EU gas demand
The European countries strongly rely on natural gas for industrial processes, power generation, and domestic usage. According to the Ten Year Network Development Plan 2013 (TYNDP), the overall consumption is assumed to grow by 1% in each year of the next decade. Especially the gas-based energy generation is anticipated to grow due to its low CO2 emissions which support the EU’s ambitious climate goals. Simultaneously, the indigenous gas production in the EU is steadily declining. In 2011, imports accounted for about 70% of the consumed gas. The domestic production is expected to drop to 18 to 20% of the demand by 2030. The EU will therefore have to import more than 500 Bcm/y, requiring investments in additional gas transport infrastructure.
Additionally, Asia’s demand for natural gas is expected to increase much faster than Europe’s. Asian countries have already taken measures to benefit from Turkmen gas: China is currently constructing a 4th pipeline connecting Turkmenistan and China. The volumes of Turkmen gas deliveries will then sum up to 65 Bcm/y. Furthermore, there are ongoing negotiations about a pipeline leading to Pakistan and India through Afghanistan with a capacity of 30 Bcm/y. Since Europe is in general a trusted partner and has comparably high gas prices, investments in a connection to Turkmen gas production seem justified and desirable.
Gas potential of the Caspian Region
According to a conservative BP statistical Review, Turkmenistan’s gas reservoirs held 17.5 Trillion cubic meters (Tcm) of proved natural gas reserves in 2013, close to a 10% share of the worldwide volumes and more than half of the amount of the Russian Federation. However, according to estimates by Gaffney, Cline & Associates, “Galkynysh” field alone accounts for over 26 Tcm of natural gas. In 2013, Turkmenistan produced 62.3 Bcm of gas according to BP. Having huge reserves, Turkmenistan is keen to find new export options. 24.4 Bcm of gas were exported to China in 2013, while the rest of the 40.1 Bcm of exported gas was bought by Russia, Iran and former member states of the Soviet Union.
An East-West pipeline with a capacity of 30 Bcm/y is currently under construction. It gathers all major production volumes and thus establishes a reliable production system. It also transfers gas from the production sites in the South-East to the shore of the Caspian Sea enabling trade of Turkmen gas at the nation’s Eastern border. If provided with an opportunity to exports gas to the EU, Turkmenistan will most certainly increase its production, which is still very low compared to its potential value.
Azerbaijan also holds large reserves of 0.9 Tcm according to BP and produced 16.2 Bcm in 2013. However, there are also figures indicating higher numbers and production is going to increase significantly in the near future, when the upgrade of the huge Shah Deniz production site is completed. Azerbaijan will therefore also play a major role in supplying gas to the European market.
These evaluations show that the Caspian region has a huge gas production and export potential.
The value of Caspian gas for the EU
East Caspian and particularly Turkmen gas was in the focus of the EU’s gas supply diversification strategy for almost a decade now. Despite the changing energy market and emerging new opportunities, Turkmen gas still remains the best possibility among all available supply sources capable of causing a remarkable and sizable impact on energy prices while simultaneously enabling the EU to curb carbon emissions significantly in a most economically justifiable way.
Turkmen Galkynysh field is comparable in size and economics of extraction with Qatari-Iranian structure in the Gulf. The first phase of Galkynysh field with a capacity of roughly 30 Bcm/y was drilled in just 3 years’ time and started commercial production in summer 2013. Production on several other developed fields is constrained currently because of the lack of an accessible market. Offshore production by Petronas can be significantly increased in the case that new markets are open.
Caspian gas would increase competition and would simultaneously stimulate gas market growth: predictable, non-volatile and competitive prices and reliability of supply will make gas a better product increasing trust in gas. This will help gas prevail in fuel-to-fuel competition with benefits in carbon emission, stimulating gasification of new areas, and the emergence of new consumers.
Caspian gas appears to be a unique opportunity both in the size and timing of potential supply, as well as the price of gas delivered into the EU. Hence, European interest in opening the sizable trade matches with the natural interest of East Caspian suppliers not to miss the opportunity of establishing the most predictable and beneficial trade partnership available in the vicinity.