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IBC’s Turkmenistan Oil & Gas Conference

Malcolm Wicks MP,  Minister of State for Energy
Institute of Directors, London,  17 April 2008

The last few months have seen significant steps forward in UK-Turkmen relations. My own visit to Ashgabat last September was the first by a British Minister for 9 years, during which I had the honour to meet President Berdimuhamedov. I am pleased that this Conference, and the visit of Deputy Chairman Tagyev and his distinguished colleagues, follows so soon after. This is the first high level Turkmen energy delegation to visit the UK, at a time when Turkmenistan is seeking to develop its energy sector more rapidly.

To illustrate the significance, this conference room today is full to capacity. It confirms my own optimism about Turkmenistan’s energy prospects. You wouldn’t be here today unless you shared this optimism.

How can we be so confident of Turkmenistan’s energy potential? Let’s begin by setting the context. I’m sure you are all familiar with the fundamentals of the global energy system.

The International Energy Agency predicts world energy needs growing by 55% between 2005 and 2030; 84% of which is expected to be fossil fuels.

Of course, the UK is committed to moving towards a low carbon economy. But it is clear that hydrocarbons will continue to be an essential part of the global energy mix during and beyond the transition to a low carbon global energy economy. To meet this huge growth in global demand, we need more producers, more production, cleaner technologies and higher investment levels to make the world energy system more robust and efficient. The anticipated Turkmen reserves could prove to be an important new energy source to help meet growing global demand.

Turkmenistan’s integration into global energy system

The global energy system is characterised by increasing integration and a need for countries to work together for mutual benefit. There is clearly a place in this system for Turkmenistan and I believe we can all benefit from the realisation of Turkmenistan’s potential.

Consumers would welcome access to new energy resources, to improve reliability and security of supply. Energy companies can capitalise on new investment opportunities. And perhaps most importantly, if Turkmenistan chooses to play a greater role in global energy markets, this will bring new revenue streams for the country and attract further inward investment. As a result, I think the host country and its people could benefit significantly.

In the Caspian region, we can already see examples of how energy resources and access to international markets can stimulate economic growth. We need only look north to Kazakhstan as an established hydrocarbon producer; or across the water to Azerbaijan, which had first quarter growth last year of nearly 42%.

But I also think it is important that the UK-Turkmenistan relationship is much broader than my own energy remit. We should appreciate how energy growth can stimulate social development.

Further energy development in Turkmenistan will enable the Turkmen people to gain access to additional employment and expertise opportunities. Foreign investors can make use of local knowledge and talents; in return, investors will provide further skills and education support. And it is absolutely right that the host country should get a fair share of the benefits from exploitation of its sovereign resources.

But what is needed to promote such growth in Turkmenistan? Without a doubt, Mr.Tagyev and his Ministerial colleagues is better placed than I to judge what is most suitable for his own country. But I would like to draw on the lessons I learnt from my visit to Ashgabat last September. I signed a Protocol of Intentions with the Minister of Oil, Gas and Natural Resources, Mr Hodjamuhammedov, who is part of the delegation today. The core of that agreement is experience sharing and I believe the UK’s experience as an energy producer is relevant. How have we created the conditions for strong growth and high investment in the energy sector?

I would suggest there are three aspects of government work which underpin sustained energy sector expansion. This is true of any country, but is particularly the case for countries with large growth potential.

First, government must establish a comprehensive and long-term energy policy. Investors expect the government to take this role. Hydrocarbons are a sovereign resource and investors rely on the government to set out clearly how they will be exploited, and the role of state-owned and private companies in their exploitation. This function is crucial in establishing the future direction of the country.

Second, clear and stable regulatory frameworks to enforce such policy. Investors need to be confident that a robust, non-discriminatory legal structure will protect their investments and partnerships. This framework should be underpinned by well-resourced institutions, with a clear remit to implement the government’s policies.

Third and finally, open and well-functioning markets to operate within the framework set by government. A climate of transparency ensures companies can best judge where, when and with whom to invest, and have the freedom to do so. In other words, sound and efficient investment.

With these three elements creating a stable foundation, the government can also be proactive in other ways. For instance, encouraging joint ventures and foreign direct investment can attract the best human and technical capital, thus maximising the benefits to the host country.

Many of these principles are reflected in the UK energy sector: long-term energy policy; a stable regulatory framework; open markets; and strong flows of foreign investment. As a result, …

The private sector plans to invest around £10 billion ($20bn) in storage, LNG import facilities and pipelines in the UK between 2005 and 2010. .

As I mentioned earlier, the world energy system requires more investment. The financial capital and technical expertise of all those in this room, your colleagues and your competitors will be required to satisfy these investment needs. Judging by the high level of interest shown at this conference today, Turkmenistan could also enjoy such investment inflows in the coming years.

I want to highlight another lesson to be drawn from the UK’s changing position within the global energy market. We are becoming more exposed to international energy fluctuations: by 2020, the UK’s gas import dependence will be around 80%. We do not view this as a problem in itself but we have chosen to manage the risks it presents by diversifying our sources of supply.

The UK encourages such diversification, consistent with our Energy White Paper commitment to promote open and competitive international energy markets. We understand the importance of diversification of supply sources, to ensure reliability and resilience.

We believe that diversification is also relevant to Turkmenistan’s potential role as a major producer. A diverse customer base provides flexibility, security and competitive prices. With this in mind, I would suggest that the European market could offer a high-value additional destination for Turkmen gas, to supplement the well-established relationship with Russia, and the new connections with China.

The UK actively supports this proposal for a Southern Corridor gas transit route. We are working closely with Turkey and our EU partners to create the conditions to enable a secure route to market for any Caspian hydrocarbons flowing westwards.

But diversification does not mean that the EU is turning away from its traditional supply partners, who will remain key to Europe’s energy supply.

By 2015, Europe will need to increase its gas imports by 120bcm; by 2030, the projected increase will be 260bcm. So it is clear that there is room for our existing partners to maintain or even expand supply to Europe. Diversification will complement and supplement, rather than replace, current supply sources.

To conclude, I hope I have touched on some of the issues that the subsequent speakers and discussions will examine in more detail.

I would emphasise that there are three key lessons from the UK’s experience as a significant energy producer.

• First, the government has set a stable, overarching policy framework.
• Second, investors have confidence that the framework is applied fairly.
• And third, the institutions that implement these policies are well-resourced, with a clear remit.

The UK’s progress as an energy producer has been long and complex: we have learnt a lot along the way. In the modern world, energy impacts on development and security and it is therefore important for us to share our experience and avoid mistakes, where possible.

Turkmenistan clearly has a bright future ahead for energy growth, with good prospects for attracting inward investment and accessing global markets. I hope the developing UK-Turkmenistan partnership can provide support as this development increases in the coming years.

Thank you for your attention.