RUSSIA TRIES TO LURE AZERBAIJAN INTO ITS ORBIT AND SNUFF OUT THE NABUCCO GASLINE PROJECT
By Bedros Terzian, with permission of Petrostrategies
g/analysis/081103oil.html
Nov 6, 2008
Russia is poised to strike the final blow to the European Nabucco
gasline project, by making the most of its renewed influence in the
Caucasus after the "five-day war" in Georgia. This is part of an
all-out diplomatic drive launched by Moscow, in the aim of luring
Azerbaijan into its sphere of influence. Gazprom’s purchase offer
for the Azeri gas, which in principle is intended for the Nabucco
project, is a central piece in this strategy. If it succeeds, the
Europeans will see the main potential gas source for Nabucco slip
from their grasp. What’s more, if Moscow purchases all of the new
gas that Azerbaijan is planning to produce, as is reportedly its
intention, Baku will have nothing left to sell either to Turkey or
to the gasline projects promoted by Greece and Italy, which also
aim to diversify Europe’s supply sources. Such a scenario would
considerably boost Iran’s chances of emerging as a potential gas
source for Europe, since contributions from other possible suppliers
(Egypt, Iraq and Turkmenistan) appear distant, riddled with obstacles
and inconsequential in a number of cases. But the dispute over Iran’s
nuclear program is hindering the development of relations between
Europe and this country. In any case, if Moscow manages to lure Baku
into its game plan, Europe’s hopes of reducing its dependence on
Russian gas will be crushed for a long time to come. And this would
occur just as Russia–with the support of Venezuela and Iran¬–is
seeking to convert the Forum of Gas Exporting Countries into a "Gas
OPEC", to quote the Iranian Oil Minister.
The most extraordinary outcome of the targeted strengthening of ties
between Baku and Moscow is that Armenia could be asked to pay the
political price.
Russia’s President, Dimitri Medvedev, is apparently pushing hard to
seize concessions from the two parties, especially Armenia, to try to
achieve a solution over the Nagorno Karabagh conflict. The latter is
a small Armenian enclave, which Stalin handed to Azerbaijan in 1921
and which proclaimed its independence at the end of a revolt followed
by a war, which together lasted for six years (1998-2004). Baku
is demanding the "return" of Karabagh, invoking the principle of
territorial integrity; the Armenians refuse this outcome, invoking
the principle of self-determination. Medvedev, who visited the
Armenian capital on October 20 and 21, announced a forthcoming
meeting in Moscow with the Presidents of Armenia and Azerbaijan
which, according to Russia’s Foreign Minister, Sergei Lavrov, has a
"very real chance" of putting an end to this conflict. "There remain
two or three unresolved issues that need to be agreed upon at the
next meetings of the Presidents of Armenia and Azerbaijan", said
Lavrov. The first meeting took place on November 2, 2008 in Moscow
and, according to a joint statement, the two presidents agreed "to
speed up further moves in the negotiating process".
In fact, the conditions that would lead to an acceptable compromise
for the two opposing parties do not appear to have been secured. The
Russians are perfectly aware of this, of course. But, since the war in
Georgia, they have wanted to make the most of the recent low profile
of the US and weak European presence, in order to secure new footholds
in the Caucasus. They want their much publicized efforts to find a
solution to the Karabagh problem to be seen as proof of their good
will, especially towards Baku, but this also implicitly means that,
should such efforts fail, the conflict will not be resolved, or might
even flare up again. For their part, the Azeris are wondering how they
should react. The Georgian war in August revealed, on the one hand,
the limits of the support that the Americans and Europeans can provide
them, and on the other hand, just how far the Russians are prepared to
go when they believe that their most important interests are at stake.
During this mini war, Azerbaijan asked Russia to spare its hydrocarbon
facilities in Georgia: the BTC and Baku-Supsa oil pipelines, the BTE
gasline, the Port of Poti…. No facility was damaged, but bombs fell
not too far away. Which is now providing the Azeris with food for
thought: to use the words of the Vice-President of state-owned oil
firm Socar, why put all of one’s eggs in the same basket, especially
when this basket is so fragile? (PETROSTRATEGIES, October 6, 2008).
For their part, a number of European countries are suggesting that
Azerbaijan should diversify its export routes, by ensuring that the
Nabucco project’s gasline runs through Armenia. Moreover, this would
reduce the length of the line by around 350 kilometers, compared with
the Georgian route, which bypasses Armenian territory. But for Baku,
this solution is only foreseeable within the framework of a solution
to the Karabagh dispute.
Since Moscow wants to buy the Azeri gas itself, the prospect of a
solution to the Karabagh conflict (which Russian diplomats say they
are seeking) could turn out be against the Kremlin’s interests, at
least seen from this angle. In addition, having the Nabucco gasline run
through Armenia would enhance the energy independence of the latter,
which currently relies heavily on Russian supplies.
Baku is not sure which signpost to follow. Is it wise to have
the future Nabucco gasline run via Georgia? What would Russia’s
reaction be if Gazprom (which wants to purchase gas) were snubbed
by the Azeris? Should Baku try to win Russia over while hoping that
Moscow will gradually keep its distance from the Armenians? And then
what’s all the hurry? After all, having just reached its plateau of 1
million b/d, the ACG oil project ensures that Baku will receive very
comfortable revenues up to 2015 at least. Besides, the Italian-Russian
South Stream gasline project, which is considered to be a rival to
Nabucco, has itself been delayed by a few years.
Officially, Azerbaijan is planning to produce 32 bcm of gas in 2014
and 40 bcm in 2017. Its production stood at only 6.3 bcm in 2007 and
is expected to rise to around 11 bcm in 2008. Its Shah Deniz field
currently supplies the BTE gasline (which serves Georgia and Turkey),
and it is the incremental production from Shah Deniz that is being
wooed by both the Russians and the Europeans. This field produced 3.1
bcm in 2007 and 7.7 bcm are expected in 2008. The second development
phase is expected to boost its production to 10-11 bcm. Baku is also
pinning high hopes on the Absheron field, and is currently negotiating
the development of the latter with France’s Total.
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