Turkmenistan – part one

Published October 11th, 2000 - 02:00 GMT

Turkmenistan is important to world energy markets because it contains over 100 trillion cubic feet of proven natural gas reserves. It also borders the Caspian Sea, which contains major oil and natural gas reserves.  

Note: Information contained in this report is the best available as of July 2000 and can change.  



Turkmenistan's economy is staging a partial recovery after a decade of decline. Growth in real gross domestic product (GDP) for 1999 was 12.0 percent , owing almost entirely to increased sales of natural gas to Iran and Russia.  


Real GDP growth is forecast at 6.0 percent for 2000. The country's real GDP had fallen steadily from 1992 to 1997, with the worst year being 1997, with a decline of 25.9 percent.  


The wild swings in Turkmenistan's GDP reflect in large part the fact that the country's economy is concentrated primarily in oil and natural gas. The 1997 plunge in GDP, for instance, reflected the cutoff of Turkmen access to Russian gas giant Gazprom's pipeline network over a payment dispute.  


The resumption of economic growth in 1998 largely reflected increased oil sales, while the surge in GDP growth in 1999 was primarily the result of the resumption of gas exports to other Commonwealth of Independent States (CIS) countries and increased oil prices.  


Apart from oil and gas, Turkmenistan also produces significant amounts of cotton, but exports of this commodity are only at half their level prior to the Soviet Union's collapse.  


Turkmenistan's ability to develop its vast gas resources, as well as its significant oil reserves, is complicated by geography. The country is landlocked, with Kazakhstan and Uzbekistan to the north, Iran and Afghanistan to the south, and the landlocked Caspian Sea to the west.  


To link its gas resources to large markets, Turkmenistan must develop an export pipeline infrastructure, which necessitates finding reliable partners for both right-of-way access through neighboring states and foreign firms to construct the pipeline.  


In addition to the question of export routes, the five nations surrounding the Caspian Sea -- Turkmenistan, Kazakhstan, Russia, Azerbaijan, and Iran -- have been divided for many years over who owns the resources in the seabed. 


Turkmenistan, Kazakhstan, and Azerbaijan, the three nations with oil near their coastlines, have wanted the Caspian divided into national sectors, while the remaining two nations, with little or no oil or gas near their coasts, have wanted the sea's resources to be shared by all five nations.  


According to press reports, the main outstanding issue is the disposition of the Serdar/Kyapaz oil and gas field, which straddles the median line between Azerbaijan and Turkmenistan in the Caspian.  


After declining during the early 1990s, Turkmenistan's oil production has increased sharply since 1996. For 1999, oil production was 119,000 barrels per day (bbl/d), up from a low of 81,000 bbl/d in 1995.  


In June 1998, President Niyazov signed a resolution providing for restructuring of the oil and gas activities of the Ministry of Oil and Gas into five state-owned companies. Turkmenrozgaz, in which the Turkmen state is the majority owner (with a 44 percent stake owned by Gazprom), is responsible for gas exports through Russia.  


Turkmenneftgaz is responsible for oil and gas marketing. Oil production is carried out by Turkmenneft. Oil and gas-related construction is the responsibility of Turkmenneftgazstroi, while Turkmengeologia undertakes exploration.  


One of the main obstacles hindering development of Turkmenistan's oil industry is the lack of export routes. In March 1998, the U.K.'s Monument Oil (which has since been taken over by Lasmo Oil) reached an agreement with Iran's National Iranian Oil Company (NIOC) to provide oil from the offshore Burun field in western Turkmenistan to the northern border of Iran and swap it for oil to be exported from the Persian Gulf.  


The Burun field currently produces approximately 10,000 bbl/d, down from 18,000 bbl/d in late 1998, and is located in the Nebit Dag concession. Lasmo currently holds a 35 percent stake in the field, with Mobil holding 40 percent and Burren Energy holding 25 percent.  


The oil swaps began in late July 1998, with Turkmen oil being delivered to the Iranian Caspian port of Neka. In April 1998, Mobil submitted an application to the U.S. Treasury Department's Office of Foreign Assets Control for a licence to swap Turkmen oil for Iranian oil. In April 1999, the request was formally denied. The field is considered capable of greater production once fully developed, if a permanent export route becomes available.  


Another company, UAE-based Dragon Oil, also has an oil swap deal with Iran. The company produces about 7,500 bbl/d from the offshore Block 2 area, near the Cheleken Peninsula on the Caspian Sea, and is planning additional drilling in the fall of 2000.  


In July 1998, Monument Oil signed two production sharing agreements (PSA) with Mobil and Turkmenneft covering the Garashsyzlyk concession onshore western Turkmenistan. The PSAs cover the exploration, development, and production of oil and gas from a 1,735-square-mile area adjacent to the Nebit Dag concession, and include the remaining onshore part of the Asperon Sill. 


Under the first PSA, Turkmenneft will be responsible for production and other development activities from existing mature fields in the agreement area. The second PSA covers undeveloped reservoirs discovered underneath the Kotor Tepe and Barsa Gelmes fields. Mobil is the operator, holding a 52.4 percent interest, followed by Monument with 27.6 percent and Turkmenneft with 20 percent. 


By 2001, Mobil and Monument are expected to invest $100 million conducting seismic surveys and drilling appraisal wells. Monument and Mobil estimate that development of the Garashsyzlyk area combined with expanding production from the Burun field could result in substantially increased oil production from western Turkmenistan by 2006-2007, if a suitable export route becomes available.  


A dispute between Turkmenistan and Azerbaijan over the offshore Serdar oil and gas field, called Kyapaz by Azerbaijan, continues to prevent development of the field. In July 1997, Russia's Rosneft and Lukoil signed a PSA with Socar, Azerbaijan's state oil company, to develop the field, which has estimated oil reserves of 360 million barrels.  


The Turkmen government protested the deal, after which Rosneft withdrew from the agreement, and in a show of support for Turkmen claims, the Russian government annulled the deal in August 1997. However, Lukoil continues to maintain its plans to develop the field after the dispute is settled.  

On September 1, 1997, Turkmenistan included the field in the country's first round of international tenders for developing its Caspian shelf. 


Several day later, Azerbaijan announced that it would apply sanctions against any company bidding on the disputed field. In June 1998, Mobil won the right, under the September tender, to develop the field, and the Turkmen government invited Mobil to begin talks on development plans.  


However, Mobil announced that it would not sign an agreement with Turkmenistan or begin work on the field until the two countries settle the dispute. Turkmenistan reportedly has held talks with Iran about possible Turkmen-Iranian development of the field, which would involve an abrogation of ExxonMobil's concession.  


Source: United States Energy Information Administration.  



© 2000 Mena Report (www.menareport.com)

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