Successful Visit of the EC High Level Officials to Azerbaijan and Turkmenistan

Dr. Zura Garakanidze*


The President of the European Commission Jose Manuel Barroso and the President of Azerbaijan Ilham Aliyev on January 13th, 2011 have signed a Joint Declaration on gas delivery for Europe in Baku. However, European efforts to lay the groundwork for accessing gas from Turkmenistan seem to have yielded fewer results.

Azerbaijan’s pledge to supply gas will give a boost to the EU’s Southern Corridor project.
This, in turn, calls the economics of Russia’s South Stream project into question.
Russia could still benefit, though, if it connected the North-South Trunk Pipeline to the SCP.

Under the Joint Declaration on the Southern Gas Corridor signed in Baku last week, Azerbaijan has committed to supplying substantial volumes of natural gas (about 10 billion cubic metres per year) over the long term to the European Union. The document also calls for Azerbaijan to play the role of transit country for Central Asian gas and outlines the EU’s commitment to providing access to its markets for these gas flows.

The Joint Declaration was signed on January 13 by José Manuel Barroso, the president of the European Commission, and Ilham Aliyev, the President of Azerbaijan. The next day, Barroso held talks with Turkmenistani President Gurbanguly Berdymukhammedov in Ashgabat. During that meeting, he urged the Turkmenistani side to accelerate the implementation of plans for launching deliveries of gas to Europe.

The accord, together with Barroso’s trip to Ashgabat, will bolster energy ties between the EU and the Caspian region. Moreover, it has also raised the possibility of a merger between two rival gas transport projects, Russia’s South Stream and the EU-backed Southern Gas Corridor.

Southern Corridor
The Southern Corridor would include several gas pipelines, including Nabucco, Interconnector Turkey-Greece-Italy (ITGI), White Stream, and the Trans-Adriatic Pipeline (TAP), all of which aim to bring gas from the Caspian region to Europe.

Nabucco would pump gas into Austria, an EU member, via a brand-new pipeline, while TAP and ITGI would involve the strengthening of existing infrastructure facilities in EU and non-EU countries in South-Eastern Europe. White Stream, meanwhile, would transit gas through Georgia and across the bed of the Black Sea to Ukraine and Romania; this project has not moved past the design stage.

Azerbaijan is currently carrying out negotiations with potential buyers of gas from Stage 2 of the Shah Deniz (SD2) offshore gas field and is slated to select a client or clients to access the 10 bcm per year that will be available in April. The Nabucco consortium is one of the bidders, alongside other groups such as ITGI and TAP.

“Major breakthrough”

The Joint Declaration is an important step towards the realisation of the EU’s Southern Corridor project and the diversification of European energy supplies. For one thing, it is the first written commitment made by Azerbaijan to export gas to Euro- pe. It calls for Azerbaijan to be the first Caspian country to supply Europe with gas and aims to open up the supply route that the EU calls the Southern Gas Corridor.

“This agreement confirms Europe’s direct access to gas from the Caspian basin, thus enabling the realisation of the Southern Corridor. This new supply route will enhance the energy security of European consumers and businesses”
Barroso

‚This is a major breakthrough,‛ said Barroso. ‚This agreement confirms Europe’s direct access to gas from the Caspian basin, thus enabling the realisation of the Southern Corridor. This new supply route will enhance the energy security of European consumers and businesses.‛

Barroso’s trip to Ashgabat on January 14 was also designed to promote the Southern Corridor project. While in the Turkmenistani capital, the EC president and European Energy Commissioner Guenther Oettinger expressed support for the proposed Tran-Caspian Gas Pipeline (TCGP), saying that the countries that would be involved in such a project had the right to build the conduit and that construction could be completed relatively quickly. Barroso also stressed that the TCGP had the support of the EU on a political level.

“No new ideas”

Ashgabat appears to have some reservations, however. According to a Turkmenistani media source, President Berdymukhammedov indicated that he was unsure why the EU sent Barroso and Oettinger to discuss the Southern Corridor at a time when it has ‚no new offer‛ and ‚no new ideas‛ on how to help Turkmenistan join the flagship Nabuc- co pipeline project.

Some experts have speculated, though, that the EU is eager to push forward on this front because of the signing of an agreement on the Turkmenistan- Afghanistan-Pakistan-India (TAPI) pipeline project. The TAPI deal, they say, has raised questions about Turkmenistan’s reserves and about whether the gas will actually flow to Europe.

In the end, Barroso’s visit to Ashgabat appears to have been mostly political. That is, it gave the EU an opportunity to weigh in on the issue in the hope of convincing Turkmenistan to go ahead with the TCGP project and yielded little in the way of concrete results. However, it may also have aimed at serving other purposes.

“If Turkmenistan agrees to provide gas for Nabucco, EU initiatives on energy security would work against a merger with Nabucco. The high cost of the South Stream project could also serve as a deterrent.”

Merger possibilities

One of the reasons for quick negotiations, according to some specialists, was the idea of a merger of pipelines. David Thorne, the US ambassador to Italy, raised this point on January 10, three days before the signing of the Joint Declaration. In an interview with the Italian Daily La Stampa, he said that two major pipeline projects that have so far been considered rivals, the EU-favoured Nabucco and Gazprom’s South Stream, might merge.

The Nabucco gas pipeline has been under discussion since 2002, when Austria’s OMV began talks with the Turkish pipeline operator Botas. It was originally proposed to reduce Europe’s dependence on Russian gas and is widely viewed as a mostly political project.

Russia’s South Stream is also a political project, designed to bypass Ukraine via a pipeline under the Black Sea to the Bulgarian coast. From Bulgaria, it will split into a southern branch going to Greece and Italy and a northern branch supplying Romania, Serbia, Hungary, Slovenia, and Austria. Accor- ding to the project’s website, South Stream is designed to strengthen European energy security by minimising transit risk and will help Gazprom execute its strategy of diversifying Russian natural gas supply routes.

When asked by reporters to comment on Thorne’s remarks, Marlene Holzner, a spokesperson for Oettinger, said Nabucco and other Southern Corridor projects remained a priority for the EU. These projects will help the bloc diversify its sources of gas supplies, she explained.

Holzner then said, when asked whether Brussels was familiar with the idea of uniting Nabucco and South Stream, that there were many options on the table, including proposals for merging different projects. However, she said, the EC is not discussing the possibility of merging Nabucco and South Stream at the moment. For his part, Paolo Scaroni, the CEO of Eni, was quoted by La Stampa as saying it was currently impossible to have the two pipelines converge since neither of them existed at this point.

Barriers

Scaroni’s comment is reasonable. The differences in the construction schedules of Nabucco and South Stream, along with many other economic and political factors, would serve as barriers to the merger of these two rival projects. However, this is hardly the first time that the idea of merging of Caspian and Russian gas flows has appeared.

If Turkmenistan agrees to provide gas for Nabucco, EU initiatives on energy security would work against a merger with Nabucco. The high cost of the South Stream project could also serve as a deterrent. With European demand for gas uncertain and liquefied natural gas (LNG) imports rising, Gazprom is under pressure to show more flexibility. To this end, rather than push ahead with the South Stream project, it should go ahead with a lower-cost option – namely, expanding its transit network through Ukraine. It could also start looking into merging its network with EU-backed pipelines, but where?

The Georgian connection

At present, the only place where Caspian and Russian gas transport network intersect is in Georgia. In that country, the North-South Trunk Pipeline, which runs from Russia to Armenia via Georgia, crosses the South Caucasus Pipeline (SCP), which is currently pumping gas from the first stage of Shah Deniz (SD1) and which will direct gas into Nabucco. The point of intersection is near the village of Saguramo.

connecting SCP with the North-South Trunk Pipeline would allow the creation of a wider network in which Iran could serve as a supplier. Iranian gas pumped through the Tabriz-Meghri line to Armenia could then be pumped to Saguramo and redirected into SCP by the Armenian gas network.

The North-South Trunk Pipeline begins in the southern Russian city of Mozdok in Russia and terminates at the Armenian-Georgian border. The 235-km conduit includes two pipes – one with a diameter of 1,200 mm and a second or spare tube with a diameter of 700 mm. Most of the gas transited through these pipes is now delivered to Armenia because Georgia has been receiving SD1 gas since 2007.

After the collapse of the Soviet Union, the pipeline has been operating far below capacity. While the- design capacity of both pipes comes to 18 bcm per year, the network pumped only 1.7-1.9 bcm per year in 2007-2010. (Even in Soviet times, the maximum annual transit volume was 9.5 bcm per year.) If it were connected to SCP, this pipeline could be used to channel some of the gas that Russia might have exported via South Stream into the Nabucco pipeline.

Increasing gas transits would also be profitable for Georgia. The country already receives 10% of the gas pumped through the North-South Trunk Pipeline as a transit fee. In recent years, gas consumption in Georgia has averaged about 1.73 bcm per year, while Armenia has used about 1.93 bcm per year. This implies that the state-owned Georgia Oil and Gas Corporation (GOGC) receives approximately 190-193 million cubic metres per year of free gas, equivalent to about 11.0-11.2% of the country’s gas consumption, which it then monetises through sales to the local population.

The volume of gas transited through Georgian territory is slated to rise in 2017, when SD2 begins production. At that time, the SCP link, which has only been pumping 6-7 bcm per year, will see its capacity increase dramatically to 20 bcm per year. An agreement signed between Turkey and Azerbaijan on the transit and volume of SD2 gas in June 2010 provides for the pipeline to operate at full capacity.

Linking the SCP to the North-South Trunk Pipeline would improve the latter’s prospects while also giving Russia access to a new high-capacity export route and improving Nabucco’s access to gas supplies. Making the connection would be easy and would not restrict supplies to Armenia, especially since that country is now able to receive gas from another supplier namely, Iran.

If this can be done, the competition between Nabucco and South Stream would subside, and the two projects would instead complement each other. That is, rather than working against Nabucco, Gazprom would be able to make use of the pipeline to gain a new export route to Europe.

Moreover, connecting SCP with the North-South Trunk Pipeline would allow the creation of a wider network in which Iran could serve as a supplier. Iranian gas pumped through the Tabriz-Meghri line to Armenia could then be pumped to Saguramo and redirected into SCP by the Armenian gas network. Similarly, gas From Russia can be pumped in one of the parallel tubes of North-South Trunk gas pipeline, which could be used as supplier of the SCP for loading into the Nabucco line. This would be cost-effective, as it would make use of existing pipes rather than require the construction of new lines. PR

Note:

* Dr. Zura Garakanidze is an author in News Base E-magazine.

 

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