Turkic Energy Supply and EU Demand

In international relations one tends to focus quite heavily on politics. Although it is a truism that in the complex web of global relations, economics also play a very important role. Within this key category, it is energy that rules as king.
 
All other economic as well as strategic and political matters seem to revolve around it. This was quite clear to see at the end of last month during the visit of the EU special representative for Central Asia to Turkmenistan, discussing with President Gurbanguly Berdimuhamedov of prospects for future cooperation in the trade and energy sectors.
 
While the declared topic was energy and cooperation in related fields, the underlying theme concerned diversifying the European Union's energy sources. Quite naturally, related to this was the corollary of Turkmenistan seeking new and/or deepening export markets.
 
The European Union has been and continues to be heavily dependent on Russian gas imports; therefore, it warmly welcomed in the summer the decision by Azerbaijan to select the Trans-Adriatic Pipeline (TAP) to export gas from its Shah Deniz gas field to the EU. The prospective capacity of this project, termed the “Southern Gas Corridor” is believed to be in the range of 10 bcm. This might not sound like quite a lot on its own, especially so when compared to the total EU consumption of 500 bcm, being in truth only a drop in the ocean in terms of the percentage of gas for the southern corridor, as it relates to approximately 2 percent in terms of the EU's gas demand. Nevertheless, the southern corridor is important not due to the large quantities of gas transported, but for increasing energy security and adding to the diversification strategy of the EU.
 
Brussels, therefore, has become very interested in discussing and encouraging Turkmenistan to become part of the southern corridor sometime in the future. Such a venture would entail greater amounts of gas being imported, and consequently less having to be demanded from other suppliers such as Russia.
 
Importance of southern corridor
 
So far, the southern corridor consists of Azerbaijani gas being pumped through the Trans-Anatolian Pipeline (TANAP) through Turkey meeting the TAP on the Turkish-Greek border. Why this alternative gas import route offered by the southern corridor is important for the EU can best be understood due to three essential factors.
 
At first, it concerns the future gas requirements of the EU. According to British Petroleum, global energy is set to increase by up to 40 percent in the next two decades or so, of which 90 percent will take place in non-Organization for Economic Cooperation and Development (OECD) countries such as China and India. Needless to say, the EU is also part of the global increasing demand for energy. Despite the fact that most of Europe is still slowly recovering from the 2008 financial crisis, medium-term forecasts predict that in the community as a whole gas will be demanded in increasing quantities by both consumers and businesses.
 
Second, the European Union is concerned about its existing supply routes. At present the EU has three major gas import routes. The first runs from the north, from Norway. Second is the eastern gas route, which is imported from Russia. Third is the southern route that transports North African gas to mainland Europe. It is the latter two routes that raise concern in the corridors of power in Brussels.
 
The North Africa route is plagued with instability and uncertainty. The repercussions of the Arab Spring, the delicate political situation in Libya as well as the ongoing political stalemate in Egypt all lend themselves to making it very difficult to predict the future in terms of accessing gas steadily from North Africa.
 
As for importing from Russia, the EU continues to be involved in a lawsuit against Russian global energy giant Gazprom. Lithuania is one of a number of member states that is involved in legal disputes with Russia over the supply of energy, consistently accusing Gazprom of charging much higher prices for gas than other EU countries such as Germany. In August, Lithuania approached Russia offering to end litigation and an investigation into management of a local energy company in which Gazprom has more than a third of the share, as well as dropping a 1.4 billion euro claim in a Stockholm court of arbitration concerning compensation for overcharged gas supplies since 2004. This offer was made conditional on reduced gas prices. The real bargaining chip, however, is Lithuania developing a floating liquefied natural gas platform in the Baltic Sea, which when it becomes operational next year will mean Russia losing its monopoly role as supplier of Lithuania's gas.
 
Other EU states from Central Europe also have outstanding contracts with Gazprom that will need to be renegotiated when they mature. Not having any alternative sources -- as Lithuania will in 2014 -- makes them price takers and strengthens the hand of the gas provider. Therefore, it is the addition of another dimension through the Caucuses to import energy to the EU which makes clear sense, as it diversifies its energy sources.
 
The third important factor that the European Union attaches to the southern corridor is the potential for it to create regional stability. It will certainly enhance Turkey's role as an energy hub, drawing it further closer to Europe as well as once more sending a clear message to Georgia and Azerbaijan that they are welcome in joining the Western value system identified with open markets and liberal democracy.
 
A stable region on the borders of the EU is much desired given the difficult circumstances currently being witnessed in North Africa, especially in Libya and Egypt. If this is a byproduct of energy policy, it will certainly be considered a positive spillover into European Neighborhood Policy in terms of ensuring its southeastern neighborhood contains democratically inclined free-market-minded states.
 
Moreover, any increase in the security supply for Brussels means a corresponding loss of dependence on Russian gas, primarily through Ukraine, which coincidently is once again on the agenda with regard to EU-Ukrainian relations with rumors circulating that a possible presidential pardon is in the offing concerning ex-Prime Minister Yulia Tymoshenko, which would certainly assure the signature of the Deep and Comprehensive Free Trade Area agreement next month.
 
Turkmenistan and Kazakhstan
 
Just as it is clear that there is an increase in global demand for energy, it is equally clear from where this desire for energy will be met. Heading the list is Turkmenistan, which has begun gas production in its massive Galkynysh gas field near the border with Afghanistan as well as continuing to speedily construct its domestic east-west pipeline, fully funded by national coffers. When completed it will allow gas produced from most of its gas fields to be transported either east or west.
 
Furthermore, in the same vein Kazakhstan has recently begun to start oil production in its massive Kashagan field -- considered to be the world's largest discovery in the last three decades or so -- overcoming recent problems to continue pumping oil. Therefore, the eastern littoral states of the Caspian Sea look set to be the potential providers of energy that the EU currently requires and looks set to need more of in the future.
 
Gazing into a crystal ball, the EU would welcome Ashgabat participating in the southern corridor and 2015 may well be a very opportune moment for a decision to be taken one way or the other regarding this project, as at that time the domestic east-west gas pipeline is expected to come into fruition. Nevertheless, the chances of a Trans-Caspian pipeline being successful face several hurdles, not least of which are the legal issues which continue to persist over the division of, as well as the increasing militarization of, the Caspian Sea.
 
The Turkmen strategy so far has been very much a wait-and-see approach whereby deeds and actions are considered much more important and worthy than pure words. Once deeds match the promises, then getting a positive decision concerning participation in the southern corridor can be reasonably expected. It must be borne in mind that Turkmenistan continues to hold steadfastly to its unique principle of permanent neutrality; therefore, for such an important strategic decision to be made only when plans have actually materialized needs to be understood and interpreted in this light.
 
Ultimately, decisions concerning pipelines are not simply about economics, but heavily involve politics, too. The EU is very much aware of this, which is why it is pursuing Turkmen energy with such vigor and perseverance in trying to court it to join the southern gas corridor. Given the fact that it faces fierce competition from the subcontinent, such a development would certainly be a feather in the cap of Brussels in terms of enhancing its energy security and diversifying energy suppliers.
 
Consequently, it seems highly likely that in the near future, Turkic states will export more of their energy resources west to the European Union. This of course does not mean that China and India will not be potential customers, either. Especially, with regard to Turkmenistan, the TAPI project is still one which is very much cherished by Ashgabat, and given the fact that India's growth rate is increasing, a potential improvement in the security situation of Afghanistan next year will make this project much more likely to be implemented.