OIL AND ENERGY IN TURKMENISTAN

ENERGY IN TURKMENISTAN

Turkmenistan is self-sufficient in oil and natural gas, although a decaying infrastructure and state subsidies hinder efficient distribution and discourage conservation. In the early 2000s, gas output increased sharply because of export agreements with Russia, Ukraine, and Uzbekistan. In that same period, Russia and Ukraine have made substantial investments in Turkmenistan’s fuel industries. [Source: Library of Congress, February 2007 **]

In 2001 natural gas output was estimated at 48.2 billion cubic meters, and oil output was estimated at 162,000 barrels per day. In 2003 gas output increased by 8 percent and oil refinery output by 19 percent compared with 2002. Discovery of the large Iolotan gas and oil field in southeastern Turkmenistan in 2006 promised to further improve the country’s position as a fuels exporter. **

Turkmenistan also is a net exporter of electric power, exporting 980 million kilowatt-hours in 2001. Natural gas generates most of Turkmenistan’s electric power. An excess of generating capacity has stimulated the refurbishing of the power generation and distribution systems in the early 2000s, with assistance from Iran, Turkey, and the United States. That process is expected to improve generating efficiency by 40 percent starting in 2011. **

Despite its vast oil and natural gas resource base, Turkmenistan is not a major player in energy markets because of the lack of infrastructure, limiting its exporting capabilities. In the past few years, the country is increasing investments to develop its reserves and export more natural gas to countries such as China. Total primary energy consumption in Turkmenistan was 1.242 quadrillion British thermal units in 2014 and has risen about 60 percent over the past decade, according to BP's Statistical Review of World Energy. Natural gas consumption accounted for approximately 80 percent, and consumption of petroleum products represented the remaining 20 percent. [Source: U.S. Energy Information Administration (EIA) <=>]

The government practically gives away electricity, natural gas and oil products. Gasoline cost only a few cents a gallon or is given out free. Electricity, which is generated by gas is free. In the early 2000s, a one-way domestic airlines ticket cost less as little as $1.50. Some people leave their gas burners burning so they don’t have to waste money on matches.

Total Primary Energy Production in 2012: 3.028 quadrillion Btu, 33 in the world. Total Primary Energy Consumption in 2012: 1.119 quadrillion Btu, 54 in the world. Carbon dioxide emissions from consumption of energy: 64.98 million Mt (2012 est.) country comparison to the world: 53 [Source: EIA, CIA World Factbook]

Electricity in Turkmenistan

Controlled by the Turkmenistan Ministry of Energy and Industry, the electricity sector is fueled almost entirely by natural gas. The country's total installed generation capacity was nearly 4.3 gigawatts in 2014, according to the CIA World Factbook. Domestic electricity consumption falls below the country's gross generation of more than 22 billion kilowatt hours, allowing the country to export the remaining production. Turkmenistan is linked to the Central Asian electricity grid and exports electricity to Afghanistan, Iran, and Turkey among other Central Asian countries. In 2013, the government developed a policy of modernizing and expanding its electricity sector by increasing transmission infrastructure and constructing 14 natural gas-fired electric power plants between 2013 and 2020. [Source: U.S. Energy Information Administration (EIA) <=>]

Electricity production: 22.3 billion kWh (2014 est.), country comparison to the world: 76. Electricity - consumption: 19.3 billion kWh (2014 est.), country comparison to the world: 75. Electricity - exports: 2.9 billion kWh (2014 est.), country comparison to the world: 37. Electricity - imports: 0 kWh (2014), country comparison to the world: 212. Electricity - installed generating capacity: 4.275 million kW (2014 est.), country comparison to the world: 93. [Source: CIA World Factbook =]

Electricity - from fossil fuels: 100 percent of total installed capacity (2014 est.), country comparison to the world: 37. Electricity - from nuclear fuels: 0 percent of total installed capacity (2014 est.), country comparison to the world: 193. Electricity - from hydroelectric plants: 0 percent of total installed capacity (2014 est.), country comparison to the world: 206. Electricity - from other renewable sources: 0 percent of total installed capacity (2014 est.) country comparison to the world: 132. =

Oil in Turkmenistan

Crude oil - production: 231,000 bbl/day (2013 est.), country comparison to the world: 36. Crude oil - exports: 67,000 bbl/day (2012 est.), country comparison to the world: 44. Crude oil - imports: 0 bbl/day (2013 est.), country comparison to the world: 132. [Source: CIA World Factbook =]

Turkmenistan has large reserves of oil, by some measures: 700 million tons. Turkmenistan had an estimated 600 million barrels of proven oil reserves as of January 2015. The country's estimated oil production in 2014 is 238,000 barrels per day (b/d), remaining roughly flat compared with 2013, which averaged 229,000 b/d. [Source: U.S. Energy Information Administration (EIA) <=>]

Crude oil - proved reserves: 600 million bbl (1 January 2014 est.), country comparison to the world: 48. Refined petroleum products - production: 143,200 bbl/day (2010 est.), country comparison to the world: 64. Refined petroleum products - consumption: 132,400 bbl/day (2013 est.), country comparison to the world: 70. Refined petroleum products - exports: 64,360 bbl/day (2010 est.), country comparison to the world: 57. Refined petroleum products - imports: 2,542 bbl/day (2010 est.), country comparison to the world: 176. =

Turkmenistan has two large oil refineries, the Seidi and Turkmenbashi, with a total crude oil distillation capacity of almost 237,000 b/d. According to IHS Energy, the refineries typically operate at around 50 percent of capacity, with foreign oil companies exporting their share of crude oil. For a long time Turkmenistan’s oil refineries were used primarily to process oil shipped in from Russia and Siberia. They are World-War-II era plants badly in need of modernization. The one in Turkmenbashi is a rusting World War II-era heap in the 1990s badly in need of an overhaul.

Turkmenistan has a small domestic crude oil pipeline network linking onshore oil fields with the Turkmenbashi refinery and Caspian ports. Turkmenistan has virtually no international oil pipeline infrastructure except a pipeline between the Seidi refinery in northeastern Turkmenistan and the Shymkent refinery in Kazakhstan via Uzbekistan.

Turkmenistan Energy Exports

Turkmenistan exported 1.5 trillion cubic feet of natural gas via pipeline in 2014. Over half of exports went to China, with Russia and Iran also importing volumes of Turkmenistan gas. Turkmenistan has signed several natural gas contracts with China, most recently in September 2013, and is slated to supply 2.3 trillion cubic feet (Tcf) of natural gas to China by 2020 through a network of parallel gas pipelines running through Central Asia. [Source: U.S. Energy Information Administration (EIA) <=>]

China is often seen as the most successful foreign investor in Turkmenistan after CNPC began building the Central Asia-China pipeline in 2009. CNPC is the only foreign company that has a direct access to Turkmenistan's on-shore gas fields - including the world's second-largest gas field, called Galkynysh. <=>

Foreign Oil Companies and Turkmenistan

Foreign companies are allowed to participate in production-sharing agreements or joint ventures with the state-owned Turkmenneft, the largest oil producer in the country, and Turkmengaz, the state-run natural gas company. The government typically restricts foreign investors from developing onshore projects, with the exception of a few CNPC projects, according to IHS Energy. [Source: U.S. Energy Information Administration (EIA) <=>]

The main foreign companies participating in Turkmenistan's hydrocarbon sector are the China National Petroleum Corporation (CNCP, China), Dragon Oil (Dubai), Eni (Italy), and Petronas (Malaysia). At the end of 2014, Eni agreed to extend the length of its production-sharing agreement for the Nebit Dag area until 2032. This 10-year extension demonstrates the company's commitment to Turkmenistan's oil sector. <=>

Dragon Oil is majority owned but the Emirates National Oil Company. Turkmenistan has made deals with Exxon-Mobile and BP. Burren Energy, a British oil and shipping company, has done business in Turkmenistan. Unocal is involved in oil development. Unocal is now owned by Chevron.

Most of the oil and gas companies in Turkmenistan are government agencies. Many foreign companies have been reluctant to help develop oil and gas production because of lack of accessibility to markets and because of Turkmenistan’s pipeline problem. Money from production-sharing agreements went directly into Niyazov’s foreign exchange fund.

Oil Swaps with Turkmenistan

Turkmenistan has engaged in oil swaps with Iran in which Turkmenistan oil is transported across the Caspian Sea by tanker to the Iranian refineries. The oil is used in northern Iran and the Tehran area. An equivalent amount of Iranian oil is then shipped from Iranian ports on the Persian Gulf to customers around the world. These customers pay Turkmenistan. Iran gets the Turkmenistan oil and fees for refining it. Similar swaps have been arranged with Russia. Caspian Sea oil can be moved up the Volga River by barge to the refinery in Volgagrad or further upriver to Samara. Russian oil then can be shipped to markets in Europe and elsewhere.

For years, Turkmenistan and other Central Asian countries delivered their crude to Iran's Caspian Sea port of Neka. From there the crude was delivered to refineries in Tehran and Tabriz, with the refined products distributed and consumed in northern Iran. In exchange, Iran exported equal volumes of crude out of its Persian Gulf ports on behalf of Turkmenistan. Swap volumes have varied over the years, with little to no crude swapped over the past two or three years. Sanctions against Iran reportedly complicated swap arrangements, especially the marketing of the crude exported in the Persian Gulf, which had been done by the Iranians. Also complicating the swap arrangements was Iran's desire to raise the fee it charged Turkmenistan for each barrel of crude swapped. [Source: U.S. Energy Information Administration (EIA) <>]

Among the advantages of the oil swaps of Turkmenistan is that the oil can reach the fast growing markets in east Asia. Oil swaps are cheap because they reduce the need for expensive pipelines.

Turkmenistan and Caspian Sea Oil and Natural Gas

Turkmenistan is one of the five Caspian Sea littoral countries, an area with large volumes of oil and natural gas reserves. These countries have had frequent disputes about where the maritime borders should lie and how to divide the region's wealth of energy supplies. Because of the conflict, it is unlikely that development will take place until an agreement is reached. The Caspian Sea basin had been expected to be one of the world’s most important sources of oil by the year 2015. [Source: U.S. Energy Information Administration (EIA) <=>]

The Caspian Sea—the world's largest inland body of water—is rich in oil. Bordering Azerbaijan, Russia, Kazakhstan, Turkmenistan and Iran, it is 760 miles (1,200 kilometers) long, 130 (200 kilometers) to 300 (480 kilometers) miles wide and has a surface area of 143,550 square miles (370,000 square kilometers) and is 92 feet (28 meters) below sea level. It is about the same size as California or five times the size of Lake Superior, and 1½ time the size of all the Great Lakes combined in terms of surface area but hold less water than Lake Baikal in Siberia. [Source: Robert Cullen, National Geographic, May 1999]

Oil was noted more than 700 years ago in the Caspian Sea by Marco Polo who wrote of “a fountain from which oil springs is in great abundance." Most of the oil and natural gas was produced from organic matter that has flowed in by regional rivers and been compressed.

The world’s oil industry developed in Caspian Sea around Baku in the 1870s. Large reserves of oil had been discovered in the mid 19th century. Not much was made of the discoveries under czarist Russian rule. The area boomed when t was opened up to foreign investors. Fortune seekers from all over the world came to Azerbaijan in 1872 when the Russian czars opened up the Baku fields to foreign investment. Among them were Alfred Nobel, the founder of the Nobel Prize, and his brothers, and the Rotchchilds. (See Azerbaijan)

Some local people got lucky. There are stories of men with nothing more than a shovel finding oil Beverly-Hillbilly-style in their cotton fields. Gushers were given names like “Wet Nurse” and the “Devil’s Bazaar.” Workers toiled in waist-deep muck trying build channel to direct oil into lakes before it dissipated.

Baku experienced rapid development in the last quarter of the 19th century and early 20th century because of the development of Baku’s oil wealth. Thousands of Russians, Caucasus people, Armenians, and southern Azerbaijanis poured into northern Azerbaijan to cash in on the “oil rush” there.

In the early 1990s, when oil prices were relatively high and there was trouble in the Persian Gulf, Western companies rushed into the Caspian Sea area and leapt over themselves, trying to win concessions for the right to drill for oil and gas.

Russia wants its share of profits from oil and natural gas in the Caspian Sea basin. It wants to control the flow of Caspian Sea oil with pipelines built through its territory. Even though Asia is see as the best market for oil from the Caspian Sea the difficulties in getting it there may prove to be too difficult to overcome: trade embargoes in Iran, political instability in Afghanistan and Pakistan and high costs of building a pipeline to China.

Oil in the Caspian Sea

The Caspian Sea basin was expected to be one of the world’s most important sources of oil by the year 2015 but although it is an important energy source it hasn’t turned out to be the gusher that it was touted to be. The United States, Europe and Asia have a keen interest in the area as a source of energy if supplies from the Middle east are disrupted. So far the biggest beneficiary has been China, which has secured much of the oil produced in Kazakhstan.

About 1.1 percent of the world’s oil and natural gas comes from the Caspian Sea. Oil deposits on the Caspian Sea are the third largest after deposits in the Persian Gulf and Siberia. Some have estimated that there are 70 billion to perhaps 200 billion barrels of oils in the Caspian Sea, but more like the figure is between 20 billion and 95 billion, with most of it in Kazakhstan. By contrast Saudi Arabia, the world’s largest source of oil has 261 billion barrels of proven reserves. If the 200 billion barrel figure is true then the Caspian Sea area holds 16 percent of world’s oil reserves. But the consensus seems to be the Caspian Sea has a lot of oil but claims that it oil was going to replace the Persian Gulf were overhyped. [Source: Robert Cullen, National Geographic, May 1999]

The Caspian Sea has proven reserves of 48 million barrels, the third largest reserves in the world, and 292 trillion cubic feet of natural gas. Offshore fields account for 41 percent of total Caspian crude oil and lease condensate (19.6 billion barrels) and 36 percent of natural gas (106 Tcf). In general, most of the offshore oil reserves are in the northern part of the Caspian Sea, while most of the offshore natural gas reserves are in the southern part of the Caspian Sea. In addition, the U.S. Geological Survey (USGS) estimates another 20 billion barrels of oil and 243 trillion cubic feet of natural gas in as yet undiscovered, technically recoverable resources. Much of this is located in the South Caspian Basin, where territorial disputes over offshore waters hinder exploration.

Initially a lot of dry holes were drilled, which lowered some estimates. The high costs of extracting and transporting Caspian Sea oil makes it less profitable than oil from other places such as the Persian Gulf. The Soviets failed to grasp the regions potential because they failed to do extensive deep-water drilling.

Many of the oil fields are deep in the earth or are otherwise difficult to reach and developing them was prohibitively expensive for the Soviets. Only since the collapse of the Soviet Union have the sites been exploited as Western companies with their advanced technology and piles of money have developed them. Billions of dollars has been poured into development. In the 1990s there just as many broken contracts, international lawsuits and swindled investors as there were new oil wells and businessmen who struck it rich. Over time the losers were weeded out and few winners remained.

The EIA—the U.S. government’s Energy Information Agency—estimates that the Caspian Sea region produced an average of 2.6 million barrels per day of crude oil and lease condensate in 2012, around 3.4 percent of the total world supply. Production in 1999 was about 1.1 million a day, or 1.5 percent of the world's total.

Money from the oil boom has manifested itself in an increase in the number of Mercedes and Chevy Blazers but relatively little money has trickled down to ordinary people. Even worse is the fact that money that could be used to build the economy is sent to overseas accounts or spent on trophy developments. Local local people, brought up in the Soviet system, have not learned how to start up new business to exploit the boom. For many Caspian Sea people the only way to make money is to poach caviar-bearing sturgeon.

Oil Fields in the Caspian Sea

Oil is found primarily in three areas: 1) the Baku fields, which extends from east from Baku and is shared by Azerbaijan and Turkmenistan; 2) the Tengiz Field, which is claimed mostly by Kazakhstan and lies under the waters of the northern Caspian Sea; and 3) the Kashagan oil field, a huge deposit discovered in 2000. There is much less oil in territory claimed by Russia and Iran. Large natural gas reserves in the eastern Caspian Sea in Turkmenistan's territory. In the early 2000s, an announcement was made that a large deposit of oil was found in the Severny structure in the north Caspian basin.

Over the past decade, Kazakhstan's onshore oil fields, particularly the Tengiz field, were the biggest contributor to the region's production. As Azerbaijan developed the Azeri-Chirag-Guneshli (ACG) field group between 2006 and 2008, its offshore production began accounting for an increasing part of total Caspian production. Other significant sources of Caspian oil include production in Turkmenistan near the coast and in Russia's North Caucasus region. [Source: U.S. Energy Information Administration, July 2015 ~]

While most current Caspian oil comes from onshore fields, the biggest prospects for future growth in production are from offshore fields, which are still relatively undeveloped. Chief among these is Kazakhstan's Kashagan field, believed to be the largest known oil field outside the Middle East. EIA estimates that the Caspian area produced 2.8 trillion cubic feet of natural gas in 2012, with large portions reinjected back into fields or flared. The large amount and dispersed nature of Caspian natural gas reserves suggest the possibility of significant future growth in production.

Azerbaijan became an important regional natural gas producer with the start of production in the Shah Deniz field in 2006. Other prospects for natural gas production growth include Russia's North Caucasus region, which has the bulk of the Caspian Sea region's onshore natural gas reserves, and Turkmenistan's Galkynysh field, which a 2009 audit suggested may be the world's fourth largest natural gas field.

Caspian oil and natural gas fields are relatively far from export markets, requiring expensive infrastructure and large investments to transport produced hydrocarbons to markets. The Caspian Sea's periodically freezing waters increase the costs of offshore projects, and shifting regulations create uncertainty for foreign companies investing in natural resources in the region.

Oil Wealth and Caspian Sea or Caspian Lake

The presence of all oil in the Caspian Sea suddenly made Central Asia an important place geopolitically. There was talk of the Caspian Sea replacing Iran and Iraq as major sources of oil. How the resources of the Caspian Sea will be divided among the five nation is unresolved. Discussions are expected to go on for some time. The legal status of the Caspian Sea was governed by treaties between the Soviet Union and Iran. But since the collapse of the Soviet Union in 1991 the five nations that share the sea have repeatedly failed in reaching new agreements.

Lying at the heart of this issue is whether the Caspian Sea is a sea or a lake. If it is a sea it resources are divided in accordance with international maritime agreements in which countries are allowed an economic coastal zone that extends 200 nautical miles (230 miles, 375 kilometers) from the shoreline, or if a zone is less than 400 miles between two countries it is divided equally. If it is a lake, the countries control a coastal zone of about 50 nautical miles and all countries are given control of a common area in the middle.

Iran and Russia regard the Caspian Sea as a lake with common resources because it gives them access to oil and gas deposits they otherwise wouldn’t have access to. Azerbaijan, Turkmenistan and Kazakhstan regard it as a sea that should be divided into national sectors so they can control resources that are within the sea shoreline limits rather than lake shoreline limits. During conference in Baku in November 2010, the five Caspian nations failed to agree on the answer.

If it is decided that the Caspian Sea is a lake the area in the middle would be treated as an international sea bed and all five countries must agree on how the resources will be exploited, sold and transported and how the profits will be divided up. Under the International Convention on the Law of the Sea, the Caspian Sea fits most of the criteria to be considered a sea but under the 1921 Treaty of Friendship between the Soviet Union and Iran, the Caspian Sea was treated like a lake with most of its resources—at that time mostly fish and caviar—shared between the two nations. Russia has suggested dividing the sea bed while allowing the waters above to be used by all, which sound good in principal but would allow a country to keep resources in its sector but doesn’t address the issue of how the resources would be transported.

Disputes have broken out as to how the oil wealth should be distributed. Iran wants it be split equally among the five countries bordering the Caspian Sea so that everyone gets 20 percent. Iran currently gets 12 percent. Much of the territory it claims is in Azerbaijan waters. In 2000, an Iranian gunboat drove off BP geologists working for Azerbaijan in an unarmed ship in waters claimed by both Azerbaijan and Iran. Turkmenistan has accused Azerbaijan of looking for oil in its waters. While attempting to negotiate a solution, the black market sales and poaching is rapidly depleting resources.

Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, U.S. government, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Foreign Policy, Wikipedia, BBC, CNN, and various books, websites and other publications.

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© 2008 Jeffrey Hays

Last updated April 2016

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