Another Victory for Diversification as Turkmenistan Opens New Gas Pipeline to Iran

Another Export Outlet

For the second consecutive month, Turkmenistan has commemorated the launch of a new gas pipeline. In a ceremony today attended by Turkmen president Gurbanguly Berdymukhammedov and Iranian president Mahmoud Ahmadinejad, Turkmenistan formally opened the Dauletabad-Sarakhs-Khangiran pipeline, a 30.5-km pipeline that will allow the Central Asian state initially to supply 6 bcm of gas from its Dauletabad field near the border to the Khangiran gas refinery in north-eastern Iran. Together with the existing Korpezhe-Kurt Kui pipeline, the new cross-border link will eventually allow Turkmenistan to supply up to 20 bcm of gas to Iran annually.

The kick-off of the new pipeline follows less than a month after Berdymukhammedov, along with the leaders of Kazakhstan, Uzbekistan, and China, formally celebrated the launch of the Turkmenistan-China pipeline (see "Related Articles"). Although the new link to Iran is far smaller and involved much less in terms of dollars invested and labour spent on construction, the Dauletabad-Khangiran pipeline is perhaps equally important in terms of its impact on Turkmenistan’s economic and foreign policy with regards to Russia. The new Iran pipeline further demonstrates Turkmenistan’s resolve to reduce its reliance on Russia as a market and/or transit partner for the Central Asian state’s gas exports. Berdymukhammedov has preached diversification of Turkmenistan’s gas export partners as a mantra since assuming office in early 2007, and now Turkmenistan is putting those words into action.

Indeed, Turkmenistan’s determination to break free of Russian control over the Central Asian state’s gas export routes—and thus exercise a more independent economic and foreign policy from its ex-Soviet master—was manifest in Berdymukhammedov’s stubborn refusal to restart gas exports to Russia last year after a pipeline explosion in April. Although repairs to the Central Asia-Centre pipeline were quickly undertaken, the Turkmen president refused to accede to Russian pressure to renegotiate price terms for supplies, a situation that saw Turkmenistan shut in gas production at an estimated cost to the government of perhaps US$1 billion per month. Finally, after Berdymukhammedov held out through the opening of the Turkmenistan-China pipeline last month to hammer home the diversification point, Turkmenistan agreed to resume gas exports to Russia under a new price formula.

Turkmen gas supplies to Russia are set to resume according to that deal on 9 January, but at much-reduced prices and at levels (up to 30 bcm) that are well below the 80–90 bcm/y envisioned in the Turkmenistan-Russia 2003 gas supply agreement. While on the surface this appears to be a victory for Gazprom, in the long term Turkmenistan is set to benefit from reduced reliance on Russia, as well as a more flexible pricing formula that should make the gas supply relationship more stable and less prone to divisive price disputes. Furthermore, with the new China and Iran pipeline options, Turkmenistan is in the process of dramatically reshaping its gas export portfolio, with Russia becoming just one of its partners, and no longer the dominant one.

Outlook and Implications

Diversification of Turkmenistan’s gas export markets has been the name of the game since Berdymukhammedov took the reins of power three years ago. With the launch of the new Iran link, the China pipeline, and—in between—the signing of a revamped, drawn-down (but theoretically more workable and thus more stable) gas supply deal with Russia, Turkmenistan is moving towards a more balanced gas export portfolio that will reduce the country’s dependence on Russia but also give the Central Asian state greater manoeuvre and independence in its economic and foreign policy. Ironically, by forging closer ties with Iran and China while loosening Russia’s stranglehold over Turkmenistan’s gas exports, the Central Asian state will be in a much better position to implement its stated policy of neutrality.

In a statement prior to today’s launch ceremony, the Turkmen Foreign Ministry hinted at this strategy, saying that the new pipeline "is the logical continuation of Turkmenistan's politics of diversification of its gas pipeline network...to expand and add to traditional routes in order to access new, promising markets". Perhaps mindful of the earlier four-month halt to Turkmen gas exports to Iran from the start of 2008—a situation that was widely seen as an attempt by the Central Asian state to force Iran to pay more for its gas imports—Berdymukhammedov hailed the pipeline launch as "an important moment for both states' energy partnership as we continue to develop our ties in the gas sphere".

Ahmadinejad added that the "realisation of the gas pipeline plays a big role in strengthening the energy security of the countries of the region". Indeed, for Iran, the additional Turkmen gas imports will allow it to meet the needs of its north-eastern regions without having to build new infrastructure to deliver domestic gas output north. The pipeline also could eventually be tied into a trans-Iran pipeline to transit Turkmen gas westwards, perhaps connecting to the proposed Nabucco pipeline. In the meantime, however, for Turkmenistan, the new Iran pipeline link provides it with greater energy security by further advancing Berdymukhammedov’s goal of diversification of markets.

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