Ashgabat: The Answer to the EU Energy Security Supply

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The second half of July entailed a moment of significant importance for the relations of the EU with the post-Soviet space. Brussels moved forward with a Memorandum of Understanding (MoU) with Baku in an attempt to wean off the Russian natural gas imports. The MoU included the agreement to double the gas flow from Azerbaijan to Europe by 2027, and while it is a very ambitious target, very little was mentioned in how this could be achieved. Contemplating the fact that there have been several warnings that the existing Azeri reserves are not enough to satisfy both local and European projected demands, speculations are being made as to how this gas can be secured. Many of these speculations include the exploitation of the gas fields of Turkmenistan, the fourth largest gas producer in the world and a nation that shares the Caspian Sea with, among others, Azerbaijan. However, questions arise, with the prevalent ones being: Are there the economic and (geo)political conditions available for the involvement of Ashgabat in the European security of supply?

The (unrealistic) Expectations from the Azeri Gas

First of all, contemplating that the agreement solely involves Azerbaijan and the EU, the question that should arise should be: Can Azerbaijan deliver?

Last year’s news can only spread pessimism concerning this idea. In November 2021, Iran and Azerbaijan came to terms with a natural gas swap deal, under which 1.5-2bcm will be supplied to Baku yearly. This volume was agreed to be doubled after six months in a new MoU involving Turkmenistan. Moreover, while this agreement was portrayed as an economic rapprochement after the turbulence between the neighboring states, the accurate picture is substantially different. Azerbaijan was expected to face gas shortages at a domestic level; would this deal not have happened? Unable to satisfy demand at home, how can it be expected that the South Caucasus state would satisfy European demand amidst a pull-back from Russian gas?

BP’s findings, as the primary operator of Shah Deniz, the largest gas field in Azerbaijan, seem to be heading towards the same direction. The energy giant has given extensive warnings that the preceding field would not be able even to provide the additional 20bcm that was initially discussed, let alone become the main replacement of energy resources coming from Moscow. The international oil & gas company was also largely skeptical about the potential of other Azeri gas fields.

While the westernmost side of the Caspian Sea cannot promise much more than it has already delivered, the solution might be on the other side. Turkmenistan is a country with over 7.5tcm of proven natural gas reserves, and according to BP, this number is much higher. In a company’s report, it was claimed that Turkmenistan could bring 13.6tcm to the European markets, solving the current gas conundrum at large. Nevertheless, the Central Asian state’s participation in such an agreement is faced with significant macroeconomic, financial and (geo)political challenges, whose solution is eminent if we bring it into the discussion.

The Billion-Dollar Question(s)

It is not the first time that Turkmen gas has been brought into the discussion over the energy security of a region. Ashgabat has long had ambitions of satisfying South Asian demand through the construction of the TAPI pipeline, increasingly zealous to transfer as much as 33bcm to Afghanistan, Pakistan and India. Nonetheless, whenever it comes down to financial needs, obstacles arise. The project is in great need of at least $10bln, and so far, not more than a tenth of that amount has managed to be gathered, predominantly by the ADB.

The previous situation delineates clear interest from actors related to the USA (and consequently the EU) to formulate gas partnerships with Turkmenistan because the ADB has been chiefly a Washington initiative. This is good news overall. However, it also points towards the fact that these actors’ financial capacity is limited. This becomes even worse if it is considered that the development of an undersea pipeline and sea gas fields will be exponentially more significant. It raises serious concerns about where this cash flow can be found. A solution would include the EU member states gathering emergency funds to support such a project, but other, more significant issues are projected. The first one is that inflation would skyrocket at levels no longer manageable. This is especially alarming, considering that the effects of the ongoing inflation are already a significant pain.

The second one is human rights and the rule of law concerns. Ashgabat’s stance over these issues is already seen with much skepticism by Brussels, even more than Baku’s. In order to engage in business activities, clauses within the agreement will likely be included that will demand that Ashgabat makes the necessary reforms in the rule of law and human rights, including gender equality.

The third one involves Europe’s environmental commitments. Brussels’ race towards net-zero emissions in 2050 and its Fit-for-55 strategy have severely limited expenditures on new fossil fuel projects. The taxonomy of gas as a transitional fuel, combined with the potential revision of the current strategy due to the crisis with the Kremlin, might put such investments back in the discussion. For the time being, there are no official statements regarding financial support for fossil fuel projects; thus, there is no foundation for official discussions to commence.

China could be a source of financial support for this project. Beijing has been heavily involved in developing Turkmenistan’s largest gas fields, such as the Galkynysh and the Malai gas fields, both of which have been instrumental in supplying the Central Asia-China pipeline. It shows that the Chinese SOE already maintains a special relationship with Turkmengaz; thus, it would be much less complex for them to get involved in an additional pipeline project within the country. The main challenges here, in Beijing’s overall reluctance to take a specific stance towards Russia in this new geopolitical world order, but also in the relations with the USA, which is Brussels’ most strategic partner.

A Fuzzy (Geo)Political Landscape

This year, Turkmenistan is celebrating 27 years of neutrality. While a great accomplishment, it has little to offer on its geopolitical potential to get involved in Europe’s energy supply. Becoming a business partner of Brussels amidst a standoff with Moscow over the Russian invasion of Ukraine might easily be seen by the Kremlin as a sign of choosing sides. It might have detrimental effects on Russo-Turkmen relations. President Serdar Berdymukhammedov seems to be aware of that and is still keeping the balance among global powers in the region. He is maintaining business partnerships with Moscow (mainly through Tatarstan) and with Beijing (gas deals being the principal source) while refraining from joining coalitions that might support a particular state actor in the future, such as the recent alliance proposals.

On the other hand, the EU is also expected to be increasingly cautious with forging such agreements in a region where Russia is the primary security guarantor. The chief reason is that it does not want to formulate any spillover effects of the situation in Ukraine, especially in a region neighbouring Afghanistan and its turbulent past. This does not entirely exclude potential involvement, however. It depicts that knowledge of the non-state actors in the region is paramount, and any move ought to be made before thoroughly studying these actors.

Turkey as a Mediator/Leader in Central Asia

Turkey’s increasing presence in South Caucasus and Central Asia cannot go unnoticed. Ankara has shown firm military support to Azerbaijan in its clashes with Armenia in November 2020, but at the same time, it has been stepping up its trade with all Central Asian states. A strong focus has been given on promoting its defence sector and the equipment produced by it, as the TB2 Bayraktar drones have already been sold to Tajikistan and Kyrgyzstan. With regards to Ashgabat, Fuat Oktay, Turkey’s Vice President, on June 2, presented a plan with three potential pathways to deliver Turkmen gas to Europe. While the financial constraints already explained are a colossal challenge for Ankara to manage, contemplating the current inflation levels and the macroeconomic issues being faced, the (geo)political ones can somewhat be mitigated.

President Recep Tayyip Erdogan’s pragmatist approach to the Russia-Ukraine conflict has proven fruitful. It has converted Ankara into a mediator of immense geostrategic value, given the consequences that the war in Ukraine has brought upon the whole world, making such moves much desired. Suppose a similar approach is provided and Turkey is involved in a trilateral or quadrilateral set of negotiations with Azerbaijan, Turkmenistan and the EU. In that case, there is little chance that Russia will audibly depict its opposition, removing several geopolitical obstacles, with the financial ones remaining unresolved.

Can there be Light at the End of the (Caspian) Tunnel?

Many involved parties might wonder at this point: Is it even worth pursuing such a complex project? For Europe, seeing the effects of supply disruption on macroeconomic indicators, such as inflation, and energy security, having a stable energy partner, such as Ashgabat, would bring much-added value to the table. For Turkmenistan, on the other hand, China’s economic slowdown could be seen as a warning shot that energy demand from the East will not skyrocket forever and diversifying might be a wise tactic. Turkey can also benefit by enhancing its position as a geostrategic partner and stable power within a turbulent region. Considering this, there is value in pursuing a deal if the financial resources are found. A safe financial partner is found if the same exercise is performed successfully for another state actor/private actor/institution. This project has the excellent potential of actually happening, bringing significant benefits to Central Asia and making the long-awaited connection with Europe a reality. Judging by the current state of affairs, no party will go to such lengths. Nonetheless, this scenario cannot be ruled out anytime soon in a rapidly changing world in an unprecedented perfect storm.

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