ISTANBUL: The fight for Caspian gas

The fight for Caspian gas
by Amanda Paul

Some two weeks ago the European Commission announced that the European
Council had given the green light for it to act as negotiator for
talks between Azerbaijan and Turkmenistan on the construction of a
Trans-Caspian-Pipeline (TCP).

The pipeline, once built, would transport significant amounts of gas
from Turkmenistan across the Caspian to Azerbaijan and then on to
European markets.

If successful it would strike a significant blow to Moscow, as its
near monopoly over the EU gas market would crumble in front of its
eyes, while its highly ambitious South Stream project, which is little
more than a political project, would be dead.

Such a development would also open the way for the mammoth
Western-backed Nabucco natural gas pipeline. Nabucco aims to bring
some 31 bcm of natural gas from the Caspian region to Central Europe,
across Turkey.

The realization of the TCP could also help Ukraine. With South Stream
dead and gas flowing westwards from the Caspian, bypassing Russia,
Ukraine would find itself with a much stronger hand to negotiate gas
prices and transit terms with the Russians.

Not surprisingly, the Russians are far from happy, claiming in a
statement released by the Foreign Ministry that the EU should `not
meddle’ in Russia’s backyard and that the EU is totally ignoring the
legal, environmental and geopolitical situation of the Caspian.
Perhaps somebody should remind the Russians that while we know of a
homeland policy and a foreign policy, there is no such thing as a
`near neighborhood’ policy. However, one can expect that Russia will
do whatever it can to stop an agreement being reached. Azerbaijan has
not surprisingly been rather quiet on the issue, rather saying it is
ready to be a transit state but it is up to Turkmenistan and the EU to
resolve all the relevant legal issues. The last thing Azerbaijan will
want is a confrontation with Moscow, not least because of the
significant role Russia plays in the resolution of the
Nagorno-Karabakh conflict with Armenia, Russia’s closet ally in the
region. And of course it is not just Russia who is worried. Iran is
also opposed to this pipeline. The Iranians still believe that soon
the West is going to see that they cannot be successful in their
energy diversification projects without Iranian gas.

While life would certainly be easier if the EU were able to access
this gas, the current political situation over Iran’s nuclear program
does not allow this. Problems with Tehran are not desirable. For most
of 2011 relations between the two have been quite tense, hitting a
particularly `hot’ moment in August when Baku put Movsum Samedov, the
leader of the openly pro-Iranian Islamic Party of Azerbaijan (IPA), on
trial for anti-government activity. This resulted in the chief of
staff of the Iranian Army, General Hassan Firouzabadi, making some
unpleasant comments about the Aliyev leadership. Given that Iran is
home to some 20 million Azerbaijanis, increased tensions and
instability within this community could have serious implications for

Furthermore, while the EU is focused on getting things `sorted’ in the
Caspian, there is another element which could negatively affect plans,
namely Turkey. Turkey, which aspires to be the world’s biggest energy
hub, is playing hardball with Azerbaijan. In 2009 Azerbaijan requested
a review of gas export prices and transit terms. Negotiations should
have finished some time ago but there is still no agreement on transit
fees. Turkey wants it indexed to gas prices, which Azerbaijan is not
happy about.

I can remember being at conference over a year ago on EU energy
security when Turkey was told not to overplay its hand. Ankara has
always been confident that it represents the only route for Caspian
gas to Europe without going via Russia. A crucial meeting is due to
take place between the two sides at the end of this month. A failure
to reach an agreement risks delaying (again) the development and sale
of gas from Azerbaijan’s Shah Deniz II field which is currently due to
go on-line in 2017. This would be disastrous for the three EU
competing projects (Nabucco, Trans-Adriatic-Pipeline, and ITGI). Not
surprisingly, Baku has been getting fed up and has in the meantime
been quietly working on alternative options to get its gas to the
European market.

Azerbaijan’s best alternative is the Azerbaijan-Georgia-Romanian
Interconnector (AGRI). Indeed it is the only route that allows the
direct delivery of Azerbaijani gas to the EU market without either
Turkey or Russia, although it would be more expensive. It would take
the form of a pipeline to the Georgian town of Kulevi, where it would
be transformed into Liquefied Natural Gas (LNG) and shipped to Romania
to a re-gasification plant. Not surprisingly, Ukraine is also keen to
get in on this project and Kyiv has been having serious discussions
with Baku on LNG imports with a terminal to be built in Odessa.

With Russia, the EU and Turkey battling it out and Azerbaijan holding
the pot of gold, the coming weeks are certainly going to be exciting.

From: A. Papazian

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