Turkmen Oil and Natural Gas:

The Viability of Delivering Prosperity to Global Markets



CASE NAME: Turkmenistan Oil and Environment

  • I. Identification

    1. The Issue

    Turkmenistan is a prime example of a particular anomaly that the petroleum industry did not face on such a grand scale in the past: a vast region blessed/cursed with a tremendous endowment of petroleum deposits which is land-locked and currently no efficient and safe way to deliver their product to the world's markets. Today Turkmenistan is examining various pathways for the distribution of most precious resource with unanswered questions as to what will be the most politically viable and economically feasible pathway while limiting adverse impacts to the environment. However, Turkmenistan is not the only newly independent state (NIS) of the former Soviet Union (FSU) with this new problem of being landlocked and no environmentally safe, politically secure, and economically viable way to deliver their oil and gas products to market. Both Azerbaijan, across the Caspian from Turkmenistan to the west, and Kazakhstan to the north both have immense oil and natural gas deposits with few attractive options for delivering the product to sea ports for expedient export. A solution to this problem may involve a cooperative effort from all three nations, yet all options pose potential environmental problems which could be heavily exacerbated by political conflict in the region.

    2. Description

    Historical Background: Although much of the region is semi- arid desert without much in the way of natural resources, at least on the surface, the central Asian steppe has for centuries been a focal point of overland trade. Following the Mongol invasions of the thirteenth century, overland trade across the steppe began to follow established routes with weigh stations, which eventually led to a string of urbanizing settlement across the region.

    Through the sixteenth and seventeenth centuries, Turkic rulers were able to unify much of the region under a singular Islamic civilization and Turco-Mongol culture. However, in the eighteenth century, the weight of the Russian Empire to the north began to sag into central Asia. Control over the Asian overland trade routes from the Volga river basin and Persia to China were too lucrative for the burgeoning great power to the north to overlook. The Russian invasions through the late nineteenth century were met with vigorous resistance. In the process failures at repelling the Russians led to dissension and ethnic divisiveness. Such divisions among the various linguistic ethnicities were used by the Soviet Union in the twentieth century to prevent the central Asian steppe peoples from uniting to rebel against Moscow.

    The legacy of these divisions today are the five Newly Independent States (NIS) of Turkmenistan, Kazakhstan, Uzbekistan, Kyrgyzstan, and Tajikistan. During Soviet rule, these "Muslim" republics, served as pseudo-colonial territories, used and abused through outdated irrigation techniques in the Amu Darya and Syr Darya river basins for cotton and wheat production (the results of which you can read about in the ARAL Case) and for their natural resource endowments of oil and natural gas. Fortunately, due to technological limitations and an already well endowed Russian petroleum based, the Soviets failed to fully explore and develop the oil and natural gas fields of the region, especially those of Kazakhstan (see KAZAKH Case) and Turkmenistan. Yet, the development of the oil and natural gas sectors of all the republics of the former Soviet Union (FSU) are still closely liked by the refinery and pipeline infrastructure already existing and the by the interests of the Russia-the-heavy-weight to the north. In a historical context, today's irony is that while for much of its history landlocked central Asia served as routes for trade, while now as a source for highly demanded trade goods (i.e. petroleum products) it is at a loss as to how and via which routes to deliver their products to market.

    With this history in mind, this case study examines the viability of delivering Turkmenistan's oil and natural gas products to the global market place. The options are many and each pose their own advantages and pitfalls, however, each will be examined with a focus on the potential impacts upon the environment, in addition to the economic and political realities involved. First, we need a general understanding of where Turkmenistan has come from, where it is today, and where it is headed with regard to its political structures, physical geopolitical position, and, central here, its resources of oil and natural gas. The various alternatives for pipeline export will be considered. Later, other sections of this study will focus on the discourse and status of agreements between the government of Turkmenistan and various petroleum firms, who is impacted most by these export policy decisions, what are the potential evironmental impacts, the relevant economic data, as well as other impending issues such as cultural conflict, trans- boundary issues, and human rights issues.

    Turkmenistan: Today, Turkmenistan is important to world energy markets because it contains the world's fourth largest reserves of natural gas within a singular national boundary, with estimates of the country's total gas resource base ranging as high as 535 trillion cubic feet. However, five years after independence from the Soviet Union, Turkmenistan's economic and political situation remains dismal. Economic reform has made almost no headway, with the state continuing to dominate nearly all sectors. Foreign investment in the country remains minimal. Meanwhile, hopes for riches from natural gas exports have not been realized, and the country remains dependent on Russia for most of its trade. Inflation there is the highest in the former Soviet Union (FSU), while Turkmenistan's currency plummets in value. Finally, the country's political situation has evolved in an extremely autocratic direction under President Niyazov.

    Although initially slow to begin reforms, the Government of Turkmenistan has embarked on a macro-economic reform program which should significantly improve the business and investment climate. But the problems inherent in a command economy continue to frustrate Western businessmen. All decisions are made at the highest levels of government. Political considerations continue to influence strongly economic decisions. The regulatory and legal foundations of a market economy are still being developed. Business infrastructure and know-how are changing rapidly. Chronic problems with repayment of foreign loans and renegotiation of signed contracts remain. These issues are gradually being worked out as the government and the population becomes more familiar with the international norms of the world market.

    Throughout the Soviet period, Turkmenistan's economy was based on exploitation of its natural gas, oil, and cotton. Today, the government is focusing its attention of expanding its export markets for its natural resources and increasing the value of its exports. The government has placed a priority on investment in light industry, transportation and communication networks, and processing facilities. In addition, the government has invested heavily in infrastructure improvements designed to attract foreign businesses to invest in Turkmenistan. The government has now turned its attention to reforming its economy and legal system to support these priorities.

    Positive neutrality is the focal point of Turkmenistan's foreign policy. In December 1995, the UN General Assembly officially recognized Turkmenistan's neutral status and Turkmenistan is a member of the Non-Aligned Movement. Turkmenistan has good relations with all of its neighbors, including Iran and the various factions in Afghanistan. Vowing to avoid entanglement in regional disputes, the government of Turkmenistan (government of Turkmenistan) prefers to play a mediating role, billing itself as the Vienna or Geneva of Asia. In this regard, Ashkabad is hosting the current round of the Inter-Tajik Talks which began in January 1996. Turkmenistan and the U.S. have a good political relationship with no outstanding disputes or disagreements.

    Turkmenistan is a single party state led by a strong president and his closest advisors. There is no vice president or prime minister. According to the Constitution, the Chairman of the Mejlis (Parliament) assumes the presidency upon the death on permanent incapacitation of the President and then calls elections. The Halk Maslahaty (People's Council), chaired by the President and made up of Cabinet Ministers, Regional Hakims (Governors), Elders, and parliamentary deputies, is the highest representative organ of popular power responsible for adopting constitutional amendments, treaties, and referenda. The Mejlis, the nation's legislative body, is developing into a professional parliament but remains largely a rubber stamp for presidential decisions and decrees.

    President Saparmurad Niyazov, also called Turkmenbashi or "head of all Turkmen", is the former Secretary General of the Turkmen Communist Party. Elected president in 1992, in a 1994 referendum his presidency was extended until 2002 with 99.9 percent of the vote. Single candidate parliamentary elections were held in December 1994. The next parliamentary election is scheduled for 1999. The National Democratic Party, the descendant of the Communist Party, led by President Niyazov, is the only political party in Turkmenistan.

    Exporting Oil and Natural Gas: Under these conditions, Turkmenistan must find the most politically viable and economically feasible route for exporting its natural gas and oil products to global markets. Its choices are wide ranging and all have their plusses and minuses. The government of Turkmenistan is looking for foreign investment to explore and develop its oil and gas industry and export routes to hard-currency markets. Eight resource areas have been made available for joint-venture projects and production sharing arrangements but the legal regime remains incomplete.

    SOURCE: James P. Dorian, et. al., "Central Asia's Oil and Gas Pipeline Network: Current and Future Flows, in Post Soviet Geography 35 :7 (September 1994) p. 416
    Turkmenistan's most obvious choice geopolitically is Iran to the southwest. As the only singular territory on its borders, transversing Iran is the most logical choice. However, socio- politically speaking, dealing with Iran is high risk as it still maintains a general image as a pariah state in international affairs. Yet, a protocol on the construction of gas pipeline between Turkmenistan and Iran, signed by presidents Niyazov and Rafsanjani, says that Turkmenistan will supply eight billion cubic meters of gas each year for 25 years. According to the document, a pipeline 140 kilometers long pipeline (from Korpeje gas field in the west of Turkmenistan to the Iranian town of Kurt Kui) will be constructed in two years. Expected completion date for the project is February 1997. Construction of the pipeline (including facilities at Korpeje gas field) was supposed to start in 1995. Eighty percent of the financing and one hundred percent of the construction will be provided by Iran. Turkmenistan will pay back its share by gas for three years beginning 1998. The price of gas will be reviewed every three months in accordance with the world price, but will be somewhat lower the world gas price. In conjunction with this project, on May 13, 1996 Turkmenistan and Iran inaugurated a 190-mile long railway linking the north-eastern Iranian city of Mashhad and the Turkmen town of Tedzhen, a stop on the Soviet-era Turksib railway. This will open a new trade route from Europe to the Far East and provide landlocked Central Asia with access to Iran's Persian Gulf ports.

    When examining a map, the next most attractive option geopolitically leads to the southeast through Afghanistan and Pakistan. The proposal involves building both oil and natural gas pipelines through western Afghanistan to connect with the pipeline networks in Pakistan which would bring the products to Pakistan and Pakistani ports on the Indian Ocean for further export by tanker. Yet a major problem exists. In actuality, Afghanistan as a state really no longer exists. A multi-ethnic religious war rages throughout much of the northern tier of the country among three main foes, two of which recently allied against the strongest. Once united under a monarchy, the Soviet invasion of 1979 exposed ethnic divisions between the Pashtun in the south, the Uzbeks in the northwest, and the Tajiks in the northeast. The current fighting involves three groups each representing, in their own special way, each of the aforementioned ethnicities. The Pashtuni Taleban, an Islamist movement born in the Afghanistani refugee camps in Pakistan, now controls the southern two-thirds of the country, including its most recent acquisition of the capitol of Kabul. General Massoud leads the forces of the most recent government that was in place in Kabul, also an Islamist faction lead by Rabbani. This mainly Tajik group captured Kabul from the formerly Soviet-backed communist government in 1992, whose forces were lead, and are still lead, by Dostum, an ethinic Uzbek. Currently, Massoud's and Dostum's forces, in an uneasy alliance, are trying to oust the Taleban from Kabul in a war of attrition just north of the battered city. Due to the extensive length and destruction of this ethinic strife and warfare, very little infrastructure exists to support a project which will transport oil and natural gas across Afghanistan. Just recently a proposal to build a railway from Turkmenistan across Afghanistan to Pakistan, as a precursor to the pipelines initiative was put on hold.

    SOURCE: James P. Dorian, et. al., "Central Asia's Oil and Gas Pipeline Network: Current and Future Flows, in Post Soviet Geography 35 :7 (September 1994) p. 417
    Then there are three possible routes via the Caucasus Mountains if undersea pipelines were built across the Caspian Sea to Baku, Azerbaijan. One crosses through Azerbaijan to Russian and terminates at the Black Sea for sea transport via the Bosphorous. The second traverses Azerbaijan and Georgia, including the breakaway Republic of Abkhazia, with a similar termination on the Black Sea. The third goes through Azerbaijan, Armenia, and Turkey and terminates on the Mediterranean at the Turkish port of Ceyhan. Yet all these routes involve difficult and seemingly unsolvable ethnic conflicts. (For a complete look at Azerbaijani oil extraction in the Caspian, the Azerbaijan International Oil Consortuim, and the export of Azerbaijani oil see the AZERI Case.)

    One of the main goals of the Russian attack on Chechnya in December of 1994 was to ensure control of the oil pipeline which runs from Baku, via Grozny, the Chechen capital, to the Russian city of Tikhoretsk. The pipeline ends at the Russian Black Sea port of Novorossiysk, designed by Russia to be the terminal for the proposed Kazakh and Azerbaijani pipelines. In addition, Grozny boasts a large refinery with a processing capacity of 12 million tons per year. During its brief self- proclaimed independence under President Jokhar Dudayev from 1991 to 1994, Chechnya illegally exported crude oil and refined products worth hundreds of millions of U.S. dollars. The rebel government worked closely with corrupt politicians in Moscow to obtain export licenses. Partly to cut off this activity, Russia launched a massive but covert military action in the fall of 1994 to support opponents of Dudayev. In 1994, Dudayev turned to radical Islamic elements in the Middle East and Central Asia for support. This exacerbated the religious aspect of the conflict between the Muslim Chechens and Christian Orthodox Russians. The overt military action began on December 12, 1994, when the Russian army marched on Grozny, destroying Chechnya's capital city by brutal aerial, tank, and artillery bombardment. Since the start of the campaign, over 30,000 people have been killed, and more than 300,000 have become refugees. Hostilities continue, with hostage-taking crises erupting in July 1995 and January 1996.

    Another conflict affecting potential oil routes is occurring in the Caucasus republic of Georgia. Russia wants to prevent oil from Azerbaijan and Kazakhstan from going the "Western" route through Georgia to Turkey. Moscow's support of civil strife in Georgia is directly connected to its goal of perpetuating conflict in the Caucasus. From 1991 through the end of 1993, Georgia was in the midst of a bloody civil war which pitted the supporters of Georgian President Eduard Shevardnadze and ousted President Zviad Gamsakhurdia against each other. Political violence became chronic. Eventually, the defeated Gamsakhurdia either committed suicide or was murdered under mysterious circumstances in 1993. But even after his victory over Gamsakhurdia, Shevardnadze faced challenges from warlords and militias. In exchange for crucial Russian support, Shevardnadze finally was forced to join the CIS in October 1993, a move he had bitterly opposed. When he attempted to read a press release announcing this step, Russian diplomats took it out of his hands and gave him a Moscow-authored text to read. Such was the degree of independence enjoyed by Shevardnadze at the hands of his Russian patrons. In 1995, Moscow brought pressure on Shevardnadze not to build a pipeline for Azeri oil through Georgian territory. The Georgians wanted to bring oil to the Georgian port of Supsa (between Poti and Tbilisi), from which it then would be exported by tanker to Turkey. However, the Russians demurred. Soon after Shevardnadze refused to cancel the pipeline plan, he was injured in an assassination attempt when a car bomb exploded next to his vehicle on August 29, 1995. Shevardnadze has insisted repeatedly that Russia was behind this attempt on his life. The suspected culprit -- Shevardnadze's security chief, Igor Georgadze -- has escaped to Russia and continues to threaten Shevardnadze's life. Shevardnadze demanded that the Russians extradite the suspect, and the Russian Prosecutor General's Office issued an order for his arrest. However, the Russian Interior Minister refused the extradition, and Georgadze is still at large.

    Meanwhile, another dangerous conflict is smoldering in Abkhazia, a breakaway region in Georgia. The bitter war in Abkhazia, which began in 1992, has claimed over 35,000 lives. It was precipitated by the Russian military backing the Abkhaz separatist minority against the Georgian government in Tbilisi. One purpose of the Russian intervention was to weaken Georgia and curb Turkish and Western influence in the region. But more important was the Russian goal of controlling access to oil. By acting as it did, Russia gained de facto control over the long Black Sea coastline in Abkhazia. Moscow also was protecting the Russian Black Sea ports of Novorossiysk and Tuapse and moving closer to the Georgian oil exporting ports in Poti, Supsa, and Batumi. In August 1995, Georgia's beleaguered President Shevardnadze agreed to place four Russian military bases on Georgian soil, thus assuring Russia's control of the oil exporting routes via the Black Sea coast. As Russia became entangled in Chechnya in 1994-1995, and word of Chechen commando training camps operating from Abkhazia spread, Moscow began to show less support for the Abkhaz rebels, who are allies of the Chechens. But Russia also has refused either to close the border with Abkhazia or to deny the separatist government in the Abkhaz capital, Sukhumi, financial and military support. Shevardnadze had hoped that this would be a Russian quid pro quo for his agreement to permit Russian military bases on Georgian territory.

    Yet another bloody war affecting potential oil and natural gas pipeline routes is occurring in Nagorno-Karabakh, a small, largely Armenian enclave inside Azerbaijan. The enclave of Karabakh sits astride a potential oil route from the Caspian Sea to Turkey. Populated mainly by Armenians, Karabakh was put under Azerbaijan's jurisdiction in 1921 after Stalin negotiated a treaty in the Transcaucasus between communist Russia and Turkey. Strife between the mainly Christian Armenians and Shi'a Muslim Azerbaijanis broke out in 1988. Full-scale war erupted in 1992, with the Armenians demanding complete independence for Karabakh. A cease-fire negotiated in May 1994 has been holding. The Armenians in Karabakh have proclaimed an independent republic, which Azerbaijan refuses to recognize. Thus far, Azerbaijan has suffered political and military defeat at the hands of the Armenians, losing one- fifth of its territory since the collapse of the Soviet Union. One million people, mostly Azerbaijanis, have become refugees as a result of the war. The Azeri capital of Baku has seen the government change three times since 1992. Russia has supported the Armenians and the Azeris intermittently. In 1992, Moscow proposed that Russia become a guarantor of peace in the region, promising to send in 3,000 peacekeepers, but was rebuffed by the Organization for Security and Cooperation in Europe (OSCE), a regional security group in Europe. The OSCE "Minsk group," which consists of Russia, the U.S., Turkey, France, Sweden, and Italy, has been charged with finding a solution to the Nagorno-Karabakh conflict but thus far has met with only limited success. Under Western pressure, Moscow has agreed to a multilateral OSCE peacekeeping force for Karabakh. However, this force has yet to materialize, and there is still no peace agreement between the warring parties.

    Also, a less likely, yet further option involves a proposal to build a gas pipeline heading east through Uzbekistan and either Tajikistan or Kazakhstan to connect with the gas pipeline network in China and then eventually on to an undersea pipeline to Japan. But this idea has merely been in the discussion stages and rising internal conflict currently in Tajikistan prevents any moves in that direction.

    3. Related Cases

  • AZERI Case
  • CASPIAN Case
  • COLCOCA Case
  • ECUADOR Case
  • KAZAKH Case
  • KOMI Case
  • OGONI Case

    4. Draft Author: Jerome D. Weltsch, December, 1996

    II. Legal Clusters

    5. Discourse and Status:

    While many petoleum firm have entered into agreements with the government of Turkmenistan on exploration and development rights as well as pipeline projects, the agreements with neighboring countries are still in flux, with the exception of unpopular Iran, as to the construction of trans-border pipeline routes. The following are an account of which agreements the government of Turkmenistan has already entered with petroleum firms.

    Agreements with Oil Firms: Argentina's Bridas Corporation's has invested in a joint venture in the Keimir, Ekpatlaukh, and Chikishlyar oil fields. In November 1995, Bridas had its oil export license suspended by the Turkmenistan government. The joint venture, located in the southern Caspian Sea region, produced more than 15,000 b/d of oil in 1995. In response to the suspension of its export license, Bridas, which has invested around $400 million in Turkmenistan since 1991, has threatened to take its case to international arbitration over breach of contract. According to Bridas, there is no reason -- except for the lack of an export route -- why the joint venture could not boost oil production rapidly to 50,000 b/d.

    Besides Bridas, Netherlands-based Larmag Energy Assets is involved in a joint venture to develop the Cheleken oil field, currently producing around 8,000 b/d. Larmag, which already has invested $90 million in the project, is hoping to achieve peak production of 85,000 b/d. Larmag has been frustrated by the same obstacles facing Bridas, however, specifically periodic suspension of its oil export license and lack of an export route. During 1995, Larmag exported an average of 6,000 b/d, mainly across the Caspian Sea to Iran, where it is trucked to Persian Gulf ports. In addition, limited amounts of oil were transported to the Black Sea via Russia's Volga-Don canal.

    The difficulties experienced by Bridas and Larmag apparently have persuaded most western companies to hold back from entering the Turkmen energy scene. One significant exception to this rule is U.S.-based Unocal, which is becoming increasingly active in Turkmenistan's gas sector.

    Agreements with Natural Gas Firms: Two foreign companies -- Bridas of Argentina and Unocal of the United States -- are involved in developing Turkmenistan's gas reserves. Bridas has stated its intention of increasing investment in the country's oil and gas industry from $400 million to $3 billion. Bridas has been involved in Turkmenistan since 1991, during which time it has mainly focused on developing the Yashlar gas deposit in the southeastern Amu Darya basin, as well as the Keimir oil and gas field in the southwestern part of the country. Bridas also is involved in plans for one of the proposed gas pipelines through Afghanistan to Pakistan. Unocal, meanwhile, is also heavily involved in Turkmenistan's gas sector. In March 1996, a consortium of Unocal and Saudi Arabia's Delta signed an agreement with Russia's Gazprom to help develop gas reserves in the country, and also to build a nearly 900-mile long, $3 billion pipeline from Turkmenistan's giant Dauletabad field through Afghanistan, to the Pakistani gas field of Sui in Baluchistan province, and on to the port city of Karachi.

    Several former Soviet countries which receive natural gas from Turkmenistan via Russia owe significant amounts of money to Turkmenistan. Ukraine, Georgia,Kazakhstan, Uzbekistan, and Azerbaijan combined owe Turkmenistan in excess of $1 billion. In response, Turkmenistan has periodically threatened and at timesactually terminated transport of gas supplies to several of these countries. Recently, Ukraine and Turkmenistan agreed on a barter deal, in which Ukraine will supply Turkmenistan with flour and wheat in exchange for continued gas supplies. In February 1996, Turkmenistan and Turkey agreed on natural gas deliveries of about 70 billion cubic feet (Bcf) per year beginning in 1998, and increasing to nearly 500 Bcf by 2020.

    6. Forum and Scope: Turkmenistan and Regional While this case focuses primarily on Turkmenistan, the impact regionally is unquestionable. Final decisions made regarding Turkmen export projects will have an indirect impact on the pipeline system, existing and proposed, for the entire region.

    7. Decision Breadth: Turkmentistan plus 12 Countries and Multilateral

    The twelve countries whose territories oil and natural gas have the potential to be transported through via pipeline include Iran, Turkey, Armenia, Georgia, Azerbaijan, Russia, Kazakhstan, Uzbekistan, Tajikistan, Afghanistan, Pakistan, and China. With the excpetion of the bilateral agreement with Iran already in place, all other prospective pipline routes involve more than one other partner

    8. Legal Standing: Turkmen Law

    With regard to development, extraction, and export of oil and natural gas, in March 1996, Oil and Gas Minister Aman Geldy Esenov announced that during 1996 Turkmenistan would pass a new oil and gas law governing, among other things, production-sharing, joint ventures, and profit allocation. To date, foreign investment has been stymied in part by the absence of a legal framework, with the result that only two energy joint ventures are currently operating in the country.

    Also inhibiting agreements are the fact that privatization is at the embryonic stage of development in Turkmenistan. Only one sector, the service sector, has been completely privatized. The government of Turkmenistan has announced its intention to begin privatization of agriculture and land reform in the second half of this year. After agriculture, transportation is the next sector scheduled for privatization, but for the time being the government retains full control. The Ministry of Agriculture has established a system of land distribution, but it is limited within the collective and state farm system, recently renamed peasant associations. On major farms, farmers are still told what to plant, provided all inputs including irrigation and seeds, and told where to sell and at what price. Only a small percentage in excess of plan is allowed to be sold at the local bazaars.

    Since the government controls access to all inputs, including parts, labor, and space, it is difficult if not impossible for domestic private enterprises to develop. Foreign investors, with the luxury of importing necessary raw materials, fare better, but still must confront bureaucratic red tape and obstacles in the form of individual financial inducements, limited access to key officials, and restrictions on markets.

    III. Geographic Clusters

    9. Geographic Locations

    a. Geographic Domain: Asia

    b. Geographic Site: West Asia

    c. Geographic Impact: Turkmenistan

    10. Sub-National Factors: No

    11. Type of Habitat: Temperate

    IV. Trade Clusters

    12. Type of Measure: Business Contracts between Governments and Firms

    13. Direct v. Indirect Impacts: More open global petroleum market vs. risky investment and possible environmental damage

    14. Relation of Trade Measure to Environmental Impact

    a. Directly Related to Product: Yes, Oil and Natural Gas

    b. Indirectly Related to Product: Possibly Fish (See the KAZAKH Case)

    c. Not Related to Product: No

    d. Related to Process: Yes, Possibly Sea and Ground Pollution (See the KAZAKH Case and the KOMI Case)

    15. Trade Product Identification: Oil and Natural Gas

    16. Economic Data

    Oil Reserves: Turkmenistan contains 1.4 billion barrels of proven oil reserves, with crude production of about 93,000 barrels per day (b/d). In November 1993, Turkmenistan adopted a program which calls for increasing oil production to about 560,000 b/d by the year 2000. Joint ventures most likely will be a key component of this strategy.

    Natural Gas Reserves: Turkmenistan is the second largest natural gas-producing country in the former Soviet Union. The country also ranks fourth worldwide -- after Russia, the United States and Iran -- with proven natural gas reserves totaling nearly 100 trillion cubic feet (Tcf). Estimates of Turkmenistan's total gas resource base range as high as 535 Tcf. The largest natural gas fields are in the Amu Darya basin, with half of the country's gas reserve located in the giant Dauletabad-Donmez field alone. In addition to Amu-Darya, Turkmenistan contains large gas reserves in the Murgab basin, particularly the giant Yashlar deposit, which contains an estimated 27 Tcf.

    Turkmen currency: Manat

    Current Exchange Rate (6/30/96): 4,300 Manat / 1 USD

    Foreign Exchange Reserves: 1 billion USD, est.

    External Debt (10/95): 632.1 million USD

    Table 1: General Economic Indicators of Turkmenistan (in millions of Manat)
    INDICATOR 1993 1994 1995 1996
    GDP, nominal (mil. Manat) 9,397 141,016 1,129,235 ??
    GDP Growth Rate (%) -10.0 -18.8 -13.9 ??
    Annual Inflation 1,309% 1,328% 1,262% 400-500%
    Average Exchange Rate 2/1 USD 75/1 USD 100/1 USD 5,000/1 USD

    Table 2: Turkmenistan Trade Statistics (in millions of USD)
    1994 1995
    TOTAL EXPORTS 2,176 2,008
    TOTAL IMPORTS 1,690 1,472

    17. Impact of Trade Restriction: Heavy While Turkmenistan is still politically stable, much of its continued stability depends largely upon its economic success. Turkmenistan's future economic success largely lays in its petroleum reserve capacity and its ability to deliver its oil and natural gas products to market. In addition, either the delayed or expedient entry into the market of Turkmenistan's immense natural gas reserves will have a significant impact upon the global market for natural gas.

    18. Industry Sector: Petroleum

    19. Exporters and Importers: Turkmenistan and Many

    While the main exporter in this study is obviously Turkmenistan, the importers of oil and natural gas can be categorized in two ways, where each category depends upon the route of export. First, there are those neighboring countries which will host the pipelines. These countries, depending on their needs, will extract as part of payment for transversing their territory in the export process, a certain amount of the product. These countries include Turkey, Armenia, Georgia, Afghanistan, Pakistan, Tajikistan and China. Exceptions to this category, countries whose territories are traversed by these pipelines but are, or potentially are, themselves net exporters of petroleum, include Iran, Azerbaijan, Russia, Kazakhstan, and Uzbekistan.

    The second category include those regions or countries nearest to the pipeline termini and currently have greatest need for petroluem products. These regions and countries include eastern Europe (which is still largely tied into the Russian petroleum distribution system), India, and Japan.

    V. Environment Clusters

    20. Environmental Problem Type: Pollution Sea and Land (POLS and POLL)

    21. Name, Type, and Diversity of Species

    22. Resource Impact and Effect: High and Regulatory

    No matter where oil and natural gas exploration and development are done, questions surrounding its environmental impact arise. However, at the core of this case, is the export of these commodities once they have been extracted and how that may impact the environment. Pipelines ideally are a safe, clean, and cheap method of petroleum transport, when properly maintained. Questions surrounding political conflict and the ability to maintain pipelines cloud all the options for Turkmenistan to export her petroleum products.

    In addition, the rising Caspian Sea has heightened environmental concerns about the oil fields and pipelines in western Turkmenistan. The sea has expanded as much as 150 meters inland, flooding oil terminals, ports, and oil fields. Besides water damage, non-environmentally friendly drilling techniques and storage facilities are threatening the area with potential environmental disasters in the coming years. Water and waste treatment are other areas for potential investment.

    23. Urgency of Problem: Medium and Long Term

    While the construction of these pipelines will be conducted by western firms with long-standing experience and reputations which bodes well for the short-run, in the medium to long term, once these companies may relinquish or be denied control over such pipelines, maintenance of these systems may come into question technologically and financially (see KOMI Case).

    24. Substitutes: Alternative Energy Sources

    Until alternative energy sources become available at the expense similar to that of petroleum products, the demand for Turkmen oil and natural gas will remain high and constant.

    VI. Other Factors

    25. Culture: Yes

    The factor of culture has a great impact with regard to the ethnic conflicts which had been hidden within the structures of the FSU and have been exposed. While Turkmenistan does not have real ethnic problems with a strong Turkmen majority (see Table 3 below), these external conflicts in the FSU and Afghanistan, as well as those between Iran, China and the west, as iterated above, have had and will have a great impact on the prospects of Turkmenistan's export goals.

    Table 3: Ethnic Breakdown (100 ethnic and tribal groups)
    Ethnicity Turkmen Uzbek Russian Kazakh Armenian Azeri Tartar Beluj Ukrainian
    % of pop. 77% 9.2% 6.7% 2.0% 0.8% 0.8% 0.8% 0.8% 0.5%

    Other groups include Belarussian, German, Jewish, Georgian, Moldovan, Uygur, Korean.

    26. Trans-Boundary Issues: Yes

    Trans-boundary issues are at the core of this case where Turkmenistan is a land locked country with the need to cross other states' territories in order to export to the global marketplace.

    27. Human Rights: Possibly

    In the case where Delta and Unocal wish to build pipelines through the portion of Afghanistan controlled by the Islamist fundamentalist Taleban which has been accused of violating the rights of women in the territory it controls.

    28. Relevant Literature

    Cohen, Ariel. "The New "Great Game": Oil Politics in the Caucasus and Central Asia," The Heritage Foundation. http://www.heritage.org/heritage/library/categories/forpol /bg1065.html .

    Dorian, James P., Ian Sheffield Rossi, and S. Tony Indriyanto. "Central Asia's Oil and Gas Pipeline Network: Current and Future Flows," Post-Soviet Geography 35:7 (September 1994) pp. 412-430.

    Feld, Lowell. "Turkmenistan," Department of Energy. http://eia.doe.gov/emeu/cabs/turkmen.html, May 1996.

    O'Connor, Robert B., Richard A Castle and David R. Nelson. "Future Oil and Gas Potential in Southern Caspian Basin," Oil & Gas Journal 91:18 (May 3, 1993) 117-126.

    Sagers, Matthew J. "The Oil Industry in the Southern-Tier Former Soviet Republics," Post-Soviet Geography 35:5 (May 1994) 267-298.

    -- "Brief Communications: Background and News Analysis: Long- Term Program for Turkmenistan's Oil and Gas Sector," Post-Soviet Geography 35:1 (January 1994) 50-56.

    "Transporting Caspian Sea Region Oil: The Mediterranean Route, an Environmental Alternative," The Republic of Turkey. http://turkey.org/turkey/pipeline.htm.

    "Turkmenistan Hopes to Become Kuwait of Caspian with Western Help," Current Digest of Post Soviet Press 45:47 (December 22, 1993) 25-26.

    United States Embassy, Ashkabad, Turkmenistan. "Pakistan/Turkmenistan Railway Proposal Not Rolling Anytime Soon."

    United States Embassy, Ashkabad, Turkmenistan. "Results of President Niyazov's Visit to Iran."

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