.
It looks like Moscow isn't interested in buying part of Kyrgyzstan’s gas infrastructure. It wants all of it.
After a week of dangerous energy shortages in Kyrgyzstan, which continued to leave thousands of customers in the capital without gas on Friday, Bishkek is finalizing a deal to sell Kyrgyzgaz to Russia’s state-run behemoth, Gazprom, officials say.
The shortages began when neighboring Kazakhstan stopped gas supplies to Kyrgyzstan on December 14, citing the need to supply its own customers. Kyrgyzstan had also constantly defaulted on payments and reportedly owed the Kazakhs tens of millions of dollars. The shut off happened to coincide with a bout of extreme cold – temperatures in Bishkek have hovered around -20 Celsius (-4 Fahrenheit) for the past week – leading some to speculate the shortage was a bargaining ploy. In any case, as more Kyrgyzstanis turned to electricity to cook and heat their homes, their country's aging infrastructure faltered, resulting in mass blackouts.
For years, observers have warned of a crisis like the one currently gripping the country, but politicians have done little more than bicker and postpone solutions – like find ways to cut rampant corruption in the sector and raise energy tariffs to cover basic maintenance.
Turkmenistan is looking south, not west, to realize its pipe dreams.
Speaking at an annual oil and gas conference in Ashgabat last week, Turkmen officials spent a lot of time praising the proposed TAPI pipeline to south Asia. They reportedly did so at the expense of plans to construct a pipeline to export Turkmenistan’s vast gas reserves to Europe.
TAPI – named for the four countries it would cross: Turkmenistan, Afghanistan, Pakistan and India – is “regarded with suspicion as a wildly ambitious pipedream by some analysts,” AFP said, especially because it would traverse war-torn Afghanistan. Ashgabat signed onto the project at the urging of the Asian Development Bank and Washington in May. In 2008, it was estimated to cost $7.8 billion.
Turkmen officials “took every opportunity to talk up the pipeline while showing less interest in a similar project that would transport gas across the Caspian” to Europe, AFP reported:
“The realization of the TAPI pipeline project will allow an increase in exports of Turkmen gas,” President Gurbanguly Berdymukhamedov was quoted as saying in a formal statement for the conference.
Sakhatmurad Mamedov, head of the state-owned company Turkmengaz, announced that the project had been ‘successfully pushed forward’ in roadshows held in September with potential investors in Singapore, New York and London. “The realization of the TAPI project will give an impulse to the development of the countries taking part in the project and will also strengthen stability in the region as well as creating new jobs,” he said.
Iranian Oil Minister Rostam Qasemi announced November 14 that Turkmenistan had halted gas exports to its southern neighbor over a price dispute. Shortly thereafter, a Turkmen official told Reuters there is no price dispute, but that pipeline repairs are to blame for the gas cut.
For now, the gas is back on, Reuters reports, citing a Turkmen official who said Iran requested repairs to the pipeline. But the episode – complete with contradicting reports from the two sides – looked familiar, and suggested a few possible scenarios.
First, Iran has been struggling with balance of payments problems as international sanctions designed to end its nuclear program have crushed its banking system and stifled foreign trade. It is not unlikely that Tehran is struggling to make hard currency payments for the gas, asked for a discount, and Ashgabat started playing hardball.
Second, Iran relies on imports of Turkmen gas to supply its northern regions, particularly in winter, which helps free up excess capacity for its downstream sales to Armenia and Turkey. If Iran can’t make these margins work, it is likely to want to halt purchases.
Third, Ashgabat may be trying to push up Iran’s purchase prices. Turkmen President Gurbanguly Berdymukhamedov seems to think each of his gas clients -- Russia, Iran, and China -- should pay as much as anyone else is willing to pay.
Relations between Uzbekistan and Tajikistan are about to grow a little colder.
Tashkent has said that from April 1 it will cut all natural gas supply to Tajikistan, again. This time, the story is that Uzbekistan needs to reroute the gas to fulfill its obligations to China.
But under an agreement signed in January, Tashkent would send Dushanbe 200 million cubic meters of natural gas annually. To put this in perspective, Uzbekistan produces 200 million cubic meters of natural gas a day. So, Tajik authorities are suspicious that the threat is not so much about gas shortages as politics.
Tashkent has a record of withholding gas from Dushanbe. For example, on January 4, Uzbekistan cut all gas to Tajikistan. After a brief visit from the Tajik vice prime minister, the gas was turned back on.
Local news agencies in Dushanbe have speculated that Tashkent is attempting to punish its upstream neighbor. The two countries have long been at odds over hydropower projects in Tajikistan.
In November, an explosion at a bridge on the Galaba-Amuzang railroad, which routes supplies into southern Tajikistan, left the line inoperable. A few days later, the Uzbek government claimed the explosion was an act of terrorism and vowed it would repair the bridge. But the railroad remains closed. As of February, an official with Tajikistan’s state railroad company said that 298 wagons of material bound for southern Tajikistan have been marooned in Uzbekistan and that three and a half million residents of southern Tajikistan are living under an economic blockade.