Energy Rivalries Set to Heat Up
Source: Houston Chronicle.com
Dec. 21, 2006, 11:18AM
By ALEX NICHOLSON AP Business Writer
© 2006 The Associated Press
MOSCOW — A golden statue of Saparmurat Niyazov rotates on a pedestal in Turkmenistan's capital to always face the sun _ a testament to the leader's personality cult and a garish product of the Central Asian nation's vast energy wealth.
Now, the autocratic president's death on Thursday is set to fuel a rivalry between Russia, the United States and China for access to the former Soviet republic's massive gas reserves in what analysts call a repeat of 19th-century rivalries in the region.
"Turkmenistan has returned as a key piece in the new Great Game," said Alfa Bank strategist Chris Weafer, referring to Russia and Britain's jostling for pre-eminence in Central Asia in the 1800s. "It is a big prize."
Over the past year Niyazov, who personally brokered the country's energy deals, had sought to balance Russia's influence _ courting Turkish and, in particular Chinese companies, to help explore and develop its nearly 3 trillion cubic meters of proven gas reserves.
Russia's state-controlled gas monopoly OAO Gazprom controls the only transit route for Turkmen gas exports to other former Soviet states and Europe.
Keen to lock in fresh energy sources to feed its exploding economy, China saw its efforts rewarded with Niyazov's promise to pipe 30 billion cubic meters of gas beginning in January 2009. It also won an invitation last month to tap the giant Iolotan fields, which the late president declared, to international disbelief, to contain 7 trillion cubic meters of natural gas _ or more than even Saudi Arabia's proven reserves.
Washington, meanwhile, has lobbied for a pipeline out of Turkmenistan across the Caspian Sea to the west, bypassing Russian territory. That would meet a U.S. strategy of tapping sources of crude and gas outside the Middle East, and drawing Caspian states away from Russia and closer to the West.
Niyazov ultimately proved "too difficult" for U.S. officials to deal with, Weafer said.
The Turkmen leader used revenues from energy investments to nourish lavish construction projects _ a huge, man-made lake in the Kara Kum desert, a vast cypress forest to change the desert climate, a ski resort and a 40-meter (130-foot) pyramid to celebrate the anniversary of the country's independence from the Soviet Union.
"Russia will want to retain its political influence in the country and one assumes that the U.S. will try to use the opportunity (of Niyazov's death) to get back in there, increase its influence and resurrect the plan for the pipeline across the Caspian," Weafer said. "But my guess is that the Chinese will have the biggest delegation at the funeral."
Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies, says that multinational oil companies will prick up their ears at the news of Niyazov's death, but serious reforms would need to be undertaken before they could enter the promising market.
"The big guys, the people who might be interested, can't touch the place _ it doesn't come close to meeting the standards of corporate responsibility," he told The Associated Press.
"Obviously they can't afford not to look that this place and the possibility that it might open up _ it's obviously clear that they need to consider this," he said. "I just don't think we'll see any rapid developments. We need to finds out if there will be real change in status quo."
That could come in the form of some indication of democratization in the capital Ashgabat or open auctions of its hydrocarbon reserves.
"Given the resource base, it's always been at the back of peoples minds, but it's become increasingly difficult to work there because of the centralized decision-making and dominance of state-run monopolies," said analyst Hilary McCutcheon of energy consultants Wood MacKenzie. "That may be on the brink of changing."
Turkmenistan's burgeoning relationship with China has also rattled Ukraine, which relies on cheap Turkmen gas supplies to keep its domestic bill down.
Gazprom has a contract until 2009 to buy 50 billion of the 60 billion cubic meters that Turkmenistan produces annually, most of which it then re-exports to Ukraine.
While a recent price hike secured by Niyazov just months before his death suggests that pact is unlikely to be reconsidered in the near future, analysts say little will be clear until a successor is named.
Turkmenistan's State Security Council named Deputy Prime Minister Kurbanguli Berdymukhamedov the acting president, even though the Constitution required Parliament Speaker Overzgeldy Atayev to take over as acting head of state. The council said the Prosecutor General's office has opened a criminal investigation against Atayev, making him ineligible to fill in as president. The move could herald a battle for succession between rival groups in the Turkmen administration.
If Ashgabat makes good on its deal with China, and if fresh reserves are not developed apace, supplies to Ukraine could be cut, analysts say.
If that happens, Kiev would be forced to buy more expensive Russian gas, potentially putting it into a situation similar to a price fight with Gazprom last winter, which resulted in some cuts in supplies to some European cities.