**AN EYE ON THE OIL& GAS SECTOR IN TURKMENISTAN**

 

by Irina Begjanova

 

Turkmenistan=s abundant oil and gas resources make it acountry to watch in the next millennium. A country of only some 4.9 millionpeople, Turkmenistan borders on Afghanistan, Iran, Kazakhstan, Uzbekistan, andthe Caspian Sea. Its hopes for rapid and lucrative development of its energyresources in the post-Soviet era were dashed by the dearth of export outlets tohard currency markets. In March 1997, Turkmenistan=s only paying export route, through Russia=s pipeline system, was shut down due tononpayment problems with Ukraine, causing a sharp drop in export earnings. TheGovernment of Turkmenistan is now looking to implement several proposed exportpipeline projects and to develop its production and refining capabilities. 

 

**Natural Gas**

Turkmenistan has theworld=s fourth largest known natural gas reservesCafter Russia, the United States, and IranCwith estimated reserves totaling 13-21trillion cubic meters of gas. In 1992, Turkmenistan produced 84 billion cubicmeters (bcm) of gas, but only half of that amount was produced in 1996. Facedwith limited export pipeline options and nonpaying customers, gas productionfell even further in 1998 to just over 13 bcm. A new but small (8 bcm capacity)gas pipeline to Iran, built in 1997, currently enables Turkmenistan to exportabout 3 bcm of gas per year. To increase exports, Turkmenistan is activelypursuing a project to construct a pipeline to Turkey via the Caspian Sea,Azerbaijan, and Georgia, and it is also exploring options for exporting gas toChina and through Afghanistan to Pakistan.

 

**Oil**

Turkmenistan hassignificant oil reserves amounting to 6-8 billion tons. Turkmenistan produced6.3 million tons of oil in 1998 and around 4 million tons of oil during thefirst eight months of 1999. The country=s two oil refineriesCin the Caspian port city of Turkmenbashi and in the town of SeidiCare both in need of modernization. TheTurkmenbashi refinery, where most Turkmen oil is refined to meet domesticneeds, is currently being upgraded. The Seidi refinery, which is currentlyrunning at 6-8 percent of capacity, will also be reconstructed. 

 

**Government EnergyPolicy**

The TurkmenistaniGovernment is looking for foreign investment to develop its oil and gasindustry and export routes to hard currency markets. Eight oil and gas resourceareas have been made available for joint venture projects and productionsharing. The government is also interested in developing offshore oil fields inthe Caspian Sea. An international tender for bidding on Caspian Sea offshoreoil field development was held in 1997. However, an unresolved dispute withAzerbaijan on the Serdar oil field has discouraged the winners of the tenderfrom developing their concessions. Currently, **Western Atlas** (U.S.) isconducting a geological study of the shallow water area and the KarabogazgolGulf of the Caspian Sea. An international tender for the right to explore andproduce oil in the Caspian Sea is expected to be announced by year-end. 

 

The Law on Hydrocarbon Resources adopted in March 1997 provides adetailed legal framework for conducting oil and gas activities in Turkmenistan.Under this law, three types of licenses can be issued on the basis of tenderresults or direct negotiations: an exploration license, an extraction license,and a single exploration and extraction license. Two types of agreements can besigned for oil production: a production-sharing agreement (PSA) and a jointventure agreement. A few foreign companies have already begun operations bysigning PSAs in the oil sector. The government expects more foreign oil and gascompanies to come to Turkmenistan in the near future. 

 

**Foreign Investment Projects**

Thus far, U.S. direct investment in Turkmenistan has not beensignificant. In 1998, **Mobil Oil**, in alliance with **Monument Oil**(Great Britain), signed a production-sharing agreement with the state **Turkmenoil**company and invested more than $40 million in the development of the Burunoil field in western Turkmenistan. In summer 1999, Mobil received a license toexplore the Garashsyzlyk oil field, and planned to increase its investment inTurkmenistan.

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Several other foreign companies have invested in Turkmenistan. Since1996, the Malaysian oil company **Petronas** has invested around $60 millionto explore and develop three offshore oil fields in the Caspian Sea (block 1Cthe Gubkina, Barinova, and Vostochny Livanovafields). The **Chinese Oil Corporation** invested $14 million to restore andoverhaul 30 oil wells. Monument made some investment in 1997-1998, and plannedto invest $55 million in 1999 in the development of the Burun and Garashsyzlykoil fields. Since 1993, **Dragon Oil**, an Irish-registered company whosemajor shareholder is Dubai-based **Emirates National Oil Company**, hasinvested around $125 million in the Larmag Cheleken joint venture withTurkmenoil to develop two offshore oil fields in the Caspian Sea (block IICLam and Zhdanova fields). 

 

On February 19, 1999, the Government of Turkmenistan chose **PipelineSolution Group International** (PSG), a joint venture between U.S. companies **Bechtel**and **GE Capital**, to lead the **Trans-Caspian Pipeline Consortium**(TCP). An agreement concerning the sale/purchase of Turkmen natural gas hasbeen signed between Turkmenistan and Turkey. The TCP will transport natural gas1,800 kilometers from Turkmenistan westward under the Caspian Sea acrossAzerbaijan and Georgia to Turkey. PSG and its 50/50 consortium partner, **RoyalDutch/Shell Exploration**, are expected to arrange financing and manageconstruction of the estimated $2.5 billion project. 

 

**Caspian Finance Center Support**

In 1999, the U.S. **Caspian Finance Center** was opened in Ankara,Turkey, to assist American companies in entering the energy rich markets of theCaspian region. The center is run by three U.S. agencies: the **Trade andDevelopment Agency**, the **U.S. Export-Import Bank**, and the **OverseasPrivate Investment Corporation**. Working with the commercial and economicofficers of the Departments of Commerce and State, the multiagency tradefinance team offers services designed to maintain U.S. commercial interests inthe region and better position U.S. firms over foreign competition. 

 

*To contact the **Caspian Finance Center**, call Deborah Forhan,Director of Business Development for TDA in the Caspian Region, at tel:+90(312)468-6110; fax: +90(312)466-6082; or email: [email protected].*

*For moreinformation on doing business in Turkmenistan, see the 2000 Country CommercialGuide, prepared by the U.S. Embassy in Ashgabat, at **BISNIS Online**www.bisnis.doc.gov/bisnis/country/cntasia.htm#Turkmenistan.*

 

BOX

**SELECTED PRIORITYINVESTMENT PROJECTS IN TURKMENISTAN**

 

1.            Constructionof  a Trans-Caspian gas pipeline(1,800 km) to transport natural gas from eastern Turkmenistan via the CaspianSea, Azerbaijan, and Georgia to Turkey (Erzurum). The projected capacity of thepipeline is 16-30 billion cubic meters (bcm) of gas per year. *Estimatedcost: $2-3 billion.*

 

2.            Upgradingthe Seidi oil refinery (commissioned in 1991) to an overall annual capacity of6 million tons of oil. *Estimated cost: $300 million.*

 

3.            Constructionof a gas and chemical production complex in Seidi with an annual capacity of200,000 tons of polyethylene. *Estimated cost: $800 million*.

 

4.            Installationof gas collector at the 94 km Beshkyzyl-Yelkui-Uchadji route. Estimated cost:$50 million.

 

5.            Developmentof oil fields at Eastern Cheleken, Northern Erdekli, and Southern Kamyshldja. *Estimatedcost: $30 million for each oil field.*

 

6.   Rehabilitation of the Shatut,Ekerem, and Nebitlidje oil fields. *Estimated cost: $50-60 million.*