MONTREAL - Turkey is continuing to make unacceptable demands for the transit of
Azerbaijani gas across its territory as part of the Nabucco pipeline project.
That is unlikely to keep that gas from reaching Europe in the long run.
The Turkish government is seeking to extract advantageous terms that, according
to reports from Baku, include taking 15% of the transit gas for domestic
consumption.
Neither Azerbaijan nor the European Union accepts this as possible, the more so
for the Europeans as Turkey's proposed taxation scheme is irreconcilable with
Europe's legal norms. The ruling Justice and Development Party party in Ankara
has also recently sought to use its leverage as a transit country to
influence directly the pace of Turkey's accession negotiations with the EU.
The stumbling blocks are delaying the decision to develop phase two of the
Shah-Deniz gas field and could postpone production by two years, from 2014 to
2016. However, Turkey is not indispensable for the transit of Azeri gas to
Europe, for receptivity to the White Stream project increases with Ankara's
delays. White Stream foresees the transit of gas from Azerbaijan not through
Turkey but through Georgia across the Black Sea bed to Romania, either rising
to connect to the domestic Ukrainian pipeline system and supplying Ukraine on
the way or crossing all the way from Supsa to Constanta in Romania without
making intermediate landfall.
In an interview with the weekly New Europe last month, Azerbaijan's Industry
and Energy Minister Natik Aliev affirmed that Georgia "is and will be a stable
route for energy resources" to Europe. He mentioned that discussions with
Gazprom nevertheless continue concerning the Russian firm's offer to purchase
the whole of Azerbaijan's gas production at market prices, although President
Ilham Aliev already last year stated that non-commercial interests must be
considered in weighing the offer.
Reportedly at the insistence of Germany's Chancellor Angela Merkel, the Nabucco
pipeline has been omitted from the list of projects to be financed by the EU
stimulus plan for its economies. Berlin has no interest in the project, given
Germany's preference for developing the North Stream pipeline with Russia, by
which gas from Turkmenistan would, through Russia and undersea, directly reach
Germany first, which would become its exclusive distributor in Europe.
The EU stimulus package would have foreseen establishment of a risk-sharing
facility for Nabucco, using 250 million euros (US$337 million) to help secure
loans at better-than-market conditions. Reports indicate that this decision
will be reconsidered at the EU summit this Thursday and Friday, with the
decision hard to predict in advance as it will be governed by the EU's
complicated "qualified majority" formula.
If Azerbaijan's gas follows instead the relatively newly proposed White Stream
route to connect with the Ukrainian system, then it could not only contribute
to supplanting Nabucco but also reach Poland directly and still other markets
further onward.
This gas would come from not just the second but also the third phase of
development of the offshore Shah-Deniz field. Shah Deniz Phase II is planned to
achieve production rates of 14 billion cubic meters (bcm) per year, to supply
the Azerbaijani domestic market, the Georgian market as agreed last year and
also the Turkish market, in addition to ITGI (Interconnector
Turkey-Greece-Italy) and the Nabucco pipeline. (See
Oil in troubled mountains, Asia Times Online, August 13, 2008, and
Euro-Caspian energy plans inch forward, Asia Times Online, November 27,
2008.)
In addition, an estimated 500 bcm of associated gas is available in the
Azeri-Chirag-Gunashli oilfields. These estimates do not even include the five
new fields announced last year by the Azerbaijan president, which could hold as
much as 1.5 trillion additional cubic meters. The French company Total signed
at the end of February a contract for exploration and development of natural
gas reserves in the offshore Apsheron area. Export potential could reach 30 bcm
per year including new fields.
New exploration has also shed light on originally unanticipated quantities of
Azerbaijan's oil reserves. Production for the Baku-Tbilisi-Ceyhan (BTC)
pipeline, once expected to peak in 2012, will now peak in 2015 at the earliest
and possibly as late as 2025. The British firm BP and its partners now plan to
develop the Chirag Oil Project, adding over 300 million barrels to the existing
ACG fields. The eventual production rhythm for Chirag is expected to reach
100,000 barrels per day (bpd) over and above the 700,000 bpd already being
pumped at ACG. A final affirmative decision is expected later this year.
As a result, the Kazakhstan-Caspian Transport System (KCTS), which will take
Tengiz oil across the Caspian Sea to Azerbaijan for injection into the BTC,
appears in a slightly new light. Kazakhstan will wish still to promote and
construct the KCTS, thanks only to which Russia recently unblocked the decision
of the Caspian Pipeline Consortium (CPC) to double the capacity of the CPC
pipeline from Tengiz across southern Russia to Novorossiisk on the Black Sea.
At the same time, other routes for export of this oil are not excluded, for
example westward through Georgia by pipeline or rail and also northward back
into Russia to Novorossiisk by the route Azerbaijan itself used earlier in the
1990s before the BTC pipeline entered into service (either through Chechnya as
it once did or through neighboring Dagestan, a part of the Russian Federation
east of Chechnya on the Black Sea). These routes are currently in use and could
also be expanded, given Azerbaijan's prominence not only as a producer but also
as a reliable transit country.
Robert M Cutler (http://www.robertcutler.org) is senior research
fellow in the Institute of European, Russian and Eurasian Studies, Carleton
University, Canada.
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