Turkmenistan's gas dependence on China is risky

Subject

Turkmenistan's gas markets.

Significance

On February 4, Russian Gazprom's Deputy CEO Alexander Medvedev announced that his company intended to reduce natural gas imports from Turkmenistan, from about 10 billion cubic metres (bcm) in 2014, to just 4 bcm in 2015. Ashgabat has not reacted officially so far, but a Turkmenistani government source recently characterised Gazprom as an "unreliable partner". Gazprom's move highlights the challenges of Turkmenistan's export diversification strategy, at a time when it is in the process of ramping up gas output to meet growing demand, particularly from China.

Impacts

• Although gas prices have declined since 2014, Turkmenistan's finances are not affected, as it sells gas under long-term contracts.
• Afghanistan's deteriorating security may jeopardise Turkmenistan's gas production, as most fields, including Galkynysh, are in the south.
• Gas exports to Iran are likely to remain stable, as Tehran is incapable of satisfying both seasonal peak and industrial demand in the north.
• China's transition from an economy based on coal to gas will spur future demand for Turkmenistani gas.