The Natural Gas Revolution and Central Asia

By Kolb, Robert W. | The Journal of Social, Political, and Economic Studies, Summer 2012 | Go to article overview

The Natural Gas Revolution and Central Asia


Kolb, Robert W., The Journal of Social, Political, and Economic Studies


This article examines the ongoing natural gas revolution and assesses its impact on the energy industry and societies of Central Asia. The natural gas revolution consists of three related technological developments - hydraulic fracturing, horizontal drilling, and the increasing build-out of the world liquid natural gas (LNG) infrastructure. For this article, Central Asia is taken as the five "Stans" that were formerly part of the Soviet Union but that are now independent countries: Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan.

The article focuses on Turkmenistan and its rich reserves of natural gas and explores the conditions under which Turkmenistan currently reaches international markets through pipelines to China, Iran, and Russia. It also assesses Turkmenistan's future prospects for reaching additional world markets and for sustaining the markets it presently serves. Finally, the article analyzes the difficulties that Turkmenistan's gas industry, and other Central Asia energy industries, are likely to face and the implications these continuing energy industry tribulations will have for social development in Central Asia.

Key Words: Energy; Natural gas; Natural gas revolution; Liquid natural gas; LNG; Central Asia; LNG; Pipelines; China; Iran; Kazakhstan; Kyrgyzstan; Russia; Tajikistan; Turkmenistan; Uzbekistan; Social development.

I. Introduction

This paper assesses the impact of the so-called natural gas revolution on the countries of Central Asia, taken as the five "Stans" of the former Soviet Union - Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan. The "natural gas revolution" refers to the sudden increase in available current supply, a dramatic fall in natural gas prices, and much enlarged estimates of world proven reserves of natural gas, developments that are due primarily to the development of new technologies. These new technologies include hydraulic fracturing, horizontal natural gas well drilling, and the maturation of the LNG (liquid natural gas) infrastructure. Natural gas produced using hydraulic fracturing and horizontal drilling is termed "unconventional gas" and contrasts with "conventional" natural gas accessed by individual wells that are purely vertical and do not involve hydraulic fracturing.

These five nations are not active participants in the natural gas revolution. They are drilling conventional wells to access their resources and are not utilizing hydraulic fracturing or horizontal drilling. Also, they are far removed from open seas, which could allow them to ship their natural gas as LNG. Nonetheless, the natural gas market has increasingly become a world market, and the natural gas of Central Asia will compete in a market in which unconventional natural gas and LNG have an increasing role.

The paper is organized as follows. Section II reviews the essential elements of the natural gas revolution, including the technological and operational basics of hydraulic fracturing and horizontal drilling, the falling prices of natural gas, the development of LNG infrastructure, and the ecological risks associated with this new technology. Section III, "Natural Gas and the Future of Central Asia," begins the central analysis of the paper. In particular it examines the production and reserves of each nation and the means by which each nation can hope to bring its gas to market. Because all five countries are landlocked, they must rely on pipeline transmission, and these pipelines must cover long distances to reach lucrative markets such as China or western Europe. As the discussion shows, these countries are surrounded by other nations, some with their own rich reserves of natural gas, and all with their own economic and geopolitical ambitions, factors which will have a strong effect on the ability of the "Stans" to capitalize on their very considerable energy resources.1

Of the five "Stans," Turkmenistan holds the largest natural gas reserves, and has the best prospects of delivering gas to a world market, and it will also be the country most affected by the natural gas revolution. Accordingly, Section IV, "Prospects for Turkmenistan's Natural Gas," focuses on this country particularly.

II. Essential Elements of the Natural Gas Revolution

In the very recent past, a chorus has begun to sing the praises or what many perceive to be a revolution in the world energy situation. Many have characterized this changing circumstances as a "revolution" in natural gas.2 Others have spoken of the world's entering an "age of natural gas" or a "golden age of energy.3 Still others herald the emergence of the United States as a type of Saudi Arabia, or even a "Saudi America" of energy.4

Over the last two decades a controversial drilling technology has been developed and implemented, resulting in a dramatic increase in U.S. natural gas production. It consists of two key elements, "hydraulic fracturing" and "horizontal drilling." In hydraulic fracturing, the older of the two techniques, an energy production firm drills a conventional vertical well into a bed of gas-containing rock, usually a type of shale. The driller carefully seals the well bore so that it can withstand pressurization. The driller then forces a combination of water, sand, and a mixture of chemicals through the well and into the surrounding rock. The pressure exerted fractures the friable rock, allowing gas to percolate into the well and up to the well's collection point.

More recently, U.S. firms have succeeded in drilling horizontally through shale beds to reach more gas from a single surface well. In this process the driller sinks a vertical well, which may be a mile deep, to reach a gas-containing shale bed. At this point, the exploration company turns the drill turned sideways and continues to drill horizontally through the shale rock. When drilling stops, the driller removes the drill and introduces small holes into the well casing surrounded by the shale. By igniting a controlled explosion. With the holes in the well casing in place, the driller pumps fracturing fluid, a mix of water, sand, and chemicals, into the horizontal portion of the well, causing the shale bed to fracture and release gas back into the well. This process of horizontal drilling and hydraulic fracturing can be repeated from a single vertical well, thereby reducing the number of vertical wells required to exploit a gas field and reducing the drilling footprint at the earth's surface.

In the United States, natural gas produced by unconventional methods already exceeds that produced by older conventional methods, and the U.S. Energy Information Administration predicts that by 2035, unconventional gas will constitute fully 75 percent of U.S. production.5 Figure 1 shows the evolution of natural gas proven reserves and production in the United States from 1980-2010. The upsurge of both during the last decade stems primarily from the advent of shale gas. Most strikingly, the U.S. Energy Information Administration notes that shale gas production surged from 0.39 trillion cubic feet in 2000 to 4.87 trillion cubic feet in 2010, jumping by a factor of more than twelve times in a single decade.6

The changing supply and production levels have had profound consequences for prices. As Figure 2 shows, natural gas prices (shown as U.S. dollars per 1,000 cu. ft.) have fallen precipitously in recent years and months. This dramatic fall in gas prices has occurred at a time of high oil and gasoline prices, with a barrel of petroleum in Cushing, Oklahoma costing in the neighborhood of $100 and with U.S. gasoline prices at the pump averaging about $4.00 in the spring of 2012. Further, the ratio of petroleum to natural gas prices has reached an extreme level, as Figure 3 shows.

While the natural gas revolution has thus far been primarily a U.S. development, other nations are changing that very rapidly. After all, other nations beyond the United States probably possess their own shale gas resources. The U.S. Energy Information Administration published an initial assessment of shale gas resources around the world, concluding that "...the international shale gas resource base is vast,"7 even though the report assessed only 32 countries outside the U.S. and excluded Russia, Central Asia, the Middle East, South East Asia and Central Africa from the analysis. The study found tremendous resources in every continent except Antarctica, with apparently very large deposits in Canada, South America, South Africa, the Maghreb, Europe, China, and Australia. Very active efforts are underway in many of these areas to develop the necessary technology and to exploit these newly discovered gas reserves. For instance, China has actively been acquiring some U.S. firms with hydraulic fracturing and horizontal drilling expertise and has been partnering with other such firms.

Beyond the techniques of hydraulic fracturing and horizontal drilling, a third critical element features in the natural gas revolution, the increasing maturation of the LNG (liquid natural gas) infrastructure and market. Natural gas can move from a gas field to elsewhere in three main ways, via pipeline, via compression and transport by rail or truck, or via liquefaction and transport by ship.8 Of these three, pipeline transmission is cheapest. Compression is not scalable, because compressing reduces the volume of natural gas by a factor of only about 100, leaving transportation by road or rail as prohibitively expensive.9 LNG technology is not new, but the rapid development of an ever expanding LNG infrastructure constitutes an important part of the story of natural gas. Liquefaction reduces the volume of natural gas by a factor of 600, allowing transport by ship. Nonetheless, compared with pipeline gas, LNG gas remains quite expensive.

Building pipelines from natural gas fields to markets is ruinously expensive, and most pipeline developments can proceed only with an assured market for the natural gas. Thus, pipeline contracts have typically called for gas purchasers to enter long-term contracts under which they must take-or-pay for the natural gas being produced and delivered. Further, these contracts typically specify natural gas prices that are indexed to the price of oil. Now, with natural gas prices reaching historic lows, the contract price for many of these pipelinedelivered supplies costs five to eight, or even ten, times as much as the current spot price of natural gas in world markets.

Because so much of the world's natural gas production and delivery system has been governed by these pipeline contracts, a world market for natural gas has been slow to develop. That is now rapidly changing with enormous implications. Three countries illustrate the power of these developments. Qatar has very rich gas resources, but with its location in the Persian Gulf, it is a long way from markets. However, it has become a very robust LNG supplier, with immediate access through the Straits of Hormuz to the open sea. For its part, Japan almost totally lacks hydrocarbon deposits. In the wake of the March 2011 Fukushima nuclear disaster Japan shuttered its nuclear plants, making it ever more dependent on the delivery of overseas oil and natural gas. For its part, Australia now suddenly appears to be poised to be a major LNG supplier, further enriching the world supply of gas and strengthening the movement toward a genuinely world market.

The delivery price of LNG has typically been much greater than the spot market price (in contrast to a long-term price agreement) of gas that can be delivered via pipeline. Part of this differential can be attributed to the higher cost of LNG delivery. To liquefy gas requires a very expensive liquefaction plant that can chill the gas to its liquefaction point of -260 °F. Then the liquefied gas must be transported by ship, which costs considerably more than pipeline transmission. However, much of the excess cost of LNG over the spot market price exceeds the actual cost of liquefaction and delivery. With a burgeoning LNG infrastructure and a number of new suppliers in the market, one can reasonably expect the price of LNG-delivered gas to fall toward the spot market price, plus the added cost of liquefaction and transport. This will be an enormous benefit to countries such as Japan.

Further, the development of a robust LNG market gives many nations a choice of using LNG or pipeline-delivered gas. For example, India has an extensive coastline and can receive LNG quite readily. While gas delivered by pipeline is generally significantly cheaper, and should remain such, that is not necessarily the case in all circumstances. If the gas must be delivered by pipeline over a very long distance, over very rugged terrain, and across many national boundaries, with each transit country imposing a fee, the price differential between LNG and pipeline gas could be seriously eroded or even erased. Thus, the natural gas revolution holds out the promise to radically expand worldwide supplies, to allow many nations to develop domestic resources that were previously thought inaccessible, and to facilitate a worldwide market in natural gas through an improved and elaborated LNG infrastructure.

However, there are important and potentially devastating environmental consequences associated with the technique of hydraulic fracturing that lies at the heart of the natural gas revolution. The ultimate consequences of these environmental risks remain uncertain and stand at the center of a bitter debate. First, the most potentially catastrophic environmental risk is contamination of aquifers on which large populations depend for their drinking water. The mix of water, sand, and chemicals that drillers inject into gas wells includes some chemicals known to cause cancer. If these chemicals find their way into the aquifers that lie above the gas-rich shales being fractured, they have the potential to pollute the aquifer seriously. The fracturing chemicals could enter the aquifers via at least two avenues. If a driller fails to seal the well-bore properly by encasing it in concrete, the pressurized fracturing fluids could escape through compromised seals. Also, when the fracturing fluid enters the shale formations to create the fractures that release the gas, there is a concern that the chemical-laden fluids could percolate through fissures in the shale up and into the aquifers. There is some evidence that such intrusions may already have occurred, but the existence and magnitude, if any, of this problem remain hotly contested. However, the danger is certainly real. For example, one of the first and most fully exploited shale gas "plays" is the Barnett Shale, which lies directly under the Dallas-Fort Worth metroplex. The vast Marcellus Shale underlies much of Pennsylvania and extends to eight eastern states. Significant pollution of water in these areas could have devastating health consequences and cause untold economic loss.

As a second major environmental peril, hydraulic fracturing could cause earthquakes. Also, disposing of the waste water from the hydraulic fracturing process by pumping it into deep wells, a popular disposal technique, may potentially cause earthquakes. When the shales are fractured, they may lose their stability and shift, generating earthquakes. A body of evidence already suggests that fracturing and waste water injection have caused some earthquakes. However, even if these quakes resulted from either process, they have been extremely small and caused no property damage, much less injury or loss of life. Of course, the fear is that such earthquakes might not always be trivial.

A third environmental issue concerns water used in the fracturing process. Fracturing a well requires one to three million gallons of water, so other water claimants resist devoting so much water to the gas-drilling process. This problem is more severe in dryer areas such as in the Bakken Shale play in North Dakota. Also, it will certainly emerge as an issue in other regions of the world that face their own limited water supplies. Clearly, using water for gas-drilling competes with other potential uses. However, hydraulic fracturing advocates point out that even in very dry climes, the fraction of water devoted to gas drilling is really quite small.

To create the fracturing fluid, the driller mixes water with sand and chemicals, as noted above. Much of this water comes back to the surface through the well bore and must face disposal. At many drilling sites, the driller stores the chemically-laden water in small purposecreated reservoirs lined with plastic. The major danger here is that the water will escape the reservoir and enter streams, carrying the harmful fracturing chemicals into the wider ecosystem. This could occur when the reservoir lining fails or when heavy rains cause the reservoir to overflow into the natural stream system. Reusing fracturing water to fracture subsequent wells can reduce the total amount of waste water, but eventually tainted water must ultimately face treatment, disposal, and recycling. One way of disposing of the fracturing fluid is by injecting it into available reservoirs far beneath the surface. (For example, drillers sometimes dispose of waste water by injecting it into depleted oil or gas well.) While this method does seem to solve the problem of disposal, it may be responsible for some of the minor earthquakes that appear to be associated with the gas drilling process. Also, there is always the fear that tainted water pumped into the ground may return to create environmental damage.

A fourth class of environmental concerns is disruption at the surface, including scarring of the land, the visibility of unsightly drilling rigs, and the introduction of heavy vehicle traffic into rural areas. In addition, when the drillers enter a region the riches it brings to some, but only some, local residents, may alter the culture of areas that suddenly become targets of a gas boom.10 With so much at stake - wealth, access to energy, the future of the world's energy mix, and the environment, including the entire question of hydrocarbons and global climate change - much of the environmental debate surrounding hydraulic fracturing has become highly politicized with heavy sparring and self-serving analyses being offered by both industry lobbying interests and environmental pressure groups.

III. Natural Gas and Central Asia

For purposes of this paper, Central Asia consists of the five "Stans" that are now independent countries, but which were formerly part of the Soviet Union: Kyrgyzstan, Kazakhstan, Tajikistan, Turkmenistan, and Uzbekistan. On the whole, these five nations possess rich resources of oil and natural gas, but with important differences among them. Further, as a group, they occupy a difficult geographical position, distant from any ocean and surrounded by powerful neighbors, many of which are also well endowed with petroleum and gas resources. Figure 4 shows the geographical position of these "Stans" and their nearby neighbors. To reach any large world market, gas from Central Asia must transit one or more countries, in some cases one or more of the other "Stans." As we will see, their geographical position creates many problems and offers very few advantages for these nations.

Table 1 shows production, consumption, exports, imports, and reserves of oil and gas for the five "Stans" and key surrounding countries. Of the five nations of Central Asia, Turkmenistan and Kazakhstan dominate the energy picture, with Turkmenistan leading in natural gas reserves and Kazakhstan dominating in oil. Kyrgyzstan and Tajikistan have minimal gas reserves. In spite of its more modest reserves, Uzbekistan produces considerable natural gas, yet consumes most of it, and it remains a net importer of oil. As this paper focuses on natural gas, it will also focus on Turkmenistan, although Kazakhstan faces many of the same difficulties in reaching markets for its ample supplies of oil.

Taken together, these five countries have about the same total population as France, roughly 60-65 million, but with a land area that is almost eight times as large. As a result, the five "Stans" are quite thinly populated, with only about 16 inhabitants per square kilometer, compared with France's 114. Richly endowed with energy, but with a small population and large distances, the energy problem for the five countries taken as a group is not acquiring sufficient energy for their own needs, but, rather, getting the gas and oil that they can produce to markets.

As we have seen, the two realistically possible methods for gas transmission is via pipeline and LNG. For Turkmenistan, LNG is completely out of the question, as the country is completely landlocked. (Even though Turkmenistan has access to the Caspian Sea, that body of water is itself landlocked.) This leaves pipeline delivery as Turkmenistan's only option for delivering gas to world markets. Table 2 shows the various routes by which Turkmenistan might seek to get its gas to markets outside the immediate region. The list in this table is extremely inclusive, including some avenues that Turkmenistan currently exploits, some routes that are actually proposed and are currently being seriously considered, and even some rather fanciful and impractical routes.

Turkmenistan's gas, from which it currently supplies existing routes and hopes to supply future routes, lies in more than 1,000 gas fields, most of which remain untapped. The currently most important and the apparently largest fields lie in the eastern portion of the country in the Amu Darya basin. Until very recently in its history, Turkmenistan's gas has been drawn principally from the Dauletabad and associated fields lying in the southeastern corner of the country, as Figure 5 shows. This massive field has been the main supply of Turkmenistan's domestic consumption as well as the main source fueling its exports. In 2006, however, Turkmenistan discovered the South Yolotan field. (Other associated fields include the Yashlar, Minara, and Osman fields.) The South-Yolotan field lies about 70 miles southeast of the ancient oasis city of Merv on the Silk Road, the nearby modern town being known as Mary. This locates it also in the east, somewhat north of the older Dauletabad field. An independent audit of its resources places the new field as one of the largest, perhaps the second largest, field in the world, with reserves about five times as large as the already enormous Dauletabad field.11 Thus, while Turkmenistan possess an incredibly rich endowment of natural gas - it confronts the problem of getting that gas to the world's markets.

As Table 2 indicates, Turkmenistan has four international pipelines in current operation, two that serve northern Iran, one that reaches Russia (and from there the rich markets of western Europe through the Gazprom pipeline system), and one that delivers gas to China. Table 3 shows gas exports and their destinations for the three gas-exporting Central Asian nations, Kazakhstan, Uzbekistan, and Turkmenistan. Turkmenistan accounts for about half of the total and delivers to three destination nations, while all gas exports form Kazakhstan and Uzbekistan supply Russia and its pipeline network. Looking to the future, Turkmenistan is destined to become the even more dominant gas exporter from this region as its gas reserves are almost twice as large as those of Kazakhstan and Uzbekistan combined, with Kyrgyzstan and Tajikistan each holding only minimal gas reserves. As Table 1 shows, Uzbekistan currently out-produces Turkmenistan in natural gas, but its domestic needs are much larger than those of Turkmenistan. Uzbekistan has a population five times as large as Turkmenistan's, 28 million to 5.5 million. In the medium to long run, Turkmenistan, with its small population and large gas reserves, will become the ever more dominant gas exporter among these Central Asian nations - if it can get its gas to markets. For these reasons, the pipeline network of Turkmenistan, including those lines that are already operational as well as those that are anticipated, remains the key.

While these central Asian nations were formerly part of the Soviet Union all of their gas exports flowed north to Russia and on to the other republics of the Union, particularly those in eastern Europe. The Soviet Union also delivered some gas to western Europe. Upon dissolution of the Soviet Union and the gaining of independence by former Soviet republics, the energy-rich countries of Central Asia faced a very serious problem. The existing pipeline infrastructure gave them only one potential customer, the now separate and not very friendly Russia and its state-owned energy megalith Gazprom. Thus, the legacy pipeline routes from the Soviet era gave Gazprom a monopsonistic position. Recent decades have seen a struggle by the energy exporters of Central Asia to develop new markets, with Russia attempting to frustrate those efforts at every turn. Focusing on Turkmenistan's efforts to reach other markets with its gas is a continuing central plot line of this drama, but Kazakhstan, with its oil, confronts a set of problems similar to those that Turkmenistan faces with its gas.

Figure 5 shows Turkmenistan's current operational and proposed international pipelines. By volume, the most important of these is the legacy pipeline that delivers Turkmen gas to Russia, the Central Asia- Center (CAC) pipeline. Actually consisting of two branches that originate in the west and east of Turkmenistan, the pipelines run north, reunite in Kazakhstan, and then go on to Russia. The main thread of the CAC pipeline originates in the massive Dauletabad field in the portion of the Amu Darya basin in southeastern Turkmenistan.12 The Soviets built the CAC system over many years from 1960-1988. Like virtually all transportation links and infrastructure connections in the outlying Soviet republics, the energy pipelines of Central Asia have a Russo-centric focus and organization. 13 Upon dissolution of the Soviet Union, the ownership of gas pipelines in Russia passed to Gazprom. With the CAC pipeline as an independent Turkmenistan's only connection to the outside world, Gazprom's control of the Russian portion of the pipeline network effectively cut offTurkmen gas exports to Europe, or at least made them subject to Gazprom's whim. Not surprisingly, Turkmenistan found it necessary to sharply discount the value of its gas to its sole purchaser. A further problem with the CAC pipeline and Russian control is the inadequacy of the pipeline compared to Turkmenistan's massive gas reserves. The pipeline remains much in need of refurbishment, upgrading, and enlargement.14 Since Turkmenistan's independence in 1991, the history of its energy industry has been dominated by the search for outlet markets other than those controlled by Russia.15

Turkmenistan was unable to develop a second market for its natural gas until 1997, when it succeeded in developing a pipeline connection to Iran, the Korpezhe Kurt-Kui (KKK) pipeline, running 120 miles from Korpezhe, Turkmenistan to Kurt-Kui, Iran, where it connects with the Iranian pipeline system. To build this pipeline, Iran granted assistance to Turkmenistan, which repays this investment with 35 percent of the gas delivered through the pipeline for a 25-year period.16 Ironically, as discussed in greater detail below, Iran has the world's second largest gas reserves, but Iran has energy difficulties of its own that induce it to import gas from a country with a smaller reserve base. To that end, Turkmenistan completed a second pipeline to Iran in 2010, the Dauletabad-Khangiran line, also known as the Dauletabad-Sarakhs-Khangiran pipeline. This relatively short pipeline runs about 115 miles to connect to the Iranian national pipeline system. Both of these Turkmenistan-Iran pipelines mainly serve Iranian natural gas needs in the north of the country.

Also completed in 2010 was a much more ambitious and potentially much more important pipeline originating in Turkmenistan and ultimately reaching Horgos, China, in the Xinjiang region, after transiting Uzbekistan and Kazakhstan, where it skirts the northern border of Kyrgyzstan. This Central Asia-China dual pipeline is 1,150 miles long and required only a virtually unbelievable 18 months to construct.17 The pipeline is scheduled to deliver 30 billion cubic meters per year for 30 years.

To the present, these four pipelines from Turkmenistan - the CAC to Russia, the two small pipelines to Iran, and the Central Asia- China line - constitute the entire means by which Turkmenistan's natural gas reaches markets beyond its border. As shown in Table 3, about half (49 percent) of Turkmenistan's gas exports go to Russia, a third to Iran, and only 18 percent to China. But with plans for Turkmenistan to deliver 30 billion cubic meters per year to China, these proportions are scheduled to change soon. If Turkmenistan maintains current export levels to Russia and China, as shown in Table 3, and reaches the scheduled capacity of 30 billion cubic meters per year to China, it will expand its total exports by almost fifty percent and will be delivering 70 percent of its gas exports to China.

In spite of these ambitious plans, Turkmenistan's natural gas reserves can support much larger exports. For most of its history, Turkmen gas exports have been drawn from the Dauletabad field in southeastern Turkmenistan, and the recently discovered South- Yolotan field has yet to reach full production levels. This leaves Turkmenistan hungering for additional pipelines to reach other markets. Yet only the four pipelines discussed above are actually operational. While many others are planned, there is only one more important pipeline under actual construction. This is a domestic Turkmen pipeline, the East-West pipeline. But while entirely internal, this pipeline project aims at external markets.

In essence, the East-West line will connect the rich gas fields of Turkmenistan's east, starting with the Dauletabad field, to the Caspian littoral, which forms a portion of Turkmenistan's western border. There the East-West line will connect with an existing pipeline that runs to the north to supply the CAC pipeline. However, the ultimate goal is for this East-West line to be part of a system that will take Turkmen gas to the world in general and the hungry markets of Europe in particular.18

Reaching those markets requires transiting the Caspian Sea, and Turkmenistan needs the projected Trans-Caspian pipeline to reach Azerbaijan, (most likely at Baku) with its pipeline system that connects to points further west, notably in Turkey, but also farther north. As shown in Table 2, once Turkmen gas reaches Azerbaijan, it could then transit Georgia to the Black Sea and from there to the world. Similarly, another option is for a pipeline to run from Azerbaijan through Armenia and Turkey to the Black Sea, or through Armenia and Turkey to the Mediterranean. The key difficulty is actually transporting the gas across the Caspian to Azerbaijan, and the impediments to accomplishing this goal are very serious.

For Turkmenistan, the ultimate export prize is reaching the markets of Europe, which may be even more valuable than the Chinese market now breached with the Central Asia-China pipeline. For its part, Europe remains anxious to reduce its heavy reliance on Russia for its natural gas supplies. There has been much discussion of opening a "Southern Corridor" to bring gas and oil from the Caspian and Central Asian regions to Europe, and many pipeline proposals have been advanced to achieve this goal. For some time, the proposed Nabucco pipeline has been paramount among these desired southern routes. As Figure 6 depicts, the Nabucco pipeline would originate in the Caspian region, run the length of Turkey, cross into Europe near Cape Helles, continue through Bulgaria, transit Hungary, and finally terminate in Baumgarten, Austria, a main hub in a western Europe gas pipeline network. In spite of years of planning and Europe's strong geopolitical need to both secure additional gas supplies and to diversify its sourcing, not a single foot of the pipeline has been built.19

For its part, Russia seeks to keep its position as Europe's dominant gas supplier and advances this goal by trying to frustrate the development of Nabucco. In addition to the obviously important commercial desires on the part of Russia and Gazprom, keeping Europe tethered to Russian gas also enhances Russia's geopolitical power. To that end, Russia has been promoting the South Stream route for the Southern Corridor, as also shown in Figure 6. However, this route would originate in Russia, not the Caucasus and not Central Asia, so it would do nothing for western Europe's need to diversify its natural gas sources. In the first half of 2012, the South Stream plan has been developing well, but the Nabucco plan has fallen on hard times. In March 2012, the aspirations for the Nabucco route were scaled back to a new version called "Nabucco West," which would run only from Turkey's border with Bulgaria up to Baumgarten and would have a much reduced capacity compared to the original plan. Gas to feed this pipeline would be drawn from the Trans-Anatolian (TANAP) pipeline in mid-route. The entire TANAP line would originate in Baku, Azerbaijan, transit Georgia, and terminate in Ceyhan, Turkey on the Mediterranean. Thus, as of mid- 2012, it appears that the original and more ambitious Nabucco plan gasps on life support at best.20

All of the plans and their attendant difficulties associated with Southern Corridor routes do little or nothing for Turkmenistan unless it can solve the problem of getting gas across the Caspian Sea. Establishing the Trans-Caspian pipeline, or some similar route, remains a necessary first step. Russia seeks to frustrate the Trans- Caspian project by lodging two essential objections to a gas pipeline from Turkmenistan to Azerbaijan. First, opponents of this pipeline (largely Russia and Iran) urge that it is environmentally dangerous, claiming that the Caspian Sea is environmentally sensitive and that laying a pipeline might lead to ecological problems. However, the Caspian Sea is unlikely to prove to be more environmentally sensitive than other bodies of water. Further, Russia found no insurmountable environmental impediments to proceeding quickly with its Nord Stream gas pipeline from Russia to Germany under the Baltic Sea or to its Blue Stream pipeline which runs 250 miles under the Black Sea to connect Russia and Turkey. Thus, it appears that this environmental handwringing serves merely as a tactic for frustrating the Trans-Caspian line, rather than expressing a genuine ecological concern.21

A second major, and more serious, difficulty with a Trans- Caspian pipeline stems from an issue regarding the "law of the sea" and turns in large part on whether the Caspian Sea is legally a "Sea" or a "lake." Even as early as 1717 Russia had been pushing into what was then known as Turkestan, with Peter the Great's failed attempt to capture Khiva. In subsequent years, Russia came to command much of the eastern, northern, and western banks as spear-won land. For example, Russia conquered Tashkent in 1865, effectively making modern-day Turkmenistan part of Russia, and Russia possessed the sole rights of Caspian navigation following the Treaty of Turkmanchai in 1828. 22 As Amineh and Houweling point out, there were only two states bordering the Caspian during the years of the Soviet Union, with Iran being the second.23 The dissolution of the Soviet Union gave sudden rise to five Caspian littoral states: Russia, Iran, Azerbaijan, Kazakhstan, and Turkmenistan.

Presently the right of Caspian navigation and exploitation of its resources is subject to international law, but its treatment depends on the status of the Caspian. Russia and Iran have insisted that the Caspian is an inland lake. If so, it would be subject to joint governance by all five littoral states. Azerbaijan has consistently maintained that the Caspian should be subject to the 1982 United Nations Convention on the Law of the Sea. If so, the area of the Caspian Sea should be shared out to the five littoral states for sovereign control of a portion by each nation.24

Russia and Iran want to insist on shared governance to block exploitation of the Caspian energy resources and to frustrate the laying of a Trans-Caspian pipeline. With the huge Shah Deniz gas field lying just 45 miles offBaku, Azerbaijan wants to claim exclusive control of this important resource. If each nation controls its own sectors, Turkmenistan and Azerbaijan could potentially cooperate to lay the Trans-Caspian pipeline transiting only their portions of the Caspian. With such continuing legal uncertainty and geopolitical strife, the parties have been reluctant to start building the pipeline, and the project remains dormant. By contrast, Azerbaijan has simply gone forward to develop the Shah Deniz field, which is currently producing and is under active further development.25 For Turkmenistan, the present situation leaves it unable to export gas to the west and incapable of reaching European or other world markets.

Turkmenistan is also exploring other outlets to the east. Here the major proposed pipeline is the Turkmenistan-Afghanistan-Pakistan- India (TAPI) pipeline. Again, not a single foot of pipeline has been laid, and there are several somewhat different proposed routes for reaching India. Merely to reach the border between Pakistan and India would require a pipeline of about 1,000 miles.26 In addition to the distance, the terrain is very difficult, and the internal political situation of both Afghanistan and Pakistan is precarious, to say nothing of persistent severe tensions between Pakistan and India. Nonetheless, plans are proceeding with agreements being signed by all four countries in December 2010 (the Gas Pipeline Framework Agreement and Inter-Governmental Agreement), followed by an agreement between Turkmenistan and Pakistan over import prices.27

IV. Prospects for Turkmenistan's Natural Gas

As the previous section has indicated, Turkmenistan presently delivers its natural gas to Russia, China, and Iran. However, these outlets cannot absorb Turkmenistan's desired production or make a significant dent in its massive gas reserves.

Turkmenistan delivers only small quantities of gas to Iran and has little prospect of expanding these deliveries significantly. In spite of Iran's poor development of its gas resources, due in part to continuing international sanctions, it does have the world's second largest natural gas reserves. One cannot imagine that Iran will import huge quantities of gas while its own resources continue to lie fallow. The very fact of Iran's large reserves helps to keep Turkmenistan's gas from finding outlets to the south. If Iran could export large quantities of gas, it would be more likely to sell its own production, whether delivered by pipeline eastward to Pakistan and India, or northward and westward toward Europe. Alternatively, a post-sanction Iran might deliver gas to world markets by transporting LNG overseas. There would be little point in Turkmen gas passing through Iran to reach other nations: Turkmenistan has its own direct routes to the east, and presently gas cannot flow out of Iran to the west due to continuing international sanctions. However, even if Iran were willing and capable of serving as a transit country for Turkmen gas, it would collect significant transit fees that might impair the competitiveness of Turkmen gas exports once they reached world markets.

Russia stands perfectly willing to receive Turkmen gas, but to reach Russia, pipelines gas must pass through Kazakhstan, or both Uzbekistan and Kazakhstan, both routes requiring the payment of transit fees. Also, Russia has proved a less than ideal business partner for Turkmenistan. Starting in 2009 Russia substantially curtailed its demand for Turkmen gas due to the worldwide recession and in spite of a standing agreements with Turkmenistan. After Russia closed a pipeline valve, an explosion occurred in April 2009. This led to a worsening of relations, and Turkmenistan's production and its deliveries to Russia fell substantially.28 The two countries have since resumed a more normal level, but this experience signaled the lack of reliability of Russia as a taker of Turkmen gas. While Turkmenistan will continue to deliver gas to Russia, Russia mainly desires discounted gas it can resell to Europe, which makes Russia a much less than desirable partner for Turkmenistan.

By contrast, China presently acts as a quite reliable customer for Turkmen gas, but gas delivered to China through the Central Asia- China pipeline has to face transit fees from both Uzbekistan and Kazakhstan. There is a further potential problem for long-term expanded deliveries to China as well - the prospect of China's exploiting its own shale gas deposits. China's shale resources are about 50 percent larger than those of the United States and it is actively moving to develop them as discussed above. Given the speed of Chinese development in other areas, one must expect China to develop its shale resources very rapidly. If China can replicate the success of the United States in exploiting shale gas, it may not need as much gas as Turkmenistan would like to deliver. Thus, Turkmenistan's present gas customers - Iran, Russia, and China - collectively leave much to be desired.

Turkmenistan's two other prospective routes are also quite problematic. The Trans-Caspian pipeline has little prospect of being built and becoming operational any time soon. First the frustrations of international law and ecological complaints stand in the way of pipeline construction. Further, Azerbaijan has little incentive to move this project along. After all, it possesses its own very substantial gas reserves that are already in the market and being rapidly enlarged. As a consequence, Azerbaijan almost certainly prefers to sell its own gas westward, rather than to collect transit fees from Turkmenistan. Thus, the very presence of large reserves in Azerbaijan acts as an impediment to the deliveries of Turkmen gas through Azerbaijan. Further, the development of shale resources to the west of Azerbaijan, remains a factor that may affect the demand for Azeri gas supplies, with even greater negative effects on the demand for Turkmen gas.

In spite of much talking and signing of agreements, the TAPI pipeline remains a fanciful project. Beyond the great cost of constructing such a pipeline, it is hard to imagine investors coming forward to enter the geopolitical tangle that Turkmenistan, Afghanistan, Pakistan, and India collectively provide.

However, there may be even worse problems for expanding Turkmenistan's gas exports beyond its less than desirable present partners and its dismal prospects of laying new pipelines to reach distant markets. The rapid development of shale resources around the world has already caused natural gas price to plunge below $2.00 for 1,000 cubic feet. Many nations are striving to develop their own shale resources, including, Argentina, Bulgaria, Canada, China, India, Mexico, Poland, Ukraine, and the United Kingdom. As the very initial assessment by the Energy Information Administration indicates, the world's natural gas resources are at least 40 percent larger than previously believed due to the inclusion of just some of the world's shale gas resources.29 The widespread realization of the natural gas revolution holds the promise of making many nations much more selfreliant for their natural gas needs. Such a world likely would make expensive and difficult-to-access natural gas resources, such as those of Turkmenistan, too costly to exploit. In the face of such ample local production around the world, Turkmen gas might face a world without a market for its necessarily expensive gas.

Of course, even in a world fully characterized by a mature natural gas revolution, there will still be surplus and deficit nations. Japan, for instance, with its impoverished domestic energy resources will almost certainly continue to be a major LNG importer. South Korea will also be a significant natural gas importer, so long as potential land-based energy pipelines cannot breach North Korea. Meanwhile countries such as Qatar are already very well placed to deliver LNG to deficit countries, again forestalling the world's need to access Turkmen gas. In short, if the promise of the natural gas revolution reaches fruition, Central Asia in general, and Turkmenistan in particular, will likely find that the world has little need to pay the price of securing their distant and hard-to-reach natural gas resources.

Given the arid climate, poor soil, and geographical isolation of the countries of Central Asia, one might expect the rich energy resources of the region in general, and of Turkmenistan, Kazakhstan, and even Uzbekistan, to provide the best opportunity for raising the standard of living and conditions of life. Of course, there is always the potential problem of a "resource curse" if a nation relies too heavily on extraction of a single type of resource. And there is certainly a great need to address problems of a social nature in these countries. Table 4 provides basic data on the distribution of labor across economic sectors as well as the poverty rate for each nation. All of these countries are characterized by heavy concentration of labor in agriculture with low productivity. The rate of labor force participation in services is surprisingly high for the region as a whole, standing at 42 percent. With a full one-third of the labor force working in agriculture (compared to less than 1 percent in the United States), economic development would most likely occur by moving workers from the agricultural sector to the industrial or service sector. However, across the region it seems unlikely that the service sector can absorb many more workers, so the main industrial hope for the region must lie in the energy sector.

Improving the poor social indicators shown in Table 5 requires economic development. Again, while there is no certainty that economic development in the energy sector would escape the problem of the resource curse, it still seems the best hope for securing economic development. Most likely improving the social indicators and the encouraging the development of civil society (reduced corruption, greater personal and economic freedom, and a stronger rule of law) will require economic development as a precursor.

The developed world has a stake in Central Asia as a major entrepôt and drug producing region. Further, depressed social circumstances, such as those that characterize Central Asia presently, coupled with the rise of militant Islam, provide an ideal breeding ground for anti-Western terrorists. Economic development is the best hope for curing these problems, and the best hope for economic development in the region lies in the energy sector. Nonetheless, as this paper has argued it will be quite difficult for these Central Asian nations to capitalize on their energy riches, due to long distances to international markets, routes to these markets that must transit nations with their own competing energy resources, or routes through politically unstable states. Further, even if Central Asian natural gas can reach world markets, it may find a market characterized by already rich endowments from widely scattered local sources with prevailing prices for natural gas that make Central Asian gas uncompetitive once it finally overcomes its many hurdles and arrives on the world market.

1 For a review of the current energy geopolitical situation, see Robert W. Kolb, "Geopolitical Threats to World Energy Markets," The Journal of Social, Political and Economic Studies, Summer 2011, 36:2, 154-196.

2 For example, a report by Citigroup speaks of the "shale gas revolution" and the death of the "peak oil hypothesis": Citigroup, "Resurging North American Oil Production and the Death of the Peak Oil Hypothesis The United States' Long March Toward Energy Independence," February 15, 2012. See also: Alex Forbes, "The Exciting Future of LNG, and How It Will Transform the Global Gas Market," europeanenergyreview.eu, February 2, 2012; Gas Strategies, "Shale Gas In Europe: A Revolution in the Making?" 2010; Paul Stevens, "The 'Shale Gas Revolution': Hype and Reality," Chatham House, September 2010; and Daniel Yergin, "Stepping on the Gas," Wall Street Journal, April 2, 2011.

3 International Energy Agency, "Are We Entering a Golden Age of Gas?" World Energy Outlook 2011; and Martin Wolf, "Prepare for a Golden Age of Gas," Financial Times, February 21, 2012.

4 Amy Myers Jaffe, "Shale Gas Will Rock the World," Wall Street Journal, May 10, 2010; Amy Myers Jaffe, "The Americas, Not the Middle East, Will be the World Capital of Energy," Foreign Policy, September October 2011; Stephen Moore, "How North Dakota Became Saudi Arabia," Wall Street Journal, October 1, 2011; Tom Gjelten, "The Dash for Gas: The Golden Age of an Energy Game- Changer," World Affairs Journal, January 21, 2012; and Brian Milner, "'Saudi America' Heads for Energy Independence," Globe and Mail, March 19, 2012.

5 U.S. Energy Information Administration, "International Energy Outlook 2011," September 2011, p. 44.

6 U.S. Energy Information Administration, World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States, April 2011, p. 1.

7 U.S. Energy Information Administration, World Shale Gas Resources: An Initial Assessment of 14 Regions Outside the United States, April 2011, p. 2.

8 Of course, LNG can move by truck or rail as well, but those quantities are much more limited than seaborne transit. Also, in addition to being liquefied, natural gas can merely be compressed and shipped by rail, truck or ship. However, compression reduces the volume of natural gas by only about a factor of 100, while liquefaction allows reduction by a factor of 600.

9 Compressed natural gas does have an important role to play. If gas can be piped to a facility and compressed there, the compressed gas can be used as a fuel for vehicles. This is already being done. However, compressing gas and moving it by rail or truck as a substitute for pipeline gas or LNG is not feasible due to costs.

10 For example, see The End of Country, by Seamus McGraw, New York: Random House, 2011. McGraw's book features a personal perspective on the impact of the shale gas revolution on his home town in the Marcellus Shale region of Pennsylvania.

11 Dowran Orazgylyjow, "The Effects of Turkmenistan's New Gas Fields to the World Gas Map," gasandoil.com, March 26, 2009.

12 U. S. Energy Information Administration, "Country Analysis Briefs: Turkmenistan," January 2012.

13 See Martha Brill Olcott, "International Gas Trade in Central Asia: Turkmenistan, Iran, Russia and Afghanistan," Stanford University and James A. Baker Institute, May 2004, especially p. 24.

14 Edward C. Chow and Leigh E. Hendrix, "Central Asia's Pipelines: Field of Dreams and Reality," National Bureau of Asian Research, NBR Special Report #23, September 2010, 29-42; and James Fishelson, "From the Silk Road to Chevron: The Geopolitics of Oil Pipelines in Central Asia," School of Russian and Asian Studies, December 12, 2007.

15 Russia is also promoting other avenues by which Turkmen gas could be directed north to its Gazprom pipeline network. Notably, Russia is pushing for the Pre-Caspian pipeline, which would originate in Turkmenbashi on the eastern shore of the Caspian, run north along the shore, transit Kazakhstan, and terminate in Russia. If Russia could capture Turkmen gas through this means, it would help to frustrate the development of the so-called "Southern Corridor" aimed at getting Central Asian gas to Europe and world markets without falling under Russian control. For a discussion of this Pre-Caspian project, see: Edward C. Chow and Leigh E. Hendrix, "Central Asia's Pipelines: Field of Dreams and Reality," National Bureau of Asian Research, NBR Special Report #23, September 2010, 29-42; Gazprom, "Pre-Caspian Gas Pipeline," no date.

http://www.gazprom.com/about/production/projects/pipelines/pg/. Accessed on April 7, 2012; and Konstantin Simonov, "Russian-Turkmen Relations: Clearing the Way for Gas Pipes," Rianovosti, October 28, 2010.

16 Energy Information Administration, "Country Analysis Brief: Turkmenistan," 2012.

17 The time from groundbreaking to completion was 28 months with the construction started in July 2008 and finishing in December 2009. See CNPC, "Central Asia-China Gas Pipeline," December 14, 2009. The second of the dual lines was completed in late 2010.

18 See Vladimir Socor, "Turkmenistan Starts Construction of East-West Pipeline," Eurasia Daily Monitor, June 8, 2010.

19 For a discussion of the Nabucco pipeline plan and the aspirations for a Southern Corridor, see: Gawdat Bahgat, "The Geopolitics of Energy in Central Asia and the Caucasus," The Journal of Social, Political, and Economic Studies, Summer 2009, 34:2, 139-153; Edward C. Chow and Leigh E. Hendrix, "Central Asia's Pipelines: Field of Dreams and Reality," National Bureau of Asian Research, NBR Special Report #23, September 2010, 29-42; Friedbert Pflüger, "The Southern Gas Corridor: Reaching the Home Stretch," European Energy Review, January 12, 2012; Christophe-Alexandre Paillard, "Russia and Europe's Mutual Energy Dependence," Journal of International Affairs, Spring/Summer 2010, 63:2, 65-84; and Marat Terterov, John Van Pool, and Sergiy Nagornyy, "Russian Geopolitical Power in the Black and Caspian Seas Region: Implications for Turkey and the World," Insight Turkey, 2010, 12:3, 191-203.

20 Naturalgaseurope.com, "'Nabucco West' Heralds the End of the Southern Corridor Vision," March 19, 2012. For a discussion of TANAP and a map of its route, see Naturalgaseurope.com, "Azerbaijan and Turkey: Back to the Drawing Board on TANAP Pipeline?," April 8, 2012, which indicates that even this plan has its own difficulties.

21 For a discussion of the putative environmental problems with a Trans- Caspian pipeline see Friedbert Pflüger, "The Southern Gas Corridor: Reaching the Home Stretch," European Energy Review, January 12, 2012. The following articles discuss the Blue Stream pipeline: Marvin Baker Schaffer, "The Great Gas Pipeline Game: Monopolistic Expansion of Russia's Gazprom into European Markets," Foresight, 2008, 10:5, 11-23; Mamuka Tsereteli, "The Blue Stream Pipeline and Geopolitics of Natural Gas in Eurasia," Central Asia-Caucasus Institute Analyst, November 30, 2005; and Marat Terterov, John Van Pool, and Sergiy Nagornyy, "Russian Geopolitical Power in the Black and Caspian Seas Region: Implications for Turkey and the World," Insight Turkey, 2010, 12:3, 191- 203. For analyses of the Nord Stream pipeline, see: Alexander Ghaleb, "Natural Gas as an Instrument of Russian State Power," Carlisle PA: Strategic Studies Institute, U.S. Army War College, 2011; and Maria Lagutina, "The Nord Stream Pipeline: Energy Security or Energy Dependence? in Thomas Jonter and Ilja Viktorov, editors, Energy and Security in the Baltic Sea Region: Research Papers in International Relations, Stockholm: Edita Västra Aros, 2011, 69-83.

22 Mehdi Parvizi Amineh and Henk Houweling, "Global Energy Security and Its Geopolitical Impediments - The Case of the Caspian Region," Perspectives on Global Development and Technology, 2007, 6, 365-388. See especially p. 370.

23 See Mehdi Parvizi Amineh and Henk Houweling, "Global Energy Security and Its Geopolitical Impediments-The Case of the Caspian Region," Perspectives on Global Development and Technology, 2007, 6, 365-388, for an interesting discussion of this early history.

24 For three treatments of these issues see: Mehdi Parvizi Amineh and Henk Houweling, "Global Energy Security and Its Geopolitical Impediments - The Case of the Caspian Region," Perspectives on Global Development and Technology, 2007, 6, 365-388; Pinar Ipek, "Azerbaijan's Foreign Policy and Challenges for Energy Security," Middle East Journal, Spring 2009, 63:2, 227-239; and Y., M. S. Yahyapoor Zeinolabedin and Z. Shirzad, "The Geopolitics of Energy in the Caspian Basin," International Journal of Environmental Research, Spring 2011, 5:2, 501-508.

25 Energy Information Administration, " Country Analysis Briefs: Azerbaijan," January 9, 2012.

26 U. S. Energy Information Administration, "Country Analysis Briefs: Turkmenistan," January 2012.

27 U. S. Energy Information Administration, "Country Analysis Briefs: Turkmenistan," January 2012. For further analyses of the prospect of the TAPI pipeline, see: Gawdat Bahgat, "The Geopolitics of Energy in Central Asia and the Caucasus," The Journal of Social, Political, and Economic Studies, Summer 2009, 34:2, 139-153. Ariel Cohen, Lisa Curtis, and Owen Graham, "The Proposed Iran- Pakistan-India Gas Pipeline: An Unacceptable Risk to Regional Security," Heritage Foundation, May 2008; John Foster, "Afghanistan, the TAPI Pipeline, and Energy Geopolitics," March, 23, 2010. Available at: tp://www.ensec.org/; Marie Lall, "India's Gas Pipeline Efforts: An Analysis of the Problems That Have Prevented Success," National Bureau of Asian Research, NBR Special Report #23, September 2010, 43-54; and Christina Lin, "The New Silk Road China's Energy Strategy in the Greater Middle East," Washington Institute for Near East Policy, April 2011.

28 Kathrin Hamm, Nate Rawlings, Tsuyoshi Shiina, Natalia Vazhenina, Jesse Walter, and Jared Williams, "Turkmenistan Natural Gas Outlook 2020: The Chinese Connection," no date, available at:

http://www.sipa.columbia.edu/academics/workshops/documents/RANDTheFi nalCopyIII.pdf. See p. 31.

29 U.S. Energy Information Administration, International Energy Outlook 2011, September 2011. See p. 3.

[Reference]

References

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[Author Affiliation]

Robert W. Kolb*[dagger]

Loyola University Chicago

*A ddress for correspondence: bobkolb@me.com.

[dagger] I wish to express my appreciation to my graduate assistant Yue (Rachel) Qiu for her assistance in preparing some data and tables for this project. Also, the maps that appear in this paper were prepared by Ira Liss of Boulder, Colorado.

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