Competition between the West and Russia for the transport of Caspian gas to the European market is increasing. As the time approaches for Azerbaijan and Turkmenistan to decide to whom their natural gas will be sold and which routes will be used to bring gas to Europe, the struggle for gas reserves intensifies.
The EU has forecasted gas demand in Europe until 2030 to between 370 and nearly 600 billion cubic metres (bcm). EU Commissioner for Energy Günther Oettinger has said: “What is common ... to all these scenarios, is that the imports from third countries will increase until 2030 or 2035 due to the depletion of the EU’s own reserves...” If the current gas imports from Russia cover around 25 percent of the European gas consumption, Russia could in 2030 export over 150 bcm of gas to the EU.
While admitting the importance of gas imports from the Russian Federation, the EU makes no secret of the fact that it wants alternative gas suppliers. Several potential supplier countries for gas supply exist, such as Azerbaijan, Iraq and Turkmenistan, as well as Gulf states. “We support some projects more than others, that is clear. In this regard, I reaffirm again: the EU wants direct contacts with Caspian producers through new supply routes and pipelines”, the EU Commissioner for Energy noted.
Azerbaijan and Turkmenistan are being considered as key potential gas suppliers for the EU-backed Nabucco pipeline project. The € 7.9 billion Nabucco pipeline aims to bring up to 31 bcm of gas annually from the Caspian and Middle East to an Austrian hub via Turkey and the Balkans.
The Obama administration has expressed strong support to the Southern Gas Corridor (SGC) to bring natural gas from the Caspian region to Europe.
“From the standpoint of U.S. policy goals, the best outcome is one that brings the most gas, soonest and most reliably, to those parts of Europe that need it most”, Richard Morningstar, U.S. energy envoy for the Eurasian region, told a House Foreign Affairs subcommittee on June 2. He highlighted that a key element of U.S. foreign policy is helping Europe attain energy security to keep Europe economically strong, as well as helping Caspian countries to find new routes to markets for their hydrocarbons. Morningstar stated that whithin the SGC, three pipeline consortia – the Nabucco, ITGI and TAP – are laying the financial, technical and organizational groundwork to compete for the right to ship gas from Shah Deniz II to Europe. The investment decisions to make that possible should be made by the end of this year, Morningstar said.
On June 6, Morningstar told reporters in Baku that the U.S. considers the Nabucco pipeline “the most preferable” option from a political and strategic standpoint. “The question is whether the Nabucco pipeline is commercially viable”, he said. “The basic issue is that if that pipeline is completed in 2017, will there be enough gas available that makes it viable at that point?”. He said members of the Nabucco consortium as well as gas producing countries needed to make a decision on the pipeline “in the coming months”.
He also expressed hopes that Azerbaijan and Turkey will sign a transit agreement for new gas from the Shah Deniz field in the coming weeks. Azerbaijan is negotiating with Turkey to sell 6 bcm of gas per year from the second phase of the giant Shah Deniz gas field in Azerbaijan, and to ship 10 bcm to European customers via Turkey. Talks include issues related to transit fees, volumes of gas as well as transportation options, but do not specify which pipeline would carry the gas. The Shah Deniz field is estimated to contain 1.2 trillion cubic metres of gas. Production began in 2006, and the second phase is expected to start by 2017. “My understanding from all of the parties is that an agreement is very close”, Morningstar said, “We see no reason why the agreement should not be signed ... in the next several weeks”.
Officials of Azerbaijan’s State Oil Company predict that a transit agreement for new gas from the Shah Deniz field may be signed by September-October. “By 2017 we will definitely have 10 bcm of gas, which we have been talking about earlier”, SOCAR's deputy vice-president Vitaliy Baylarbayov said. It is expected that Azerbaijan's gas production will increase to 50-55 bcm by 2025.
Meanwhile, the West strongly encourages Ashgabad to join the SGC through the construction of a Trans-Caspian pipeline between Turkmenistan and Azerbaijan. At the Turkmen Oil and Gas Conference on May 26, Daniel Stein, a Senior Advisor in Morningstar's office, said that “the United States notes with interest that President Berdimuhammedov has talked positively about providing gas to Europe through a Trans-Caspian Pipeline as part of Turkmenistan’s efforts to diversify its export routes”.
“While the ultimate decision is of course up to the Government of Turkmenistan, we would welcome Turkmenistan’s participation in the Southern Corridor”, he noted.
Earlier, official Ashgabad announced that Turkmenistan was prepared to make some 40 bcm of gas available for Nabucco, the strongest commitment Turkmenistan has made so far toward joining the project as a supplier.
However, with reference to the Caspian Sea convention, both Russia and Iran believe that before the construction of a Trans-Caspian pipeline, all five littoral states need to agree on environmental issues. “Russia, as a Caspian country, is against the laying of pipelines and gas lines along the bed of this unique body of water, which could harm the ecological state of the Caspian”, Ambassador Vladimir Dorokhin, Russia's envoy to Baku, said at a press conference on June 8. But Azerbaijan and Turkmenistan believe that only countries directly involved in pipelines on their immediate territories should decide these matters.
According to Baylarbayov, talks on building the Trans-Caspian pipeline will take place without Russia, ANS TV reported. He believed Russia will not hinder such talks and added that an environmental impact study needs to be conducted, along with a technical and economic feasibility study, without which a decision will not be made.
U.S. Ambassador Matthew Bryza also said that talk of environmental threats is “illogical” and added that the U.S. will help Azerbaijan and Turkmenistan protect their energy resources from “developments posing potential unforeseen risks” but did not go into details on this.