The recent developments indicate a significant change of priorities in energy trade. In particular, traditionally dominant role of Russia in the supply of Central Asian gas is gradually declining because of the increasing activity of China in the regional pipeline politics.

In addition, there is observed strengthening of Russia-Azerbaijan gas partnership, which can fundamentally undermine Western efforts to create alternative routes for the transportation of gas, bypassing Russia's territory. The current dynamics of diversification of the Azerbaijani and Central Asian gas exports testify predominance of the “eastern vector” in the foreign energy policy of the leading suppliers of natural gas of the Caspian Sea region and Central Asia. This greatly reduces feasibility of Western projects and at the same time strengthens the position of competing projects aimed at long-term binding of Central Asian gas to the Asian (Chinese) market.

Catalyst of significant changes emerging on the energy map of Central Asia is Turkmenistan, the largest producer and exporter of natural gas in the region, who started practical implementation of previously repeatedly declared strategy to diversify its gas supplies. Ashgabat is taking active steps to ensure access to promising markets such as China and increasing volume of its gas exports to Iran.

On December 14, 2009 at the Samandepe deposit, Lebap province of Turkmenistan, was officially opened the Turkmenistan-China pipeline. The launch ceremony was attended by President Hu Jintao, Presidents of countries participating in the project: Gurbanguly Berdimuhamedov, Islam Karimov and Nursultan Nazarbayev. The legal basis of the project is the PSA between Turkmengaz and China's CNPC, signed in 2006 for 30 years. As the source for the pipeline will serve the Samandepe deposit on the Bagtyyarlyk contractual territory on the right bank of the Amu Darya, whose reserves are estimated at 1.3 trillion cu m of gas. The design capacity of the pipeline is 40 billion cu m of gas annually. Until the end of 2009 it is expected to supply 150 million cu m; in 2010 – 13 billion cu m; and its full capacity the pipeline will reach by 2013. According to the plans, Turkmenistan will supply 30 billion cu m of gas, while the remaining 10 billion will give Uzbekistan and Kazakhstan. The total length of the pipeline is 7 thousand km; 185 km of pipeline will go through the territory of Turkmenistan, 500 km – through Uzbekistan, 1300 km – Kazakhstan, 4500 km – China.

It is noteworthy that on December 12 took place the opening of the Kazakh section of the Turkmenistan-China pipeline, which will ensure the transit of Turkmen gas to China. Moreover, it is expected that in the future this transit section will also transport additional volumes of gas to the South Kazakhstan, Zhambyl and Almaty regions of Kazakhstan, in dire need of improving gas supply.
It must be emphasized that the Turkmenistan-China pipeline became the first major gas pipeline, transporting fuel from the region, bypassing Russia's territory. Subsequent increases in load and output at full capacity – in accordance with the plans of Chinese politicians – will virtually mean an end to the era of Russia's monopoly on the Central Asian gas market.

Another new trend around supplies of natural gas from the region to external markets is increase of export volumes of Turkmen gas to Iran. Early January 2010 there was launched the second branch of the Turkmenistan-Iran gas pipeline with a capacity of 12.5 billion cu m, originating from the Dovletabad field, which also serves as a raw materials base for supplies to Russia. The first branch of this pipeline delivers annually about 7 billion cu m of gas. According to plans, the parties intend to bring the total volume of supplied Turkmen gas to Iran up to 20 billion cu m at the expense of doubling the load of the first branch and an additional 6 billion cu m through the launched new branch of the Turkmenistan-Iran gas pipeline. In addition, the parties expressed their conviction that this figure does not reflect ultimate possibilities of existing potential in mutual gas trade.

In the light of these events significantly loses its relevance the northern route (Russia), once strategically important for Turkmen gas supplies. If current trends continue, Russia might go down to the third place in the list of the largest buyers of Turkmen gas after China and Iran.

As is known, after the damage at the CAC-4 in April last year Turkmen gas supplies to Russia were completely suspended. Despite the fact that the technical problem at the pipeline was quickly removed, negotiations on resumption of gas trade continued until the end of 2009. Following a sharp decline in exports the volume of gas production in the country in 2009 amounted to 38 billion cu m compared with 70 billion cu m in 2008. In addition, last year, the total volume of Turkmen gas exports amounted to just over 16 billion cu m, 11 billion cu m of them was delivered to Russia, 5 billion cu m – to Iran. For comparison, in 2008 export of Turkmen gas was 47 billion cu m. According to estimates of some experts, in 2009 Turkmenistan lost at least a quarter of its annual GDP – from $ 7 billion to $ 10 billion.

These circumstances, namely, a sharp and significant reduction in export earnings, forced the Turkmen government to shift the focus in the foreign gas trade and offset the considerable decrease of Russia's share in Turkmen gas exports, as it was already indicated above, at the expense of Chinese and Iranian markets. "Chinese prospect" taking into account the Beijing's increasing demand for natural gas and its overland delivery routes is a very attractive option for Ashkhabad in terms of long-term reliable and stable Turkmen gas supplies in large volumes.

Moreover, the Chinese involvement in Central Asian gas market is striking a certain blow to rivals in the face of Russia and West, who are interested in promoting their own pipeline projects (the European Nabucco and Russia's the East-West and Pre-Caspian gas pipelines). At one of the largest gas deposits in the world – South Iolotan – operate China's CNPC and a number of other companies, among which there is no Russian company. Therefore, it is difficult to talk about the prospects of Russia's East-West project on connection of this deposit with the Pre-Caspian gas pipeline project, designed to transport additional volumes of Central Asian gas to the north. Given the planned reduction of Gazprom's purchases of Turkmen gas, for an indefinite period are also postponed plans to modernize the CAC pipeline to increase its capacity from 45 to 80 billion cu m of gas per year. A similar situation is observed around the western Nabucco project: the Chinese factor greatly complicates feasibility of the project, and there is no sense to rely on extra/free volumes of Turkmen gas for the proposed Trans-Caspian pipeline.

However, it is not quite correct to consider China a perfect partner of Turkmenistan in all aspects of gas trade. According to experts, the price factor in the Turkmen-Chinese gas interaction is less attractive than, say, in the cooperation with Gazprom. It should be noted that the official price for the supplied Turkmen gas to China has not yet been announced, and according to the experts, it might vary between $ 60 and $ 150 per thousand cu m. It must be mentioned that before the accident on the CAC-4, Russia paid more than $ 350 per thousand cu m of Turkmen gas. In addition, to its full capacity the Turkmenistan-China pipeline comes at least in 3 years, and until that time the Turkmen budget might suffer serious losses. Just the very question of price could serve as a powerful argument for Moscow during the negotiations with Ashgabat on resumption of supplies of Turkmen gas to Russia and their advantageous outcome in favor of the first.

Thus, on December 22, President Dmitry Medvedev paid a working visit to Turkmenistan, during which the parties reached agreement on new conditions of Russian-Turkmen gas trade. According to sources, in the coming years Gazprom will buy 30 billion cu m of Turkmen gas, rather than 80-90 billion cu m, as it was implied by previous bilateral agreement from 2003. Besides, in 2010 the volume of purchases by Gazprom will be 11 billion cu m.
Significant reduction in imports Gazprom motivates effects of the global financial crisis, coupled with falling demand and prices for natural gas. However, Gazprom agreed to pay for purchased volumes of Turkmen gas at an average-european price, which, according to some estimates of experts, will make up not less than $ 200 per thousand cu m. Thus, the main result of the negotiations was the resumption of deliveries of Turkmen gas to Russia from 2010.

According to some experts, establishment of strong "gas contacts" with partners such as China, Iran and Russia, whose volumes of supplies, according to the plans, each year will go on increasing, allows Turkmenistan to fully realize its export capacity without feeling acute need of additional markets for its gas sales in the near future. This situation is definitely not conducive to the long-awaited beginning of the practical steps for the construction of the western Nabucco pipeline.

Regarding Nabucco it should be noted that recent developments indicate a rather unfavorable situation evolving around the prospects of this project. It is about Azerbaijan – a crucial actor in the fate of the project – which, according to the recent reports, intends to supply its entire exported gas to Russia. So, in October 2009, Gazprom signed a contract to purchase 500 million cu m of Azerbaijani gas in 2010, and in late December it was reported that the parties agreed to double this figure. In addition, in early January 2010 Gazprom CEO Aleksey Miller said that company is going to buy the entire exported Azerbaijani gas, while noting that the bilateral treaties with SOCAR do not specify quantity threshold of Azerbaijani gas supplies to Russia. It should be noted that the source of supply will be the Shakh-Deniz offshore field with reserves of 1.3 trillion cu m, which is also seen as a resource base for Nabucco. According to experts, "gas approximation" of Azerbaijan and Russia is taking place, first of all, in the light of serious disagreements between Ankara and Baku on the conditions of transit of Azerbaijani gas via Turkey: Baku is not satisfied with the low prices offered by Ankara for the transported gas. Experts also see in the Russian-Azerbaijani rapprochement kind of a demarche of Azerbaijan against the United States and Europe in the context of activization of Turkish-Armenian relations, which are not developing without the participation of the West.

Thus, China, Iran, Russia and Azerbaijan, today, are the main movers of the new tendencies in the energy field of the Caspian Sea region and Central Asia. Along with the diversification of supply routes and certain changes in the patterns of bilateral gas trade, the incipient trend carries visible signs of establishment of new "energy positions" and drawing appropriate geopolitical contours in the region.

Azam Isabayev
Expert of the Center for Political Studies