;tx _ttnews%5Btt_news%5D=34935&tx_ttnews%5BbackPid %5D=7&cHash=e5b127d293
Shah Deniz Phase Two Postponement Officially Confirmed
Publication: Eurasia Daily Monitor Volume: 6 Issue: 84
May 1, 2009 02:19 PM Age: 2 days
By: Vladimir Socor
Shah Deniz Oil Platform in Operational Position
Norway’s StatoilHydro company, commercial operator of the gas export
pipeline from Azerbaijan’s Shah Deniz field, has publicly identified
Turkey as stalling on the transit agreement for Shah Deniz gas to
Europe. StatoilHydro’s latest statements corroborate the concerns of
European and Azerbaijani officials on this issue (EDM, March 4, 5, 16,
April 20, 27). The Turkish AKP government’s stalling hurts
Azerbaijan’s interests, those of the multinational consortium that
develops the giant offshore Shah Deniz field, and European Union
interests in the Nabucco pipeline project, the start of which depends
on the gas from Shah Deniz.
StatoilHydro-Azerbaijan president Kristian Hausken and the company’s
vice president for gas Olav Skalmeras have announced that the
consortium must postpone the start of Phase Two of production at Shah
Deniz until 2016, due to lack of a transit agreement with Turkey.
According to the Norwegian executives, the issue of transit via Turkey
remains a challenge to the Shah Deniz project. They said that Phase
Two can only take place -and its timeframe clarified- after the
transit problems will have been resolved with Turkey (Reuters, April
24; Trend Capital, April 28).
Phase Two of Shah Deniz gas production had been envisaged to start in
2013-14, its timetable correlated with that of the Nabucco pipeline’s
construction. Turkish-imposed delays in field development and
production at Shah Deniz would correspondingly delay investment in the
Nabucco project and its construction.
The consortium, headed by BP and StatoilHydro, owns and operates the
Shah Deniz project and the dedicated South Caucasus Pipeline (SCP) for
gas export. The line, known also as the Baku-Tbilisi-Erzurum (BTE)
pipeline, was conceived as the first section of a major gas export
route via Turkey to Europe. The existing line should feed into the
planned Nabucco pipeline on Turkish territory. The SCP (BTE)
consortium’s ownership and operating rights on the pipeline, however,
stop at the Georgia-Turkey border. Beyond that border, Turkey’s state
company Botas owns and operates the pipeline to Erzurum and onward to
Nabucco’s starting point. Thus, when Nabucco is built, the two
internationally-owned pipelines -SCP and Nabucco- will have to be
linked with each other through the Turkish-owned pipeline situated
between them; and Nabucco itself would run through Turkish territory.
This situation and the perceived lack of alternatives to the Turkish
route are tempting the AKP government to seek concessions at the
expense of Azerbaijan, the Shah Deniz consortium, and the two pipeline
consortiums. Ankara seeks unilateral advantages on the terms of gas
transportation and pricing simply by stalling on the transit
agreements. Stalling on these projects is also the AKP government’s
way to seek political concessions from the EU. As the EU-Turkey
accession negotiations are a long-term process, the stalling may also
turn out to be a long-term process, if the EU tolerates such behavior.
Phase Two of production at Shah Deniz is planned to reach 20 billion
cubic meters of gas annually in the plateau years, double the volume
of Phase One which is currently in progress (Trend Capital, April 29).
Investment in Phase Two is estimated at $16 billion, compared to the
$5 billion invested in Phase One. Facing such investment costs, the
international consortium as well as the Azerbaijani government needs
long-term stable arrangements for transit via Turkey and marketing in
Europe.
Meanwhile, Russia proposes to buy up all available volumes of
Azerbaijani gas at attractive prices. Following repeated offers since
June 2008 from the Kremlin, a memorandum of understanding was signed
on March 27, 2009, by the Azerbaijan’s State Oil Company with Gazprom.
Faced itself with a gas shortfall in the years ahead, Gazprom could
use Azerbaijani gas either for consumption in southern regions of
Russia or for re-export to Europe as "Russian" gas through the
Gazprom-planned South Stream pipeline. Russian officials have alluded
to both possibilities.
Underscoring Moscow’s interest, Valery Yazev -head of Russia’s Gas
Society and vice-chairman of the Duma- proposes that "Russia must
offer the highest possible price for Azerbaijani gas," finance
modernization of the Soviet-era gas pipeline from Baku to the Russian
border, and sell Azerbaijani gas in Europe as Russian gas. As Yazev
makes clear, Moscow seeks to draw Azerbaijan into some bilateral
price-fixing arrangement at Europe’s expense: "What is Europe’s game?
It tries to crush the gas producers. Our countries need to coordinate
their positions. Azerbaijan is geographically closest to Europe among
gas-producing countries of this region. Therefore Moscow wants to
develop close interaction with Baku" (Interfax, Trend Capital, April
22, 24).
In effect, Russia is racing against the EU in Azerbaijan. Meanwhile,
Turkey’s AKP government is making it more difficult for the EU and
Azerbaijan jointly to win this race.