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Turkmenistan and EU Gas Supplies

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Turkmenistan's abundant reserves of natural gas, second behind Russia's in the former Soviet Union, play an important role in European Union (EU) gas supplies even though Turkmenistan makes no direct sales to the EU. Turkmen gas sold to Russia at well below EU prices enables Gazprom to balance low domestic prices with Russian exports to the EU. The situation is, however, under challenge. Intra-CIS (Commonwealth of Independent States) gas trade is becoming more transparent and Central Asian suppliers have bargained for higher prices from Russia. There is also fierce competition to provide pipelines for exporting Turkmen gas. This chapter analyses the interaction of domestic and external considerations in determining Turkmenistan's choice of routes for its natural gas exports in the context of growing EU demand for natural gas.

The first section reviews the EU's policies towards Central Asia, emphasising the limited attention paid to the region since the dissolution of the Soviet Union. Turkmenistan, with a political regime that emphasised autonomy, had a particularly low profile. The second section relates Turkmenistan's foreign policy stance to the national economy, which remains the simplest of any Soviet successor state, driven by rents from cotton and gas exports. In the 2000s, as the cotton sector languished, the economy became overwhelmingly reliant on revenue from exporting natural gas. The third section examines the production and marketing of Turkmenistan's gas, emphasising the link between production, prices and pipeline options. Although the price received by Turkmenistan for gas exports is set in long-term contracts rather than on a world market, the price of substitutes is relevant, and contracts have been revised in suppliers’ favour during the 1998–2008 increase in energy prices. The fourth section examines the alternative pipeline routes for Turkmenistan's gas exports. Russia holds the dominant position, but since 2006 this has been threatened by China.

Document Type: Research Article

Publication date: January 1, 2011

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