The heads of Russia, Kazakhstan and Turkmenistan, Vladimir Putin, Nursultan Nazarbayev and Gurbanguly Berdymukhammedov on May 12 made a decision to build a new gas pipeline along the coast of the Caspian Sea. This may put an end to Europe’s plans to implement another project – the Trans-Caspian gas pipeline.
The new pipeline that will carry gas from Kazakhstan and Central Asia to the world markets will be over land and not submerged, and will go through the territory of Russia and not bypass it, which will give Russia a real opportunity to preserve the exclusive position of a main supplier of energy resources.
The EU-backed trans-Caspian route would cover five countries: Kazakhstan, Turkmenistan, Azerbaijan, Georgia and Turkey. This idea may become a reality if a section of the pipeline from Aktau to Baku can be laid on the bottom of the Caspian Sea. As is known, a South-Caucasian gas pipeline Baku-Tbilisi-Erzurum is currently under construction and it will carry gas from the Caspian region to Europe.
The European Union is promoting the idea of a trans-Caspian pipeline in a search for diversified routes for supplying energy resources bypassing Russia. After the transit wars of Russia with the Ukraine and Belarus, the question of gas supplies has become vital for Europe. If Kazakhstan connects to the trans-Caspian gas pipeline, Central Asian gas can go to the world markets bypassing the lines of Russian natural gas monopoly Gazprom.
At the end of last year, the main promoter of this project – the European Commissioner for Energy Andris Piebalgs - said in an interview during his visit to Astana: “The construction of a trans-Caspian pipeline will become the fourth corridor to transport gas to Europe and it will provide additional volumes. It is important to us that Kazakhstan itself was interested in that. At the same time, we are negotiating with the other partners that will participate in this project – Turkmenistan, Iran, Russia and Azerbaijan.”
But the agreement between Russia, Kazakhstan and Turkmenistan on May 12 may put these plans under doubt. A decision has been made in Ashgabat to build a gas pipeline that will go along the coast of the Caspian Sea, and not on its bottom. Further, the pipeline will go through only three, and not five, countries, including Turkmenistan, Kazakhstan and Russia. In Russia, it will join the transport networks of Gazprom.
The construction of the new pipeline is scheduled to start next year. In five years, the volume of the Central Asia gas going through Russia is expected to grow to 30 billion cubic metres a year.
Speaking about the significance of the new gas pipeline, Kazakhstan President Nazarbayev described it as “a purely pragmatic project.” Indeed, the economic gain is obvious for all the three parties. As it has been said above, Russia will preserve its exclusive position of the main supplier of energy resources. For many years to come, it will control a lion’s share of gas supplies from Kazakhstan and Turkmenistan to the world markets. This means that Gazprom will continue to be in a position to dictate the gas prices for Europe, for that matter.
This is not by chance that, having considered the future profits, and after lengthy negotiations, Russia has finally agreed to buy the Kazakh gas at USD 145 for 1,000 cubic metres, as compared to the earlier prices of maximum USD 60. At the same time, the last price that Gazprom has established for the European Union has long exceeded USD 220-250 for 1,000 cubic metres and, according to some experts, will soon hit USD 300.
Astana will also gain from the new project: it will receive good money from the transit of Turkmen gas through the Kazakh territory. In addition, Kazakhstan, as well as Russia, will gain access to the development of new oil and gas fields in the Turkmen sector of the Caspian region. This is important for Kazakhstan, considering that it has sold out all its major fields.
The project is beneficial for Turkmenistan, too, as gas is its main economic resource. According to the official data, the Turkmen gas reserves are 22 trillion cubic metres. The country produces around 60 billion cubic metres of gas annually, out of which only 14 billion are domestically supplied. The rest is exported to Russia, Ukraine and Iran. And although Turkmenistan had a signed agreement with Gazprom for the sale of 30 billion cubic metres of gas annually, the Russian company only bought five to seven billion. This was connected with a far from ideal technical condition of the existing pipelines and of the Turkmen gas industry on the whole. The experts believe that without major capital investments, the maximum annual gas production in the country will not go beyond 47-50 billion cubic metres of gas per year. Russia and Kazakhstan are prepared to provide the necessary investments to Turkmenistan. And, if everything goes according to the plan, we can seriously talk about a creation, in the post-Soviet space, of a new “big gas union.”
Commenting on the new deal between Kazakhstan, Russia and Turkmenistan to build the pipeline along the Caspian, Director General of Shell Kazakhstan Martin Ferstl said while at a Gulf club in Astana, "Today we see the start of a new scenario in Central Asian gas. This will have a positive impact on the gas supply situation in Kazakhstan, Russia, and I would hope Europe also."
This deal may be bad news for the EU efforts to reduce its reliance on Russia and its plans, also backed by the United States, to build the trans-Caspian pipeline bypassing Russia.
However, in spite of an agreement with Russia and Kazakhstan, answering a question about the future of the trans-Caspian project, Turkmenistan President Berdymukhammedov said: “This is a global process of diversification of export route. This project has not been completely removed from the agenda."