EU seeks Pipeline Accord to Reduce Dependence on Russia

The European Union is seeking an agreement on a natural-gas pipeline between Turkmenistan and Azerbaijan as the 27-nation bloc aims to import Caspian fuel and reduce its dependence on Russia.

The EU regulator’s energy unit drafted a document the parties could use as the basis for a deal on building at least one pipeline across the Caspian Sea, according to a copy of the non-binding paper obtained by Bloomberg.

The EU, seeking less reliance on Russia, wants Turkmen gas for the proposed Nabucco pipeline.

Turkmenistan, where foreign investment was held back until the 2006 death of isolationist President-for-Life Saparmurat Niyazov, ships gas to Russia and Iran, and opened a pipeline to China last year. Plans to build a link across the Caspian Sea have been frustrated by unresolved marine borders and opposition from Russia and Iran.

The $10.5 billion Nabucco pipeline led by OMV AG, aims to move gas from Azerbaijan, Turkmenistan and possible Middle East suppliers to Europe and reduce the region’s dependence on Russia.

Supplier nations, however, have been slow to commit to the 2,000-mile pipeline
German energy company and Nabucco consortium member RWE said there were delays in agreements for Nabucco with potential supplier nation Turkmenistan.

“Without Turkmen gas, Nabucco wouldn’t make sense,” said Alexander Rahr, a Russia and Eurasia expert at the German Council on Foreign Relations in Berlin. “The EU is trying to get this pipeline through, but they’re running out of time as the Turkmen are sending more gas to China.”

Azerbaijan attended an EU-hosted meeting in Brussels with Turkmenistan and no agreements were signed, said Vagif Aliyev, head of investment at The State Oil Co. of Azerbaijan. Marlene Holzner, spokeswoman for the European Commission’s Directorate-General for Energy, declined to comment on the document. Phone calls to Turkmenistan’s department of foreign economic relations went unanswered.

Azerbaijan is a gas supplier to Russia, Iran, Turkey and Georgia. Russian energy giant Gazprom starting in 2010, agreed to buy 35 billion cubic feet of gas from Azerbaijan and around 70 billion cubic feet of gas in 2011. Despite the growing Russian interest in Azeri gas, Baku is ready to deliver half of its natural gas reserves to the Nabucco pipeline for Europe, officials said.

Ali Gazanov, the head of social and political developments for the Azeri government, said that  "Azerbaijan attaches great importance to Nabucco. " "We are ready to supply 50 percent of Azerbaijani gas via the pipeline.

However, Azerbaijan has yet to receive a concrete proposal from Turkmenistan, holder of the world’s fourth-largest gas reserves, Aliyev said by phone from Baku. “We are ready to provide transit for Turkmen gas,” he said.

The EU must get “serious” about Nabucco to compete with Russia for Caspian natural gas, Azeri President Ilham Aliyev said in January. Nabucco lacks a clear leader able to attract the necessary financing or hold talks with suppliers and transit countries, Aliyev said.

In July, Kazakhstan's president Nursultan Nazarbayev said Sunday his country is ready to be a part of the Nabucco gas pipeline, but the European Union must do more to make its participation in the project possible.

"Kazakhstan has never been against Nabucco, the issue is that in Europe there is a lot of talk about Nabucco...but in practice little is being done," he commented after talks with German Chancellor Angela Merkel. The Kazakh president said that neighboring Turkmenistan has also said it needs these questions resolved.

“The European Commission is showing that a way can be navigated through this tangle of countries and we actually are in the course of doing so,” EU Energy Commissioner Guenther Oettinger said in a copy of a July 27 speech the regulator posted on its website. “We may need extraordinary measures to achieve success, such as the Caspian Development Corporation or the building of a trans-Caspian pipeline link.”

Turkmenistan and Azerbaijan would have to assure that the owner of the link maintains optimal use of the asset subject to market conditions, according to the draft document. The owner wouldn’t be able to refuse to offer free capacity or reject requests to use available capacity, according to the paper, which does not specify the capacity or route of the pipeline.

The two governments would have to consult one another before designating entities that can request to use the pipe, the energy department’s draft said. The link could be used to transport gas in either direction, according to the document.

After Niyazov’s death, governments from the EU to Asia jostled for access to Turkmenistan’s gas reserves, estimated at 8.1 trillion cubic meters by BP Plc. That’s enough to meet current German demand for more than a century.

Russia wants Turkmenistan and Kazakhstan to build a new gas pipeline along the Caspian coast to keep control over the former Soviet republics’ energy exports. Iran has presented an alternative plan envisioning a network of shipping routes and pipelines that would turn the country into a regional hub for Caspian energy exports.

Source: Bloomberg & NGFE archives