Turkmenistan is home to the world's fourth-largest reserves of natural gas, making it an enticing source of gas for Europeans in an increasingly desperate quest to find alternative supplies to Russian gas.

For most of us, Turkmenistan is on the map (if at all) for being central Asia's "basket case" where megalomaniac leaders rename the months of the year after members of their family, and build statues of themselves that rotate to always face the sun. But Turkmen policymakers may be shrewder than they look and, when it comes to the construction of the Trans-Caspian pipeline, the ball may be in their court.

The long wait since 1996

For the last two decades, European leaders have been lobbying intensely for the Southern Corridor gas transit route to bring gas from the Caspian region directly, thus bypassing Russian territory. So far the only source of gas supplies secured for the route has been Azerbaijan, where the final investment decision on the Shah Deniz gas field was signed last December.

But the European trade envoys understand that Azerbaijan has limited capacity to reduce Europe's gas dependence. The real treasure lies on the eastern shores of the Caspian, where Turkmen reserves of 31.3 trillion cubic meters (tcm) are more than three times those of Azerbaijan. The country is home to the Galkynysh field, reportedly the world's second-largest gas field.

In their way, however, lie 300 kilometers of Caspian Sea. The Trans-Caspian pipeline project was first proposed in 1996 in order to bridge that divide, but has been stalled ever since in the face of formidable political and commercial obstacles.

The last time the project was rekindled coincided with the Russia-Ukraine gas dispute in 2006, and in the wake of this year's Ukraine crisis it has once again climbed up the agenda. The subject was raised at the fourth Caspian Summit in Astrakhan on Sept. 29, but discussions ended in stalemate.

Turkmenistan's quest for "permanent neutrality"

Since independence, Turkmenistan has officially pursued a policy of "permanent neutrality," bombastically announced by the capital Ashgabat's "Arch of Neutrality."That is no easy feat with neighbors like Russia, Iran and China.

Neither Russia nor Iran have made a secret of their opposition to the Trans-Caspian pipeline. Both see the project as a threat to their influence in the region, and their arguments against it have rested on a mix of bogus ecological opposition and legal arguments over how to divide the spoils of the Caspian Sea. Russia argues that each of the "Caspian Five," the group of littoral nations, must approve the project before it goes ahead.

Image: Wikipedia

Territorial disputes

Another neighborly dispute Turkmenistan must resolve before a deal is struck is the long-running disagreement with Azerbaijan, through which their gas would pass on the way to Europe. The two countries dispute ownership of the Serdar field (or "Kyapaz" if you are in Baku) in the central "gray area" of the Caspian Sea. The reopening of the Turkmen embassy in Baku in 2008 promised a rapprochement, but the contested field remains an open wound.

China

Since the project was first proposed, a growing allegiance between Turkmenistan and China is shifting dependence away from Russia. Turkmenistan now sends 60 percent of its exports to China along the Central Asia-China pipeline, which was inaugurated in 2009 and has increased its capacity several times since.

So China, with its soaring demand, is a competitor for Europe as a buyer. But how much gas can we expect from Turkmenistan's fields? As it stands, production levels leave little room for substantial exports to Europe.

Transparency of data in Turkmenistan is poor, but according to the latest BP Statistical Review, the country produces 62.3 billion cubic meters (bcm) of gas per year. Accounting for the consumption needs of the country's 5 million citizens, that leaves 40 bcm free for export.

The gas not transported to China is currently divided more or less equally between Russia and Iran. The Turkmen oil and gas ministry has spoken of ambitious plans to increase this figure to 250 bcm by 2030, a goal frequently (and optimistically) revised upward, but an extra 15 bcm has been promised to China by 2016, according to reports.

However even if these projections prove unrealistic, Iran's plans to halt supplies from Turkmenistan may free up further capacity for European exports.

Not a country for the faint-hearted

Turkmen President Gurbanguly Berdymukhammedov

The resources are there to exploit in Turkmenistan, in generous volumes. But the challenging investment environment, with all manner of regulatory and reputational risks and limited private-sector opportunities, has so far put a brake on increases in production.

The current president Gurbanguly Berdymukhammedov, who came into power in 2007 following the sudden death of "Turkmenbashi" (the self-styled "King of the Turks") may look uncannily like his predecessor, but he brought tentative hopes of reform. In 2010 he even took the symbolic step of removing Turkmenbashi's statue from the Arch of Neutrality, but soon backtracked and put him back a year later. The move is seen by his detractors as symbolic of the limited nature of his reforms.

Only the most courageous oil and gas companies venture into the Turkmen market, and none has been able to access the attractive onshore fields, with the exception of China's CNPC. In the past, desperate foreign companies have resorted to financing the translation of the country's bizarre "holy book" the Ruhnamain order to get their foot in the door.

ExxonMobil has been courting Turkmenistan since the late 1990s and has opened and closed offices of its local subsidiary EMEPT as its fortunes rise and fall. But it has failed to sign a deal and keeps a close eye on the development of gas-export routes.

Little change afoot

The Turkmen, courted by so many buyers, are in no rush to place their gas just yet. The biggest obstacle for the Trans-Caspian consortium to overcome, typically, remains unpredictable Russia. Vladimir Putin showed in Ukraine his willingness to interfere in domestic politics when decisions don't go his way.

At this stage it may not in Turkmenistan's favor to enter into a risky alliance with Europe. But Berdymukhamedov is equally wary of a dangerous dependence on China, a country that he and other Central Asian countries arguably fear more than Russia.

Politics aside, Turkmenistan's economists also need to assess whether sales to Europe would be commercially viable once thousands of kilometers of transport have been accounted for, in an uncertain global gas market. Diversification of export routes is a high priority for the Turkmen, and Europe's day may come. But given all of the risks it is not clear that moment has yet arrived.