As Russia and China seek to augment their influence over the development of Kazakhstan’s energy production, Astana looks for other routes to overcome the restraints. The reinvigoration since 2007 of prospects for a Trans-Caspian Gas Pipeline (TCGP) with Turkmenistan's participation creates the possibility for Kazakhstan, which already cooperates with Azerbaijan on trans-Caspian oil shipments, to participate also with gas exports. Delays in the development of the offshore Kashagan field make associated gas from the onshore Tengiz oilfield the first candidate for such exports.
BACKGROUND: The development of the natural gas production industry in northwest Kazakhstan has historically depended upon the capacity of the Russian gas processing industry, much as the development of the oil production industry there has depended upon the capacity of Russian oil pipelines. The Karachaganak gas deposit, for example, where today fully half of Kazakhstan's gas is produced, has ever since Soviet times depended upon the capacity of the trans-border Orenburg processing complex in Russia, which has been its only outlet. Throughout the 1990s, Russia was able to use its monopsonistic position so as to limit possibilities for developing Karachaganak's gas production.
Various projects were elaborated over the past decade and a half for the westward transit of at least part of Karachaganak's production towards the Caspian Sea basin for trans-Caspian export. However, whenever such projects would become sufficiently well defined to appear technically and economically feasible, Russia would reinvigorate negotiations with Kazakhstan for raising the prices and/or the quantities it would accept from Karachaganak, so as to render other routes uneconomical by comparison, only to alter the terms on offer yet again once the momentum of the alternative project had dissipated.
At the beginning of the present decade, Russia contracted to upgrade Kazakhstan's gas pipeline infrastructure in the west and north of the country, linking this to the prospect of that gas flowing through those pipelines to be exported to Russia. An oil pipeline from Karachaganak was eventually constructed to Atyrau so that its liquids could be conducted into the pipeline of the Caspian Pipeline Consortium (CPC) to Novorossiisk on Russia's Black Sea coast. In mid-2007, the two countries reached agreement for further investment in Karachaganak with the intention of more than doubling current production levels from 7,5 to 16 billion cubic meters (bcm) per year, all still going to Orenburg with the exception of a separate and much smaller Uralsk Gas Pipeline for local customers.
The Kashagan deposit is an enormous undersea oilfield in Kazakhstan's Caspian offshore sector that is surmounted by a huge dome of natural gas, which is in turn held in place under unimaginable pressure by an overlying salt dome. At the time of Kashagan's proving, it was considered that its associated gas might be piped under the Caspian Sea to Azerbaijan so as to enter the South Caucasus Pipeline (Baku-Tbilisi-Erzurum) and eventually, through Turkey, reach Europe. Technical complications and the international consortium's complacency are responsible for delays in its development, long a bone of contention between the consortium operators and the government but now resolved. Once projected to have already begun operation, the Kashagan project is now set to come online in 2013.
IMPLICATIONS: Due to delays with Kashagan, and with Karachaganak still dedicated to Orenburg for the foreseeable future, associated gas from the onshore Tengiz oil deposit is now the best candidate to supply Kazakhstani gas in a revamped TCGP project. Industry practice has been to flare Tengiz gas into the atmosphere, but now this must cease by 2011. The government in Astana considers the practice to be environmentally unsound (there is legislation against it) and, moreover, wishes to recover the gas for domestic use and revenue enhancement through export. Since the agreement of the multilateral "Road Map" in Astana in November 2006 by the Second Energy Interministerial Conference of the Littoral States of the Black and Caspian Seas (a process set into motion under the EU-sponsored 2004 "Baku Initiative" but which acquired true momentum following the January 2006 suspension by Russia of natural gas exports to Ukraine), Kazakhstan has been working together with Azerbaijan and the EU to address concretely the realistic prospects for Kazakhstan's gas to reach Europe and the available techniques for this.
The unresolved legal status of the Caspian Sea is a stumbling block insofar as Kazakhstan feels obliged to take Russia's interests into account in formulating its own energy export policy. Talks among the five Caspian littoral countries over the status of the Sea in international law have been dragging along for well over a decade, although a number of important bilateral agreements have been reached on different issues. The most notable of these concerns the allocation of national sectors of the seabed, and it is such an agreement between Moscow and Astana that permitted resource development to move ahead notably in the northern Caspian offshore between Kazakhstan and Russia.
Russia insists, as a way of blocking the TCGP, that the agreement of all five littoral states is necessary for any trans-Caspian pipeline to be built. One way to finesse this problem could be to offer to include in the pipeline gas from fields assigned to Russia (but now developed jointly with Kazakhstan) during the demarcation of the "modified median line" delimiting the border between Russian and Kazakhstani sectors of the seabed. However, this is unlikely to work insofar as it would require not just an economic but rather a political decision on Russia's part. Consequently, the EU has also been looking at exploring other means for conducting Central Asian gas from the eastern to the western coast of the Caspian Sea. The three methods available are liquefaction, compression, and gas-to-liquids. They would all be more expensive than constructing the TCGP, and the break-even price of the gas to the end consumer would be higher than the TCGP in every case, complicating the prospects of each in a different way.
The undersea portion of the TCGP from Kazakhstan would run from the country's Caspian Sea coast at Aqtau, whither gas from Tengiz would be brought overland, to Baku, connecting there to the South Caucasus Pipeline (Baku-Tbilisi-Erzerum) and eventually on to Europe. At the same time, a spur from this main line to the port at Turkmenbashi would connect Turkmenistan's gas fields to the TCGP. At present, the pipeline is projected to have an initial capacity of 20 bcm per year, possibly increasing to 30 bcm per year. Its total length would be almost 1,600 kilometers, of which only 300 would actually be underwater.
Since the death of Turkmenistan's former president Saparmurat Niyazov at the end of 2006, Ashgabat is no longer an obstacle in principle to such plans. Following a visit by Turkmenistan's new president Gurbanguly Berdimuhammedov to Berlin and Vienna less than three months ago, the major German energy firm RWE, together with Austria’s OMV, has now formed a joint venture to move the TCGP project ahead. Berdimuhammedov had already visited Brussels for high-level EU discussions in late 2007, and by mid-2008 an agreement had been reached that 10 bcm of gas from Turkmenistan would reach Europe in 2009. This would be accomplished through interconnecting Turkmenistan's rigs with Azerbaijani gas rigs in the Caspian offshore, which are in turn connected to the South Caucasus Pipeline.
The other major project for cooperation on gas exports between Kazakhstan and Turkmenistan is the Caspian coastal pipeline, to which Russia is the third party. This is sometimes erroneously called the "pre-Caspian" pipeline by mistranslation from homonymous Russian. (The Russian prefix "pri-" is not equivalent to the English "pre-" and means adjacent or attached to; the "pre-Caspian basin," a geologic formation in northwestern Kazakhstan and southern Russia, is, strictly speaking, unrelated to the track of the trilateral pipeline project.) Under the terms of a trilateral December 2007 agreement, the Caspian coastal pipeline is planned to carry 20 bcm yearly beginning in 2012.
CONCLUSIONS: Despite great publicity at the time about the project for a "gas OPEC" headed by Russia, not even a formal intergovernmental institution was created. Indeed, each of the three participating governments is obligated, under terms of the agreement, to fund and execute the refurbishing and reconstruction of the pipeline on its own territory. In Turkmenistan and Kazakhstan, there have been delays. Not only is the TCGP of greater benefit to both of them since it would provide an additional outlet for the gas produced, but it is also more economical for them because it would be funded and constructed by the European companies concerned.
AUTHOR’S BIO: Robert M. Cutler (http://www.robertcutler.org) is a senior research fellow at the Institute of European, Russian and Eurasian Studies, Carleton University, Canada.