Pipelines: Reading Azeri Tea Leaves
The competition among European political actors hunting for the natural gas of energy-rich Azerbaijan has become stronger than ever. Political and commercial actors, backing various gas pipeline projects for transporting Azerbaijani gas to Europe, know that the State Oil Company of Azerbaijan (SOCAR) has to make the “final decision” by October 2011—and Azerbaijan keeps them guessing.
During the “Caspian Energy Dialogue” held on the sidelines of the Summer Energy School organized by the Azerbaijani Diplomatic Academy on July 15, head of SOCAR Rovnag Abdullayev stressed that all European pipeline projects have been under consideration. Nevertheless, it seems that two of them have recently increased their chances to win the much desirable prize—Azerbaijan’s gas. The Nabucco and ITGI consortiums have made new proposals to Azerbaijan in order to tempt Baku and persuade it of the attractiveness of their projects. What might Azerbaijan’s answer be?
The attention Europeans gave to Caspian gas was revived in 2006 when the Russian-Ukrainian gas crisis rang the alarm bell, and pushed them to adopt of a firm policy of energy diversification. The Russian-Ukrainian gas crisis in 2009 confirmed the “wisdom of this policy” as one European diplomat stated, because it “badly harmed” the reputation of both actors as reliable partners for Europe.
In these circumstances, Azerbaijan has become a major attraction for Europeans, being the first and only country able to fulfill all their criteria: a net gas exporter with low domestic consumption, situated on the route of the EU-backed Southern Gas Corridor, capable and mostly willing to export its gas to Europe. The beginning of the “gas love story” between Europe and Azerbaijan started delicately with reciprocal visits of their representatives in order to get to know one another, albeit cautiously in order to avoid angering “the Bear”. On January 2011, Baku signed with Brussels a joint declaration on the construction of the Southern Gas Corridor. This moment could be considered the official “engagement” of Azerbaijan with Europe and the institutionalization of their relationship. Unlike other traditional “engagements”, the “future spouse” had to choose among four candidates because there were at least four official “aspirants” for conquering Azerbaijan’s gas, known as: Nabucco, ITGI (Italy-Turkey-Greece Interconnector), AGRI (Azerbaijan-Georgia-Romania Interconnector), and TAP (Trans Adriatic Pipeline).
The Nabucco gas pipeline project was the most well-known owing to its geopolitical and strategic implications: it was capable of bringing an important amount of gas to Europe, contributed to the diversification of its energy routes and suppliers, and diminished the Russian energy monopoly. The Nabucco euphoria started to vanish once the construction of the project had been the subject of several delays. Initially scheduled to begin in 2012 with the first deliveries expected by 2015, the starting of its implementation has been postponed due to several reasons. According to various rumors, there were problems related to the lack of financial resources of the Nabucco consortium (more than 8 billion euros), the difficulties in Azerbaijani-Turkish energy dialogue, and the insufficiency of Azerbaijani gas to fulfill the 31 bcm requested by the Nabucco pipeline. Finally, when there were beliefs that the project was locked and frozen, it registered significant and promising steps toward progress.
First, on March 4, 2011, the Turkish parliament ratified the intergovernmental agreement on Nabucco transit signed on July 2009 between Turkey and four transit countries (Austria, Bulgaria, Hungary, and Romania). Second, the Nabucco consortium received 200 million euros from the EC, which decided to allocate 1.5 billion euros ($2.1 billion) for projects aimed at improving the EU's energy infrastructure. Third, on March 10, one of the Nabucco project's shareholders, Germany's RWE Supply & Trading, signed a memorandum of understanding with Azerbaijan to develop the Nakhichevan field in the Caspian Sea. Future gas production in the field will probably be destined for Nabucco, thus smooth away all doubts that the project is short on suppliers. Finally, RWE made an interesting proposal to SOCAR related to the extension of the Nabucco pipeline from the Georgian-Turkish border to Baku. In June 2011, the head of the OMV Gas & Power GmbH pipeline projects department, Dieter Ulbrich, said in Baku that the consortium has already conducted pre-engineering of the gas pipeline extension from the Georgian-Turkish border to Baku. According to him, the capacity of this “connecting strip” at 30 bcm corresponds to the capacity of Nabucco itself.
Hence Nabucco has an important advantage over its European competitors. Yet, a new competitor seems to be gathering speed: the smaller ITGI project whose representatives have recently made a smart, strategic move. Paying a visit to Baku on July 15, Harry Sachinis, a shareholder of ITGI and the CEO of the DEPA company, proposed to SOCAR that it participate in the privatization of the state-owned Greek company. This could be a new element which is likely to be considered attentively by SOCAR, which has become very interested in playing a more active role in the European energy markets.
Both proposals seem to positively view and be favorable to Azerbaijan, who according to Dr. Elnur Soltanov from the Azerbaijan Diplomatic Academy, “is happy and relaxed.” Azerbaijan might be “happy” because it has many aspirants fighting for its gas; Azerbaijan might be ‘’relaxed’’ because none of these projects is vital or crucial for its survival as had been the case during the 1990s. Baku has successfully implemented so far its sacred slogan, ‘’happiness is multiple pipelines.’’ Azerbaijan has diversified its gas export routes, delivering gas by the northern route to Russia and by the western route to Georgia and Turkey (and to Iran for supplying Nakhichivan exclave). Today Azerbaijan has many options, it “could even sell its gas to Russia if Moscow pays a European price,” as a member of Azerbaijan's parliament has suggested.
Nevertheless, Azerbaijan has already decided to deliver its gas to Europe and paid its “ticket” of 2 bmc of gas to Russia, according to one European ambassador based in Baku. There are three main dividends that Azerbaijan might obtain as a result of its gas deliveries to Europeans.
First, there are strongly commercial and strategic gains in transporting Azerbaijan’s gas to European markets. Apart from the huge amount of gas revenues that are predicted to pour into Azerbaijan’s budget, SOCAR could penetrate the EU energy markets and increase its presence in the long term. Second, there are significant political aspects that can’t be neglected by Azerbaijan. By getting involved with the European energy projects, Baku will achieve one of its major foreign policy objectives related to the acquisition of broader and stronger political support in the Nagorno-Karabakh issue. Third, there is a geopolitical aspect related to the regional balance of power. By the construction of a new pipeline to Europe, Baku would enhance its partnership with the EU and NATO member states to deliver a new message to its neighbors: that Azerbaijan is not alone; it has friends and allies beyond the Caucasian borders.
Today, Nabucco and ITGI fully fulfill the criteria of Azerbaijan and respond to its political objectives and economic ambitions. Apparently, both projects are under the consideration of Azerbaijan’s policy and decision makers. But what will happen if Baku decides to be involved with both of them, and the ‘’gas love story’’ ends with a ‘’ménage à trois’’? It is useful to recall the statement of Vitaliy Beylarbekov, the deputy vice-president of SOCAR who stressed that the new version of Nabucco, together with the ITGI gas pipeline project, has chances to become a “regional mega-project”(ABC.az, 06.09.2011). It won’t be the first time that Azerbaijan would participate in the accomplishment of a “regional mega-project” if it is to think about the Baku-Tbilisi-Ceyhan and Baku-Tbilisi-Erzurum pipelines, which altered the regional energy map. Regardless of its choice, Azerbaijan as well as Europe will be the winners of this win-win positive sum game, economically, politically, and strategically.
Inessa Baban PhD candidate at Paris-Sorbonne University, Research Fellowship Programs Recipient from the Institute of Strategic Research of Military School (IRSEM) § Institute of Higher National Defense Studies of France (IHEDN).
Source: Journal of the Turkish Weekly
Related Reading from Today's Zaman: Turkey - Azerbaijan Win-Win