Turkmenistan Signs its First-Ever Energy Deal with the EU
Author: Haley Nelson
Aug 24, 2023
On August 20 in Budapest, Turkmenistan signed its first-ever deal to supply natural gas to the EU. With Ukraine indicating it won't continue as a transit route for Russian gas to Europe, Hungary is redirecting its focus to the Caspian region for improved energy security and reduced reliance on Russia. However, this transition is exposing constraints in the current energy infrastructure and reviving discussions about the feasibility of the Trans-Caspian pipeline.
After maintaining a history of neutrality and economic isolation, Turkmenistan took a significant stride on August 20by initiating engagement with the global economy as the state signed its first-ever commercial deal on gas export to Europe.President of Turkmenistan, Serdar Berdimuhamedow, and Hungarian Prime Minister, Viktor Orbán, met in Budapest to attend the festivities on St. Istvan's Day, a main Hungarian public holiday. With the celebration in the background of their meetings, the two leaders reached a deal on the import of Turkmen gas to Hungary’s energy sector. Now that Turkmenistan’s political will has been established, the next step will be commercial negotiations.
While Hungary’s Minister of Foreign Affairs, Peter Szijjarto, didn't disclose specific details of the Hungarian-Turkmenistan gas talks, it's anticipated that Turkmenistan will dispatch modest quantities, potentially up to 1 billion cubic meters annually, to Iran through existing pipelines. From there, these supplies will link up with Azerbaijani and Turkish infrastructure, ultimately reaching Hungary. This agreement signifies the EU's first formal support of Turkmenistan's ambition to export its substantial gas reserves to the West.
This deal signifies Turkmenistan’s newfound openness to supply Western markets. However, if Turkmenistan wishes to continue supplying Europe with its vast gas reserves, it must upgrade its Westward export capacity. Iranian pipelines do not have the capacity to move the Turkmen gas needed for Europe’s consumption centers. The full fruition of Turkmenistan’s plans depends on the construction of a 300-kilometer Trans-Caspian pipeline, a proposed subsea pipeline, moving natural gas from Turkmenistan to Azerbaijan through a Caspian Sea route with a capacity of 30 billion cubic meters per year. This pipeline would link to the Baku-Tbilisi-Erzurum (BTE) pipeline and then extend to the Trans-Anatolian Pipeline, a gas pipeline thatconnects to the BTE and flows through Türkiye to Europe.
The Trans-Caspian Pipeline project was first suggested in 1996 by the United States, and numerous working studies were completed before 1999 on the feasibility of the pipeline. The project never progressed past these feasibility studies due to the Turkmenistan Government’s refusal to provide an acceptable investment climate for foreign investors. The last serious attempt to create a TCP ended in 2000. But, since Azerbaijan and Turkmenistan resolved their Caspian Sea demarcation issue in the summer of 2021, the project has received more attention.
While Europe searches for alternative oil and gas providersamid Russia’s invasion of Ukraine, the Trans-Caspian pipeline has again picked up traction, making the recent deal between Turkmenistan and Hungary all the more significant. However, while only purchasing small amounts of Turkmen gas, Hungary cannot justify the cost of building a subsea pipeline to carry Turkmenistan gas across the Caspian.
Turkmenistan only recently expressed interest in the construction of this pipeline, with Turkmenistan’s Ministry of Energy announcing, in late July, that the state is “committed to the strategy of diversifying energy flows” and it “expresses its readiness to continue cooperation with partners in the implementation of the Trans-Caspian pipeline project.”
“The Trans-Caspian pipeline is an absolutely realistic project, justified from an economic point of view, capable of making a tangible contribution to ensuring energy security in Eurasia, providing long-term and uninterrupted access to sources of raw materials for European consumers,” Turkmenistan’sMinistry of Energy statement added.
However, the utilization of Iranian pipeline networks presents its own challenges to European energy security. This development might exert additional pressure on the European Union to lend its support to the construction of a Trans-Caspian pipeline.
In addition to agreements with Turkmenistan, Hungary has also entered into a deal with Azerbaijan's State Oil Company (SOCAR) for the supply of 100 million cubic meters of natural gas by year-end. This agreement encompasses a storage arrangement for 50 million cubic meters of gas. SOCAR has already commenced filling storage facilities in Hungary, as confirmed by Foreign Minister Szijjarto.
This gas could either pass through Türkiye, using the Trans-Anatolian pipeline, which at present carries only Azeri gas from northeast Turkey to the border with Greece, or it could use the TurkStream pipeline, with the onshore extension to Europe passing through non-EU member Serbia. Either way, Hungary will use Turkish infrastructure to diversify its energy portfolio, thereby enhancing Türkiye's role as a regional energyhub.
Hungary aims to reduce its longstanding reliance on Russian gas imports, and as a result, Azerbaijan, Turkmenistan, and Turkey are anticipated to hold significant roles in Hungary’s rearranged energy portfolio. Turkmenistan’s commitment to developing the Trans-Caspian Pipeline, which has been frozen for years, reveals an emerging trend of openness in its economy. Although Hungary lacks the capability to unilaterally upgrade the energy infrastructure connecting Turkmenistan and the western Caspian countries, the growing energy demands underscore the crucial importance of the proposed Trans-Caspian Pipeline. This pipeline gains renewed significance because it has the potential to address Hungary's energy needs.