February 28, 2014

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TSG IntelBrief: Central Asia’s Energy Sector & Influence Shift

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Background

The development of Central Asia’s vast untapped energy resources has become one of the deciding factors in the region’s geopolitical power plays.

The emerging trend in development of resources in Central Asia appears on a steady track to collectively diminish the influence of Gazprom, and by extension, Moscow. Gazprom has already witnessed Kazakhstan’s fast becoming an energy exporter to China and other markets, rendering parts of Soviet-era energy infrastructure ineffective tools of geo-energy policy. Gazprom is equally mindful of Tethys Petroleum’s operations in Uzbekistan and Tajikistan and the potential for the two states to marginalize Gazprom’s status as a key exporter and distributor of Russian gas in the region. Tethys’ forays into Central Asian energy issues have the potential to disrupt the hold of Gazprom over much of Central Asia’s energy sources, and may open up vast energy reserves to Chinese markets, bypassing Russian interlocution. At a time when Russian influence is being challenged in some places—the EuroMaidan movement and Ukraine’s recently toppled pro-Russia President Viktor Yanukovych—Moscow is likely worried about such energy developments further weakening its geopolitical hold over the former Soviet sphere.

Tethys Petroleum is an oil and gas exploration and production company listed on the Toronto Stock Exchange. Focused on Central Asian energy markets, the majority of Tethys' operations are in Tajikistan, Uzbekistan, and Kazakhstan. The company’s Chairman and President, David Robson, is an industry veteran with background in energy markets in Ukraine and the Caucasus.

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Business Strategy

In its approach to energy markets in the region, Tethys is punching above its weight. It enters the markets at a time of fledgling investment legislature and advises local governments in developing legislature for energy investment. The company leverages strategic industry partners, such as France’s Total, benefiting from its advanced technology, and CNPC of China, enjoying its strong financial position.

As an exemplar of its regional operations, in Tajikistan, Tethys has the rights to develop the massive Bokhtar Basin, awarded in June 2013. Considered the company’s crowning achievement and in partnership with Total and CNCP, the Bokhtar Basin covers an area of 35,000 square kilometers with an estimated 28 billion barrels of recoverable oil and 3.2 trillion cubic meters of gas equivalent—twice Norway’s proven natural gas reserves. The reserves in Bokhtar are also part of the larger Amu Darya basin. (The February 3, 2014 IntelBrief covers the geostrategic importance of Afghanistan and energy developments in the Amu Darya basin and the Chinese investments in developing the Afghan part of the Basin.) According to Gustavson Associates, an international oil and gas auditing firm based in Colorado, USA, Tethys will be able to develop capacity to produce six billion cubic meters of gas from the Bokhtar Basin annually, the majority of which could be exported to China and other international customers.

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Impact on Geo-Energy Dynamics

Extra-regional development walks a fine line in involvement in the region’s key energy landscape, and certain outcomes can and will be outside of its control. Uzbekistan and Tajikistan have bitter geopolitical disputes related to water and energy development. Tajikistan imports the bulk of its domestic energy from Russia and Uzbekistan, and faces stiff opposition from Tashkent in its efforts to develop the planned hydropower Rogus dam, which could limit Uzbek access to large quantities of water. The Tajik leadership is also cash-strapped in funding the construction of the Rogus dam. On a number of occasions Tashkent has cut off natural gas and water supplies to Dushanbe—most recently in January 2013.

The Tajik leadership envisions the development of the Bokhtar Basin as strategic leverage that would relieve Dushanbe of its difficulties in funding the Rogus dam, reduce and gradually stop energy imports from Uzbekistan and Russia, and become a net exporter of energy to the hungry Chinese markets. Not only would such a development deal a geostrategic blow to Moscow, it would open a whole new stage for Tajikistan as an emerging player in regional energy and security issues. Dushanbe would be able to impact the direction and outcome of security and energy developments in Afghanistan.

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Geo-Energy and Geo-Strategic Interests

Tethys Petroleum’s business operations take place at the intersection of geoenergy and geostrategic interests of global and regional powers in the hypersensitive region of Eurasia. They are indirectly shaping the dynamics of global rivalries in a region transformed by the global economy, where China aspires to secure its energy future for its ascending economy on the world stage, and Russia struggles to maintain its long-held energy dominance and reassert its leadership role through coercive trade policies.

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• Development of the Bokhtar and the larger Amu Basin reserves will raise Tethys’ international profile and open up new opportunities in the wider Central Asia and the Caucasus

• Tethys will continue to expand in other regional energy markets, perhaps in partnership with CNPC in the southern part of the Amu River in Afghanistan, where CNPC already has operations.

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