How stable is Azerbaijan as a dependable gas transporter to Europe?
It is important to note that Azerbaijan is a pretty new gas transporter. While it has been exporting oil since 1997, gas flows from Azerbaijan to Turkey only since 2007, after the opening of the South Caucasus gas Pipeline (SCP). Thus, it may be a bit early to evaluate the stability of Azerbaijan as a gas transporter, especially while Azerbaijan is not a gas transit country (for Turkmen and Kazakh gas) yet.
However, some points should be raised. First, despite the Russian-Georgian war, Azerbaijan has been a stable transit country for both oil and gas. The Baku-Tbilisi-Ceyhan and the SCP pipelines have only been shut off once, during August 2008. Otherwise, the oil and gas flows from Azerbaijan to the world energy markets have suffered no disruption since 2006. Then, the international gas transporting facilities from Azerbaijan are for the moment rather limited. In addition to the SCP pipeline, there are two other small pipelines: the first one goes to Dagestan while the second runs to Iran (to supply Nakhchivan as part of a swap agreement with this country). Finally, the SCP pipeline mostly transports gas to Turkey for the moment (6.6 bcm per year since 2007). Some volumes may go to Greece through the Interconnection Turkey-Greece but, as there is no destination clause in the gas purchase and sale contract between Azerbaijan and Turkey, nobody is able to prove it.
This means that the role of Azerbaijan as a gas transporter to Europe is rather limited for the moment. It only supplies the Turkish and, probably, the Greek markets with Azerbaijani gas. This may change in a near future if at least one of the numerous gas pipelines projects between the Caspian and Europe turns into reality. It may also depend on an agreement between Azerbaijan and Turkey on the sale prices of Azerbaijani gas and on gas transit through the latter.
Is there any alternative to Russia as the main and only gas supplier to Europe?
A: For the moment, if there is definitely an alternative for oil transportation from the Caspian to Europe, the one regarding gas remains pretty weak. The volumes of the production of the phase 1 of Shah Deniz (8.6 bcm per year) are not enough to make a difference. But this may change with the phase 2 of Shah Deniz: during this one, this giant gas field will produce around 17 bcm of gas per year (in addition to the volumes of the phase 1 of Shah Deniz) after 2016.
According to Eurogas, the European Union at 27 has consumed 517 bcm in 2008. Even if the aim of Brussels is willing to decrease this consumption to 500 bcm per year for 2020, Russia will still remain the main gas supplier to Europe (nowadays, it provides around 26% of the European gas consumption).
One may then think that the Caspian is worthy nothing when it comes to gas supply to Europe. Not at all! Since 2007, the European Commission has stated again and again that this region will be in a near future an alternative to Russian gas supplies. As it is for oil, the Caspian does not enough potential to compete with the main gas producers. But it has enough resources to play a role of broker on the European gas markets. Azerbaijan, as one of the biggest gas producer in the Caspian, may help to increase competition inside this market, reducing the dependency of some European states (mainly the former socialist countries) to Russian supplies.
The Caspian is not a new “Eldorado” as such. It cannot be seen as proposing a real alternative to Russian gas. It will rather help the European Union decreasing its dependency towards Russia and reconsidering the place of Russian supplies within the European gas markets.
What do you think should be the primary factor in the gas price talks between Azerbaijan and Turkey?
The talk on the gas price between Azerbaijan and Turkey started after April 2008. It was written in the gas and purchase contract signed between Turkey and the Azerbaijan Gas Supply Company (operated by the Norwegian company StatoilHydro) that the gas price for the first phase of Shah Deniz, agreed at 123 dollars for 1 000 cubic meters at the time of the signing in 2001, may be renegotiated one year after the beginning of the supplies, i.e. on April 15th 2008. The problem is that this renegotiation came together with the negotiation for the purchase and transit of the gas from the second phase of Shah Deniz. And, since the beginning of 2009, there are also discussions about the sale of the deep gas from Guneshli oilfield! That means that at least three issues come at the same time.
Then, during the first part of these negotiations, on the Turkish side as on the Azerbaijani one, nobody really knew who was the main interlocutor. In Azerbaijan, while StatoilHydro negotiated the contract for the sale of the gas from the phase 1 of Shah Deniz, SOCAR is now leading the talks, in accordance with BP, StatoilHydro and Total. In Turkey, BOTAS is the lead negotiator but the ministry of Foreign Affairs as the ministry of Energy are involved in the negotiating process. This does not help to facilitate the scheme of the negotiations.
Finally, gas is traditionally regarded as a very political commodity, due to its lack of flexibility. Because of the landlocked Caspian Sea, the only way to export Azerbaijani gas is through the SCP pipeline in the South Caucasus. Therefore, there is no real alternative, at least for the moment, to the Turkish route, giving Ankara a strong position within the negotiations. Moreover, each side intends to use gas as a political mean. Azerbaijan wants to get closer to Europe and balance Russian influence while Turkey would like to benefit from it in its talks to enter the European Union. Then, the crisis between Azerbaijan and Turkey regarding the normalization of the relations with Armenia highly disturbs the negotiations.
In the end, it seems that the gas talks between Azerbaijan and Turkey are almost more about politics than economics. This is beneficial for none of the parties: in the long term, they will lose money both as a producer and as a transit country, as the start of the exploitation of the gas from the second phase of Shah Deniz may be delayed. They also are losing credibility among the gas private sector, as the foreign companies are more and more upset with this entanglement of issues. In my opinion, it is time now for BOTAS and SOCAR to focus on the fundamentals of the talks and to stay away from politics: there is too much at stake to risk ruining the promise of an important corridor between the Caspian and Europe.
Do you believe the South Stream project can deprive the Nabucco project from energy sources?
A: This issue is a long-standing one. Nabucco and South Stream have their own specific strategy. The former is looking now for financial support (from the World Bank, the European Investment Bank and so one) while the latter is willing to ensure the safety of the transit from Russia to Italy through Turkey. No matter one thinks about these two different strategies, the most important is still which producer will provide the gas volumes needed for these pipelines.
This question has been on the top of the agenda in the last few weeks. Some gas companies within Nabucco may have been conducting negotiations with Iran and some issues have been raised regarding the real gas reserves in Turkmenistan. Both Nabucco and South Stream need various supplies of gas: the Russian volumes as the Azerbaijani ones will not be sufficient to justify the implementation of such huge and expensive projects (around 8 billion euros for Nabucco and between 19 and 24 billion euros for South Stream). To make it short, these two projects are mostly competing in two countries: Azerbaijan and Turkmenistan.
Regarding the former, President Ilham Aliyev as SOCAR have regularly expressed their support to Nabucco rather than South Stream. However, due to the difficult gas talks with Turkey, Azerbaijan may need alternative routes. One could be Georgia but it would mean to build a submarine pipeline along the Black Sea. It would be very difficult both technologically (at least one pumping station is needed in the seabed) and financially (it would be extremely expensive). Another one would be South Stream. Some foreign companies among the Shah Deniz consortium have already stated that they may be interested to go through Russia.
If StatoilHydro never faced important problems with the Russian administration, BP experienced very difficult situations in Russia, the last one being the clandestine runaway from there of the former head of TNK-BP in July 2008. As the Anglo-American company is the technical operator of Shah Deniz, it sounds unlikely that the Azerbaijani gas would flow through South Stream.
In Turkmenistan, the announcement in Russian newspapers in mid-October that Turkmen authorities would have falsified the data regarding the gas reserves spread huge concerns among foreign oil companies. However, it would not be surprising if Russian authorities have created this issue to prevent these companies from investing in Turkmenistan. It is actually a widespread opinion among American and European oil and gas companies. Then, the competition for Turkmen gas will still last in a foreseeable future. Will Russia succeed to prevent these resources from going to Europe through Nabucco? I am not sure, even if it will mostly depend on the capacity of Azerbaijan and Turkmenistan to build a gas pipeline between these two countries.
Therefore, I believe that the keystone in this gas competition is still Turkey. Without any agreement on gas prices between Azerbaijan and the latter, all the European-backed pipelines projects are suspended and South Stream seems to be winning the game. But, as soon as the issue between Ankara and Baku will be solved, it is very likely that most of the Azerbaijani gas will flow to Europe through the South Caucasus. And when it comes to Turkmen gas, the answer lies in Brussels where the European diplomats need to play the right game to convince Ashgabat to balance its gas export routes.
T. Teymur
/Today.Az/
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