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Eurasian Energy Resources and Energy Security

Report on the OSCE Energy Conference in Turkmenistan

Volume 42 Number 5

By Shelly Han,
Policy Advisor

Turkmenistan is an emerging energy powerhouse. It is home to several of the world’s largest gas fields, with proven reserves of two trillion cubic meters, ranking fifth among all world gas producers. It recently opened new pipelines to Iran and China, which significantly changes the political dynamic of gas exports since Turkmenistan was previously dependent upon gas pipelines through Russia. Despite the growth of oil and gas exports, the political environment in Turkmenistan remains repressive, and the country has yet to emerge from the years of self-imposed isolation it entered during the presidency of Saparmyrat Niyazov.

At a conference May 3-4, 2010, sponsored by Organization for Security and Cooperation in Europe (OSCE) and the Government of Turkmenistan entitled “Strengthening regional cooperation in Central Asia for promoting stable and reliable energy within Eurasia,” Helsinki Commission staff had the opportunity to discuss developments in regional energy issues and meet with experts in Ashgabat to learn more about how the United States and the OSCE can advance energy security and human rights goals there.

As the cleanest fossil fuel, natural gas is taking on a bigger role as a potential source to transition the world away from more carbon-intensive oil consumption in order to meet climate change goals. That places Turkmenistan in a good position to capitalize on their abundant natural resources. Most observers, however, agree that in order to do that Turkmenistan must act quickly to find and lock-in markets since the advent of new shale gas into the market significantly changes the dynamics of how natural gas markets in the United States and Western Europe will be supplied.

One industry panelist noted that there will be a shortfall in gas supply by 2015, signaling the need to get multiple pipelines up and running in the near future. He stated that the balance between supply and demand means that the highly politicized competition between Nord Stream, Southstream and Nabucco should be stopped—because, in fact, all of these pipelines are needed to supply the marketplace.

If reserve estimates are to be believed, then Turkmenistan has the gas to be the key player in bringing increased gas supplies to Europe. Gas could get to Europe through the existing Russia pipeline or through the proposed Nabucco pipeline which would cross the Caspian Sea and go through Azerbaijan, Georgia and Turkey.

Whether or not Turkmenistan can or will participate in Nabucco depends on whether it can develop a legal framework for the transit of Turkmen gas across the Caspian Sea to join up with Nabucco in Azerbaijan. Stalled discussions on delimitation of the Caspian mean that the construction of a pipeline across the Caspian will not happen soon.

Even as logistical issues pose a significant hurdle for Nabucco, the political hurdles for Europe are just as daunting. There is no single European gas market, so even though demand will grow for Europe overall, Europe itself has not been able to construct a framework in which it can negotiate for gas supply as a single market. With each country trying to set up its own arrangements, they do not achieve the efficiency of scale or the demand needed to drive the large infrastructure investments needed to bring more gas to Europe. In contrast, China was able to build a pipeline from Turkmenistan to China (more than 1,000 miles in length) in just two years.

The conference attracted a number of high-level speakers from Europe and Central Asia and fostered a more direct dialogue than OSCE conferences past on economic and political problems that are prohibiting a pipeline link with Europe through the Caspian. The event also provided a significant opportunity for discussion of regional energy security in a country that is often outside the multilateral dialogue framework.

The OSCE has issued several statements recognizing the need to tackle corruption in the extractive industries as a means to create more stable markets and achieve greater energy security and respect for human rights through good governance in resource rich countries.

Therefore, it was disappointing that during the two-day event the U.S. delegation was the only one to raise the issue of corruption in the oil and gas sector—corruption that is endemic not only in Turkmenistan, but throughout the OSCE region.

For example, in Turkmenistan, there have been numerous credible reports of the lack of transparency in how the government is receiving and spending the billions of dollars it earns from exporting oil and gas. Recently, Turkmenistan announced it had established a new stabilization fund for a portion of its oil and gas revenues. Often these funds are used by resource-rich countries to not only hedge against currency fluctuations, but to also invest for the future of the country by ensuring the funds are wisely spent on projects that benefit the citizens as a whole.

Helsinki Commission staff requested to meet with the stabilization fund managers to learn how Turkmenistan planned to use its fund, but the request was denied by the Turkmenistan government. Questions remain about how the government is spending its significant gas wealth. The proliferation of white-marble high rises and the ever-multiplying size and number of ornate fountains built in the middle of the desert and the lack of basic water and electricity in much of the countryside seemed to provide some concerning answers.

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