Since the Soviet Union’s collapse in 1991, Central Asian regional natural gas production has been characterized by modest annual increases from Uzbekistan, and by a collapse (then partial recovery) from Turkmenistan. After 1991, these fluctuations occurred because Turkmenistan was locked in pricing disputes with Russia and other countries until 1998 which resulted in Russia cutting access to its pipelines. Since all of the pipelines connecting the region to world markets were owned by Gazprom, Russia’s state owned gas company, and routed through Russia, Turkmen natural gas was squeezed out of the market. As a result, Turkmenistan's ability to attract investment for existing field development disappeared. The country's output dropped throughout the 1990s, from 2 trillion cubic feet (Tcf) per year (57 Bcm/y) in 1992 to 466 billion cubic feet (Bcf) per year (13 Bcm/y) in 1998. In 1999, a Turkmen-Russian agreement took hold, and in 2000, production skyrocketed to 1.6 Tcf/y (47 Bcm/y) before reaching an estimated 2.2 Tcf/y (63 Bcm/y) in 2006, placing the country as the second largest gas producer after Russia in the former Soviet bloc. In May 2007, chairman of Turkmengaz, Yashygeldy Kakayev, said the country’s energy strategy is to almost double gas production to 4.2 Tcf/y (120 Bcm/y) in 2010 and more than triple production to 8.48 Tcf/y (240 Bcm/y) by 2030. In early 2008, the Turkmen government announced that it plans to produce 2.6 Tcf/y (73 Bcm) of gas in 2008.

Turkmenistan has proven natural gas reserves of approximately 100 Tcf (2.83 Tcm) at the end of 2007, up from 71 Tcf (2 Tcm) in 2006 according to the Oil and Gas Journal. This reserve level ranks Turkmenistan among the top 12 countries in terms of natural gas reserves. Turkmenistan contains several of the world's largest gas fields, including 10 with over 3.5 Tcf of reserves located primarily in the Amu’Darya basin in the east, the Murgab Basin, and the South Caspian basin in the west. All major gas fields in Turkmenistan have been producing for more than a quarter century and are exhibiting signs of natural depletion. Most of the gas available for future exploration and development is sour gas which poses challenges for state-owned Turkmen firms as well as foreign investors.

The Turkmen government wants to produce offshore associated gas reserves from its section of the Caspian Sea. Some sources such as Heren Energy and Western Geophysical (US) estimate recoverable offshore reserves are over 210 Tcf (6 Tcm). Berdymukhammedov is in discussions with major companies such as Chevron, Total, Shell, Lukoil, Gazprom, Itera, and BP to explore and develop Turkmenistan’s part of the Caspian shelf. Petronas, which has an oil and gas PSA with Turkmenistan for the Diyarbekir field (Block 1), estimates that the field has 5.3 Tcf (150 Bcm) of reserves with production levels of up to 353 Bcf/y (10 Bcm/y) for 20 years, according to RPI Research. Also, Dragon Oil has 3.5 Tcf (100 Bcm) of gas reserves in the Cheleken field. A Russian consortium (Rosneft, Itera, Zarubezhneft) anticipates signing a PSA with Turkmenistan to develop several Caspian blocks.

The Dauletabad field, located in the Amu‘Darya basin and which held about 60 Tcf (1.7 Tcm) of gas before being brought into production in 1982, has been deemed one of Turkmenistan’s largest fields. In 1997, reserves at the field were independently certified at an estimated 25 Tcf (0.7 Tcm) by the U.S.-based consultancy, DeGolyer and McNaughton. In 2005, the firm was hired by the Asian Development Bank (ADB) to re-assess the field's reserves and its ability to support a Trans-Afghan pipeline project. The results have never been released publicly causing uncertainty for potential foreign investors.

In November 2006 and March 2007, Turkmenistan announced the discovery of the South Yolotan and the Osman fields, respectively. These fields are possibly a single geological field and located in the southeastern Murgab Basin, north of the Dauletabad field. Former President Niyazov asserted that South Yolotan was the largest field in the world with reserves of 240 Tcf (6.8 Tcm); however, most analysts believe this number to be significantly exaggerated. The reserve levels for both fields are extremely speculative. According to IHS, in 2006, Turkmengaz officially booked 1.4 Tcf (39.6 Bcm) of in-place gas reserves in South Yolotan. As reported in January 2008, Turkmenistan’s state energy company is in discussion with an international company to perform audits of the Yolotan and Osman energy deposits. An affiliate of CNPC was awarded a $151 million 3-year drilling contract for 12 wells in South Yolotan in late 2006. Also, CNPC signed a PSA with Turkmenistan in July 2007 to develop the Turkmen sector of the Amu’Darya Basin including the Bagtiyarlyk field. CNPC anticipates transporting up to 1.1 Tcf/y (30 Bcm/y) of gas from these fields to a proposed pipeline traversing Central Asia to China starting in 2009.  

Uzbekistan has maintained natural gas production growth by avoiding Russia’s pipeline system and by concentrating on the domestic market and exports to immediate neighbors. Holding estimated natural gas reserves of 65 Tcf (1.8 Tcm) according to Oil and Gas Journal, Uzbekistan is the third largest natural gas producer in the FSU (after Russia and Turkmenistan) and one of the top fifteen natural gas-producing countries in the world. Uzbekistan produces natural gas from 52 fields with 12 major deposits, including Shurtan, Kokdumalak, Gazli, Pamuk, and Khauzak, accounting for over 95 percent of Uzbekistan's natural gas production. These deposits are concentrated in the Uzbek side of the Amu Dar'ya Basin in the southeast and in the Ustyurt plateau in the western part of the country.

Since becoming independent, Uzbekistan has increased its natural gas production by nearly 40 percent, from 1.5 Tcf/y (42 Bcm/y) in 1992 to 2.1 Tcf/y (60 Bcm/y) in 2005. In 2006, Uzbek natural gas production increased to nearly 2.2 Tcf/y (63 Bcm/y). Uzbekistan's natural gas fields were heavily exploited in the 1960's and 1970's by the Soviet Union, and as a result several older fields, such as Uchkyr and Yangikazgan, are beginning to decline in production. In order to offset those declines, Uzbekistan is speeding up development at other fields, such as Garbi and Shurtan, as well as developing new fields and exploring for new reserves.

Similar to Turkmenistan, Uzbekistan’s gas sector suffers from deficiencies of pipeline infrastructure in the region. Uzbekistan consumes a majority of its gas, and there are losses on the system due to pressure declines since the 1990s. Also, according to estimates from a World Bank commissioned study conducted by the National Oceanic and Atmospheric Administration’s (NOAA), Uzbekistan currently flares nearly 105 Bcf/y (3 Bcm/y), 5 percent of reported production levels. Although Kazakhstan now flares three times the amount of gas as its Central Asian neighbor, Uzbekistan ranks as one of the top 20 gas flaring countries.

Uzbekistan has signed several accords and PSAs with Russian and Asian companies. After resolving a dispute, Soyuzneftegaz (Russia) signed a new 36-year PSA with Uzbekneftegaz in February 2007 and intends to invest $462 million for development of gas fields in the Ustyurt plateau region and the Southwest Gissar blocks. In February 2008, Lukoil, another Russian energy company, acquired a controlling interest in this PSA and targets 106 Bcf/y (3 Bcm/y) of production. Gazprom has been getting more involved in revamping old fields in Uzbekistan and plans to boost natural gas exports from the country. Gazprom and Uzbekneftegaz signed an agreement on strategic cooperation in 2002 in which the Russian company plans to purchase long term Uzbek gas exports and participate in PSAs. In December 2006, Gazprom received exploration licenses from Uzbekneftegaz to develop 7 gas blocks with combined reserves of 35 Tcf (1 Tcm). Gazprom expects to invest $400 million by 2011 and $1.5 billion over the contract life. The companies will pump between 480 and 580 Bcf/y (13.6 and 16.4 bcm/y) of gas from the fields. In 2004, the two parties signed a $15 million, 15-year PSA to develop the Shakhpati field in northwestern Uzbekistan. The field has an estimated 272 Bcf (7.7 Bcm) of reserves. Lukoil, another Russian energy company, signed a 35-year, $3 billion PSA with Uzbekneftegas in June 2004 to develop the Khauzak and Kandym natural gas deposits, estimated to hold roughly 8 Tcf (250 Bcm) of natural gas. The company hopes to begin producing around 210 Bcf/y (6 bcm/y) beginning in 2011.

Asian companies such as Petronas are also part of a consortium including Lukoil, CNPC, and South Korea’s KNOC to explore Uzbekistan’s sector of the Aral Sea and central Ustyurt plateau. The parties signed a 35-year PSA in late 2006 and estimate reserves at roughly 14 Tcf (0.4 Tcm). Also, Daewoo International (Korea) signed a contract in 2008 to operate fields in northwestern Uzbekistan for 5 years. China signed an accord with Uzbekneftegas in May 2007 to participate in a joint gas exploration project in the eastern Namangan province.

In 2006, Turkmenistan exported approximately 1.66 Tcf/y (46 Bcm/y), most of which are contracted to Russia (around 1.4 Tcf/y (40 Bcm/y) and subsequently sold to Ukraine. After a pricing dispute which halted Turkmenistan's natural gas exports in late 2004, Turkmenistan re-negotiated the quantities and prices of its natural gas exports to Russia and Ukraine. Turkmenistan's September 2006 agreement with Russia guarantees initial natural gas exports of 212 bcf/y (6 Bcm/y) in 2005, increasing to 1.8 Tcf/y (50 Bcm/y) in 2007 and up to 2.8 Tcf/y (80 Bcm/y) from 2009-2028. The exact volumes in the agreements are not transparent, although press reports indicate deliveries to Gazprom (Russia) will range from 2.1-2.5 Bcf/y (60-70 Bcm/y) in 2009, 1.5-1.8 Bcf/y (42-51 Bcm/y) of which will go to Ukraine. Turkmenistan is not supplying gas to Ukraine directly in 2006 but rather to RosUkrEnergo, the intermediary in the Russia-Ukraine gas deal reached in January 2006. The company has already signed contracts for 1.5 Tcf/y (42 Bcm/y) of gas with Turkmenistan, 300 Bcf/y (8.5 Bcm/y) with Kazakhstan, and 247 Bcf/y (7 Bcm/y) with Uzbekistan for 2007. In November 2007, Gazprom agreed to raise the price it pays for gas imports from Turkmenistan to $3.68 per Mcf ($130 per Mcm) and $4.25 per Mcf ($150 per Mcm) for the first and second half of 2008, respectively, representing a 50 percent increase from the 2007 price level. Gazprom passed on this price increase to Ukraine in late 2007.

The remaining exports go to Iran. Iran’s imports from Turkmenistan were 212 Bcf/y (6 Bcm/y) in 2006 according to the National Iranian Gas Company. By 2008, Iran is slated to increase these gas imports to 494 Bcf/y (14 Bcm/y). Iran and Turkmenistan have held price negotiations, but Iran continues to pay $2.12 per Mcf ($75 per Mcm), about half of what Russia now pays for Turkmen gas. However, the gas dispute between Turkmenistan and Iran in January 2008, when the former cut supplies to the latter, could lead to Iran paying higher prices for Central Asian gas.

Turkmenistan, eager to boost gas exports and hydrocarbon revenues, signed several agreements during 2007 with international parties interested in tapping into its gas reserves and developing pipeline infrastructure to facilitate flows. Based on current agreements signed with various countries, the new Turkmen government envisaged raising gas exports in 2007 by 25 percent to 2.05 Bcf/y (58 Bcm/y) from 2006 levels. However, preliminary estimates of 2007 production are lower than the government’s original goal of 2.8 Bcf/y (80 Bcm/y). Likewise, export volumes could be lower than projected.

In pursuit of new export markets in Asia, Berdymukhammedov renewed the 2006 gas export agreement his predecessor Niyazov made with China. In July 2007, CNPC signed an agreement to transport 1.1 Tcf/y (30 Bcm/y) of gas from Turkmenistan (600 Bcf/y (17 Bcm/y) from the new fields in the Yolotan and 460 Bcf/y (13 Bcm/y) from the Bagtyyarlyk field) for 30 years. This gas import deal with Turkmenistan is linked to a production sharing agreement allowing the Chinese company to develop gas fields in the northeast as well as construct a pipeline across Central Asia to China. PetroChina’s deputy manager of pipelines and gas, Hou Chuangye, recently announced that China intends to pay $5.52 per Mcf ($195 per Mcm) for the gas. This price is higher than the industry expected and could provide Turkmenistan with greater leverage in contract negotiations with other buyers.

Uzbekistan exported approximately 450 Bcf/y (12.7 Bcm/y) during 2006, up nearly 10 percent from 2005. Uzbekistan sends over half of its natural gas exports to Russia and the remainder to neighboring Central Asian states. Uzbekistan serves as a transit point for Turkmenistan's gas exports to Russia, which are pumped through Kazakhstan. The gas enters the Russian territory at the Alexandrov Gay point, the entrance to the Central Asia-Central Russia line. According to Uzbekneftegaz, the country planned to boost gas exports in 2007 to 512 Bcf/y (14.5 Bcm/y), up 14 percent from 2006 levels and hopes to export gas to China after the Turkmenistan to China pipeline is constructed. Uzbekistan plans to upgrade its gas infrastructure and export 565 Bcf/y (16 Bcm/y) by 2014 according to Asia Pulse (June 30, 2006). Following suit with neighboring Turkmenistan, Uzbekistan raised gas export prices for Russia by 50 percent to $4.25 per Mcf ($150 per Mcm) in the second half of 2008 and for Tajikistan and Kyrgyzstan by 45 percent to $4.11 per Mcf ($145 per Mcm) in 2008. Unlike Turkmenistan, Uzbekistan consumes a high percentage of its gas production for domestic use which averaged nearly 80 percent over the past decade. The country has the highest population in Central Asia - 27 million in 2007; therefore export capabilities are limited.

Central Asia's main natural gas export pipeline, the Central Asia-Center (CAC) pipeline, already is routed into the Russian natural gas pipeline system, as is the Bukhara-Urals pipeline. In an effort to diversify export routes, a number of natural gas pipelines originating in Central Asia are under consideration. Central Asia also has a number of internal pipelines, including the Tashkent-Bishkek-Almaty pipeline, to serve natural gas customers in the region. Maximum existing gas export capacity from Turkmenistan and Uzbekistan is less than 3.5 Tcf/y (100 Bcm/y), which is less than the combined current gas production (4.5 Tcf/y or 126 Bcm/y). As both countries seek to increase production and exports, they will need to refurbish existing infrastructure as well as build new pipelines.

The Central Asia-Center pipeline is the key route through which Central Asia exports its gas to Russia and Gazprom’s natural gas system takes gas to European markets. The western branch delivers Turkmen natural gas from near the Caspian Sea region to the north, while the eastern branch pipes natural gas from eastern Turkmenistan and southern Uzbekistan to western Kazakhstan where the branches meet in route to the Russian gas pipeline system. Turkmenistan has been the chief exporter of natural gas via the Central Asia-Center pipeline, and over 90 percent of the country’s natural gas exports on the CAC system transit the eastern branch. Both branches have a combined design capacity of 3.53 Tcf/y (100 Bcm/y); however because of the poor technical conditions, actual capacity is at best 2.3 Tcf/y (65 Bcm/y) according to Global Insight.

In May 2007, Turkmenistan along with Kazakhstan and Russia signed an intergovernmental accord to invest in refurbishing the Central Asian-Center pipeline as well building a new pipeline along the Caspian’s eastern coast via Kazakhstan. Russia plans to reconstruct the western branch and build a parallel pipeline, costing up to US$1 billion, along the Caspian shore to increase system capacity from 141 Bcf/y (4 Bcm/y) to 706-1,060 Bcf/y (20-30 Bcm/y). The agreement would include Uzbekistan in restoring capacity on the deteriorated eastern branch from around 1.77 Tcf/y (50 Bcm/y) back to 3.18 Bcf/y (90 Bcm/y) by 2009. Details on the financial structure of the deals and investment in gas production are still unclear.

This 200 kilometer pipeline was built in 1997 and was the first Central Asia natural gas pipeline to bypass Russia. With a capacity of almost 477 Bcf/y (13.5 Bcm/y), Turkmenistan has been able to supply Iran with roughly 212 Bcf/y (6 Bcm/y) of natural gas per year. The terms of the 25-year contract between the two countries stipulates that 35 percent of Turkmen supplies are allocated as payment for Iran’s contribution to building the pipeline. In February 2007, Turkmenistan installed a new $120 million gas processor to facilitate higher natural gas flows to Iran. At the beginning of 2008, Turkmenistan ceased sending supplies to Iran.

CNPC and PetroChina established the Sino-Turkmenistan Gas Pipe Corporation to construct a 2,582-kilometer, 1,060 Bcf/y (30 Bcm/y) gas export pipeline from the Amu Dar’ya fields in Turkmenistan to Urumqui in western China and the interconnection with China’s West-East pipeline. CNPC signed agreements with Turkmenistan, Uzbekistan and Kazakhstan for this phase of the pipeline. The estimated cost for this project is $14 billion (102 billion yuan), to be solely financed by CNPC. Pipeline construction began in 2007 and is anticipated to come online in 2010. The A construction contract for the Turkmen section of the pipeline was awarded to Stroitransgas, a Russian company.

Lack of maintenance on the CAC caused Uzbekistan to re-open the moth-balled Bukhara-Urals Pipeline in 2001 to transit increasing volumes of Turkmen gas. The pipeline capacity is currently 706 Bcf/y (20 Bcm/y). The modernization cost to re-open the pipeline was around $20 million, and Marubeni (Japan) is slated to participate in a $100 million renovation project for the pipeline.

An additional way for Caspian region exporters to supply Asian demand would be to pipe oil and natural gas south through Iran to the Persian Gulf or southwest to Afghanistan. The Afghanistan option, which Turkmenistan has been promoting, would entail building pipelines across war-ravaged Afghan territory to reach markets in Pakistan and possibly India. With the overthrow of the Taliban government in Afghanistan in December 2001, proposals to build a Trans-Afghan natural gas pipeline have re-emerged. The Trans-Afghan pipeline, also called the Turkmenistan-Afghanistan-Pakistan (TAP) pipeline, would span over 1,000 miles from a point in Turkmenistan to Fazilka (India) on the Pakistan-India border and have a proposed capacity of 700 Bcf/y (20 Bcm/y). Construction cost is estimated at $3 billion or higher. A feasibility study, commissioned by the Asian Development Bank, was completed in 2005. The lack of an international investor, independent verification of Turkmenistan’s gas reserves, and security concerns have kept construction from beginning.

Uzbekistan's main natural gas export pipeline has been the Tashkent-Bishkek-Almaty pipeline which runs through northern Kyrgyzstan to southern Kazakhstan and has a capacity of 159 Bcf/y (4.5 Bcm/y). The pipeline is the main source of natural gas for Kyrgyzstan and southern Kazakhstan. Irregular supplies from Uzbekistan, illegal tapping of the pipeline by Kyrgyzstan claimed by Kazakhstan, and mounting debts by both Kazakhstan and Kyrgyzstan for supplies already received have led to increased tension between the three neighbors in the past.

A proposal to build the Trans-Caspian Pipeline would bypass both Russia and Iran to carry Turkmen gas across the Caspian Sea to Azerbaijan and connect with pipelines en route to Europe. This proposed 30 Bcm pipeline could connect to the South Caucasus pipeline flowing gas to Turkey and then to the planned Nabucco pipeline to southeastern Europe. Despite the May 2007 agreement with Russia and Kazakhstan, Turkmenistan is receptive to advancing both deals. Disputes over Caspian seabed jurisdiction between Turkmenistan and Azerbaijan could complicate the project’s viability.