Will Gas and Turkmenistan be the new battleground for Europeand China, as the Russian war on Ukraine opens an open contest for energyresources? 

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European Times, 25 April 2022

The conflict between Russia and Ukraine may lead to the evolution of thegeopolitics of energy in Europe and Asia. In the aftermath of theRussia-Ukraine conflict, energy security for European countries has assumedsupreme importance given the sanctions imposed on Russia, one of the biggestsuppliers of natural gas to Europe. 

The RE Power EU initiative, aimed at strengthening the EU’s energy structurehas three main objectives: (i) increase natural gas imports from non-Russiansources, (ii) enhance the import of Liquefied Natural Gas (LNG) fromnon-Russian sources, and (iii) boost the development of bio-energy &promote production of renewable energy.

While the third objective, which focuses on the development potential withinthe EU, will take time to implement, the first and second aspects refer tomeasures that the EU countries are now implementing at an accelerated pace. Inorder to ramp up their supply of gas, the European countries are lookingtowards Central Asian countries, US, Norway, the Netherlands, Qatar,Azerbaijan, Algeria, Egypt, Nigeria, and Israel. 

The gas supply to the EU from these countries, except from Central Asiancountries, is basically unfeasible. Israel has gas export agreements with a numberof countries and its own gas supply is fragile. Qatar, with its long-termcontracts with many countries, transports only 10 to 15 per cent of LNG toEurope. 

Therefore, given European countries’ accelerating shift away from energydependence on Russia and search for alternative sources of gas supply,Turkmenistan seems to emerge as the primary choice for gas supply to Europe.However, a fierce competition from China awaits Europe. 

China remains the largest buyer of Turkmen gas accounting for over 60percent of pipeline imports in 2019. Payment disputes with Russia and Iranhalted gas flows from Turkmenistan in 2016 and 2017, respectively, leavingChina as Turkmenistan’s only major export market. Meanwhile, Beijing is alsoTurkmenistan’s primary international lender, having provided over US$ 8 billionin loans to develop country’s gas infrastructure. A part of the revenue, whichTurkmenistan receives due to its gas deal with China, is returned to Beijing asa repayment of infrastructure loans. This enables China to have a continuedinfluence on Turkmenistan. Beijing has apparently monopolized exports ofTurkmen natural gas to such an extent that gas has been used as a de-facto formof currency in economic contracts between the two countries. 

Given the current limited gas capacity of Turkmenistan, the supply ofnatural gas to Europe will inevitably lead to a pattern of ‘fighting for gas’,which in special circumstances will threaten the smooth and adequate supply ofnatural gas between China and Central Asia. The cost of China’s gas imports mayalso go up in the wake of increase in price of Turkmen gas due to highdemand. 

Europe’s entry into the Turkmenistan gas market is likely to change existinglocal market rules. Europe would leverage its technological advantage to assistthe country in implementing a ‘gas disguised export strategy’ and extending thegas processing industry chain. Once the EU enters the Central Asian gas market,the United States may follow suit. Therefore, the Central Asian Caspian regioncould face a new round of geopolitical risks, which may negatively impactChina’s political diplomacy, trade and economic investments, etc. 

It will be interesting to watch whether Turkmenistan will divert its gassupplies to Europe, thereby, cutting down on its supplies to China or Beijingwill arm-twist Turkmenistan to apply pressure on Europe. In all cases this isnow an open season for energy supplies, the games have begun.