Turkmenistan is important to world energy markets because it contains a significant portion of the world's natural gas reserves. It also borders the Caspian Sea which is currently a hot bed for oil and natural gas exploration.

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GENERAL BACKGROUND

Six years after independence from the Soviet Union, Turkmenistan's economic situation remains static. Economic reform has made little headway, with the state continuing to dominate nearly all sectors. Foreign investment in the country remains minimal and Turkmenistan continues to have difficulties attracting new investors. Meanwhile, hopes for riches from natural gas exports have not been realized, and the country remains dependent on Russia for most of its trade. Inflation was at 100% for 1996 and projected to be in double digits through 2002, while the country's currency continued to plummet in value. Finally, the country's political situation has evolved in an extremely autocratic direction under President Niyazov.

One positive economic development occurred on May 13, 1996, when Turkmenistan and Iran inaugurated a 190-mile railway linking the northeastern Iranian city of Mashhad and the Turkmen town of Tedzhen, a stop on the Soviet-era Turksib railway. This will open a new trade route from Europe to the Far East and provide landlocked Central Asia with access to Iran's Persian Gulf ports. In addition, Turkmenistan has been negotiating deals to construct new pipelines to reduce its almost total dependence on Russian pipelines and increase gas exports.

OIL

Turkmenistan contains 1.4 billion barrels of proven oil reserves, with crude production of about 81,000 barrels per day (b/d). In November 1993, Turkmenistan adopted a program which calls for increasing oil production to about 560,000 b/d by the year 2000. Joint ventures most likely will be a key component of this strategy. In March 1996, Oil and Gas Minister Aman Geldy Esenov announced that during 1996 Turkmenistan would pass a new oil and gas law governing, among other things, production-sharing, joint ventures, and profit allocation. Foreign investment has been stymied in part by the absence of a legal framework, with the result that only two energy joint ventures were operating in the country in mid-1996. The new "Law On Hydrocarbon Resources" was signed by President Niyazov in late December 1996, and it represents Turkmenistan's newly found commitment to attracting foreign investment in its oil and gas sectors.

Since the law was adopted, there have been some positive developments. In January 1997, Turkmenistan signed a memorandum of understanding with Monument Oil and Mobil Corp. for the exclusive right to negotiate a new oil production-sharing contract. The deal gives the oil companies the sole rights to a 7,712 square mile area in western Turkmenistan from the Cheleken Peninsula to its southern border with Iran. In a separate deal, Mobil joined Monument in another production-sharing agreement for the Nebit Dag area also in western Turkmenistan. The 771 square mile area near the Caspian Sea contains five producing fields and additional exploration opportunities.

Despite Turkmenistan's commitment to increasing oil production, its oil industry continues to be mired in disputes. In November 1995, Argentina's Bridas Corporation had its oil export license suspended by the Turkmenistan government. The joint venture in the Keimir, Ekpatlaukh, and Chikishlyar oil fields, located in the southern Caspian Sea region, produced more than 15,000 b/d of oil in 1995. In response to the suspension of its export license, Bridas, which has invested around $400 million in Turkmenistan since 1991, took its case to international arbitration over breach of contract. Arbitration was set to begin in Spring 1997.

Netherlands-based Larmag Energy Assets has been frustrated by the same obstacles facing Bridas, including periodic suspension of its oil export license and lack of an export route. Larmag is involved in a joint venture to develop the Cheleken oil field, which produces around 8,000 b/d. Larmag, which already has invested $90 million in the project, is hoping to achieve peak production of 85,000 b/d. During 1995, Larmag exported an average of 6,000 b/d, mainly across the Caspian Sea to Iran, where it is trucked to Persian Gulf ports. In addition, limited amounts of oil were transported to the Black Sea via Russia's Volga-Don canal.

In addition to problems with foreign investors, Turkmenistan is also currently engaged in two separate disputes with Azerbaijan over Caspian Sea oil reserves. The first involves an $8 billion deal between Azerbaijan and British Petroleum to develop three fields in the central part of the Caspian Sea - the Azeri, Chirag, and Guneshli fields. Turkmenistan claims sovereignty over the oil reserves from the Azeri and parts of the Chirag fields while Azerbaijan maintains that the fields lie within its sector of the Caspian Sea. To date, the dispute has not been resolved; however, Azerbaijan is began pumping oil from the fields in late August 1997. The second dispute involves a July 4, 1997 agreement between Russia's Rosneft and Lukoil and Socar, Azerbaijan's state oil company, to develop the Kyapaz field which has estimated crude reserves of 50 million metric tons (363.5 million barrels). The Turkmen government contested the deal as illegal claiming the field, which it calls Serdar, as its own. Following the protest, Rosneft withdrew from the deal, and in a show of support for Turkmen claims, the Russian government annulled the deal in August 1997. Lukoil suspended work on the project pending a settlement of the territorial dispute. Although the dispute continues, Turkmenistan plans to issue a tender for developing offshore oil and gas fields in the Caspian Sea on September 1, 1997. The tender reportedly includes the Serdar field.

The difficulties experienced by Bridas and Larmag and the disputes with Azerbaijan demonstrate why many Western companies have been reluctant to enter the Turkmen energy scene.

Refining

Turkmenistan has two major refineries, located at Turkmenbashi (formerly Krasnovodsk) and Chardzhou. Crude capacity for the two refineries totals 237,000 b/d (116,500 b/d and 120,500 b/d, respectively). Both facilities are currently slated for modernization and expansion to meet the country's planned increase in oil production and demand.

In February 1996, Merhav Corporation of Israel announced the signing of a $500 million deal to upgrade the Turkmenbashi refinery. The project involves construction of a new lube oil facility, as well as upgrades to the refinery's catalytic reforming and catalytic cracking units.

NATURAL GAS

Turkmenistan is the second largest natural gas- producing country in the former Soviet Union. Estimates of its proven reserves range between 98 and 155 trillion cubic feet (tcf). The largest natural gas fields are in the Amu-Dar'ya basin, with half of the country's gas reserves located in the giant Dauletabad-Donmez field alone. In addition to Amu-Dar'ya, Turkmenistan contains large gas reserves in the Murgab basin, particularly the giant Yashlar deposit, which contains an estimated 27 tcf. With the assistance of foreign investors, Turkmenistan is counting on its large natural gas reserves to be the focal point of its economic recovery. For the first nine months of 1996, Turkmenistan produced 957 billion cubic feet (bcf) of natural gas, an increase of almost 20% from the same period in 1995, and exported more than 70% of it. However, Turkmenistan still needs to improve its ability to exploit and export its natural gas reserves.

Two foreign companies -- Bridas of Argentina and Unocal of the United States -- are involved in developing Turkmenistan's gas reserves. Bridas has stated its intention of increasing investment in the country's oil and gas industry from $400 million to $3 billion. Bridas has been involved in Turkmenistan since 1991, during which time it has mainly focused on developing the Yashlar gas deposit in the southeastern Amudarya basin, as well as the Keimir oil and gas field in the southwestern part of the country. Both companies are also involved in plans for a proposed natural gas pipeline through Afghanistan to Pakistan (see pipelines section below). Moreover, in March 1997 a Dutch subsidiary of South Africa - based Bateman Project Holdings signed a $180 million deal to reconstruct and develop Turkmenistan's gas infrastructure.

Debts owed to Turkmenistan for its gas exports continue to be an important problem and continue to hamper its economic recovery. Several former Soviet countries which receive natural gas from Turkmenistan via Russia owe significant amounts of money to Turkmenistan. Ukraine, Georgia, Kazakstan, Uzbekistan, and Azerbaijan combined owe Turkmenistan in excess of $1 billion. In response, Turkmenistan has periodically threatened and at times actually terminated transport of gas supplies to several of these countries. In May 1997 Ukraine and Turkmenistan agreed on a barter deal to satisfy a $200 million debt where Ukraine would receive up to 700 bcf/yr of natural gas from Turkmenistan in exchange for Ukrainian goods and services in addition to partial payment in hard currency. The agreement also changed the delivery terms where Ukraine would purchase gas at the Turkmenistan and Uzbekistan border. Ukrgaz, a Ukrainian gas company, would then ship it across Uzbekistan, Kazakstan, and Russia. However, the deal crumbled by mid-May over a $205 million debt owed to Turkmenistan by gas trader Itera.

Pipelines

Central to Turkmenistan's twin goals of economic growth and political independence are plans to increase natural gas exports, particularly via routes which bypass Russian territory. At present, all Turkmen gas exports must use the Russian pipeline network. Several options to bypass this system are under consideration, but all face potentially large difficulties. One possibility, currently under construction, is a 125-mile pipeline linking gas fields in western Turkmenistan with the gas distribution system in Iran's industrialized north. The $190 million line will enable Turkmenistan to transport gas exports to Turkey and possibly to the rest of Europe. Despite U.S. opposition, the pipeline is on track for completion in October 1997.

A second possibility is a proposed 2,000-mile pipeline beginning in Turkmenistan, winding through Iran into Turkey and eventually continuing on to Europe. The $1.6 billion project would fulfill the terms of a memorandum signed in May 1997 by Turkmenistan, Iran, and Turkey to provide 1059 bcf per year of Turkmen natural gas to Europe via Iran and Turkey. Italy's Snamprogetti, Gaz de France and Royal/Dutch Shell expressed interest in forming a consortium to construct the proposed pipeline, and in a show of support for Turkmenistan and Turkey, the United States announced in July 1997 that it would not oppose the line.

Another possibility is a proposed pipeline stretching from Turkmenistan to Pakistan via Afghanistan. In July 1997, officials from Turkmenistan and Pakistan and representatives from Unocal and Saudi Arabia's Delta Oil signed an agreement to build a gas pipeline from Turkmenistan across Afghanistan to Pakistan. The nearly 900 - mile pipeline is estimated to cost between $2 billion and $2.7 billion and will carry up to 700 bcf of gas from Turkmenistan's largest gas field at Daulatabad to Pakistan where local gas reserves are in short supply. The agreement calls for a consortium to be formed by October 1997 and construction to begin by December 1998. The work is to be completed by 2001. Unocal has also proposed to add a nearly 400 - mile spur to the Indian capital of New Delhi. Despite the agreement, significant obstacles for the pipeline remain. Bridas is poised to take legal action against Unocal and Delta for allegedly conspiring to undermine its efforts to build a Turkmenistan-Afghanistan-Pakistan gas pipeline from its Yashlar field. In addition, war-torn Afghanistan continues to experience new upheavals, and in the absence of a stable government in Afghanistan, it may be years before the project is feasible.

Other natural gas export projects under consideration are a pipeline through China to Japan and an underseas project across the Caspian Sea.

COAL

While Turkmenistan is currently a net importer of coal, plans are being made to develop the Tuarkyrskoye deposit in the northwestern portion of the country. Reserves have been estimated at 800 million tons. Iran is assisting with the feasibility study and in the development of the first section of the deposit which contains estimated reserves of 25 million tons.

ELECTRIC POWER

In early 1996, the Turkmen government reportedly concluded negotiations aimed at gaining $45 million in financing for a major upgrading project on a large power plant near Bezmein, near the capital of Ashkhabad. U.S.-based General Electric Corporation has been awarded a contract for the job.

In February 1995, a new high-voltage power line came into operation in northeastern Turkmenistan. The line between Darganata-Demirgazyk and Northern Balguyi will link the Gazodzhak industrial zone with the entire Turkmen power grid. Construction of a 500kV capacity substation is also underway in the northeast region of Turkmenistan. Besides being able to provide the gas industry-related plants of this region with adequate domestic electricity, Turkmenistan hopes to be able to reduce its imports of electricity from Uzbekistan and eventually to export surplus electricity to its neighbors. At a May 1997 summit meeting of the Economic Cooperation Organization in the Turkmen capital of Ashkhabad, Turkmenistan offered to sell electricity to Pakistan for 2 cents/kwh. Since the two countries do not share a common border, the project would require construction of a 600-mile transmission line across Afghanistan. A feasibility study has already been completed.

COUNTRY OVERVIEW
President: Saparmurat Niyazov (next election 2002)
Independence: October 27, 1991 (from Soviet Union)
Population (1996E): 4.1 million
Location/Size: Central Asia bordering the Caspian Sea between Iran and Kazakstan/188,455 sq. miles, slightly larger than California
Major Cities: Ashgabat (capital)
Languages: Turkmen (72%), Russian (12%), Uzbek (9%), other (7%)
Ethnic Groups: Turkmen (73.3%), Russian (9.8%), Uzbek (9%), Kazakh (2%), other (5.9%).
Religions: Sunni Muslim (87%), Eastern Orthodox (11%)
Defense: Army, Air and Air Defense, Republic Security Forces (internal and border troops), National Guard

ECONOMIC OVERVIEW
Currency: Manat
Commercial Exchange Rate (1996): $1=4,065 Manat
Gross Domestic Product (Purchasing Power Parity) (1995E): $11.5 billion
Real GDP Growth Rate (1996): -4%
Inflation Rate (Consumer prices) (1996): 100%
Exports (1996): $1.6 billion
Imports (1996): $1.2 billion
Major Export Products: Natural gas, cotton, petroleum products, electricity, textiles, carpets
Major Import Products: Machinery, food, plastics and rubber, consumer goods, textiles
Major Trading Partners: Russia, Turkey, Ukraine, Azerbaijan

ENERGY OVERVIEW
Minister of Oil and Gas Industry and Mineral Resources: Batyr Sarjayev
Minister of Energy and Industry: Saparmurat Nuryyev
Proven Oil Reserves (1996): 1.4 - 1.5 billion barrels
Oil Production (1996E): 104,000 barrels per day (b/d) of which 88,000 b/d is crude oil
Oil Consumption (1996E): 65,000 b/d
Crude Refining Capacity (1/1/97): 237,000 b/d
Natural Gas Reserves (1996): 98 - 155 trillion cubic feet (tcf)
Natural Gas Production (1996E): 1.2 Tcf
Natural Gas Consumption (1995): 0.17 Tcf
Net Natural Gas Exports (1995): 0.97 Tcf
Coal Consumption (1995): 0.22 million short tons
Net Coal Imports (1995): 0.22 million short tons
Electric Generation Capacity (1/1/95): 4 gigawatts
Electricity Production (1995E): 9.2 billion kilowatt hours
Electricity Consumption (1995): 7.6 billion kilowatt hours

ENVIRONMENT OVERVIEW
Total Primary Energy Consumption (1995E): 0.28 quadrillion British thermal units (Btu)
Energy Consumption per Capita (1995E): 68 million Btu (vs. 331.8 million Btu in U.S.)
Energy-Related Carbon Emissions (1995): 4.86 million metric tons (0.1% of world total)
Carbon Emissions per Capita (1995): 1.19 metric tons (vs. 5.42 metric tons in U.S.)
Major Environmental Issues: Environmental damage in Turkmenistan results mainly from agricultural development. Both soil and groundwater have been polluted by agricultural chemicals and pesticides. Poor irrigation techniques have resulted in saturation of the soil and a depletion of the Amu Darya river.

OIL and GAS INDUSTRIES
Organization: Turkmenistan's official government agencies responsible for natural gas operations, oil production and exploration are Turkmengaz, Turkmenneft, and Turkmengeologiya, respectively.
Major Oil Fields: Kotur-Tepe, Nebit-Dag
Major Oil Pipelines: 155 miles of oil pipelines are used for exports.
Major Oil Refineries (1/1/97 Capacity): Chardzhou (120,500 b/d); Turkmenbashi (formerly Krasnovodsk) (116,500 b/d)
Major Gas Fields: The Amu-Dar'ya region contains two supergiant fields (including Dauletabad-Donmez) and nine giant fields. The Kopet Dag Trough is the location of additional gas fields.

Links to other sites:
1997 CIA World Factbook - Turkmenistan
U.S. Department of Energy's Office of Fossil Energy's International section - Turkmenistan
BISNIS - the Department of Commerce's Business Information Service for the Newly Independent States

The following links are provided solely as a service to our customers, and therefore should not be construed as advocating or reflecting any position of the Energy Information Administration (EIA) or the United States Government. In addition, EIA does not guarantee the content or accuracy of any information presented in linked sites.

Turkmenistan Information Center
News and Information about Russia, the CIS, and Baltic countries

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File last modified: September 17, 1997

Contact:

Erik Kreil
ekreil@eia.doe.gov
Phone: (202)586-6573
Fax: (202)586-9753