beyondbrics

Ask an energy pundit a question about Caspian gas these days and he’ll probably tell you to go think about “frac.”

“Frac” is the buzz word for shale gas, the new game changer on world energy markets that promises to end consumers’ dependence on remote or difficult sources of gas supply.

Shale is good news for energy guzzling countries like the US which has invented new rock fracturing technology making it easier to tease gas out of the ground. But its bad news for traditional gas players – like Turkmenistan – who risk being left behind.

As US shale gas production soared last year, the EU and China launched their own search for frac.

But the shale craze could pose a threat to Turkmenistan which sits on vast conventional gas reserves in the remote deserts of central Asia and needs markets to sell supplies.

Courted by rival foreign gas buyers, Gurbanguly Berdymukhammedov, the leader of Turkmenistan, has sometimes played hard to get. But a rise in global shale production could turn negotiations for conventional gas on their head.

Mr Berdymukhammedov may think frac’s potential is overestimated or he could be burying his head in the sand. His predecessor, the Turkmenbashi, or Father of all Turkmens, swore that Turkenistan’s gas was the best in the world.

This week Mr Berdymukhammedov launched a $2bn project to pipe gas across Turkmenistan to the Caspian Sea that will pave the way for future exports to Europe, or Russia or India.

The East-West pipeline, running 1,000km from a new gas province in the remote east of the country to the Caspian, should be considered Turkmenistan’s “contribution to world energy security,” he said.

As if on cue, the foreign ministry in Ashkabad issued a statement saying Turkmenistan would diversify its gas trade beyond Russia and China and noted the “great promise” of European markets.

“This is a game,” said Valery Nesterov, oil analyst at Troika Dialog, “Turkmenistan is playing one buyer off another.”

But $2bn seems a lot to spend on a game at a time when Turkmenistan’s gas revenues are falling and the market outlook is uncertain.

“Fundamental changes are taking place in global gas markets and will certainly push back in time all remote gas projects be they in Alaska, Siberia or the Caspian,” said Edward Chow, senior fellow at the Center for Strategic and International Studies.

Gazprom halted gas imports from Turkmenistan last year after relations were strained by a mysterious explosion which ruptured the main pipeline linking central Asia with Russia. Trading resumed this year but at a much lower level than before, reflecting falling demand for Russian gas in Europe.

China came to the rescue lending Turkmenistan $4bn to develop new gas fields in exchange for future gas supplies through a new pipeline carrying central Asian gas to the east.

But since then China has jumped on the frac bandwagon signing agreements with US and European majors jointly to develop shale gas. Given China’s expertise in copying technology it may soon have little need for Turkmen gas.