AZERBAIJAN-GAZPROM AGREEMENT PUTS NABUCCO IN JEOPARDY

Today’s Zaman
July 16 2009
Turkey

Russian gas company Gazprom signed a deal with State Oil Company of
the Azerbaijan Republic (SOCAR) in Baku last week in connection with
the first phase of the Shah Deniz gas field to transfer 500 million
cubic meters of gas to Europe under the auspices of Gazprom. Seen as
a potential supplier for the Nabucco gas pipeline, Baku’s step raised
some questions regarding Nabucco’s gas supply problem.

Russian President Dmitry Medvedev’s visit to the Azerbaijani capital
of Baku last week, this time accompanied by Russian businessman Alexei
Miller, the CEO of Gazprom, Russia’s largest company and the biggest
gas company in the world, was part of efforts to secure Baku’s gas. The
gas is also coveted by the EU-backed $11 billion Nabucco project, a
gas pipeline project that is envisioned to transport primarily Caspian
Sea gas to Europe through Turkey, bypassing Russia. Gazprom’s CEO
Miller and Rövnaq Abdullayev, the head of SOCAR, signed an agreement
to transfer 500 million cubic meters of gas from the rich Shah Deniz
gas field starting in January of next year. Russian President Medvedev
and Azerbaijani President Ä°lham Aliyev labeled the agreement a huge
step forward in energy policy and bilateral relations.

There is speculation that the deal is part of Russia’s effort to
control all of Europe’s energy routes and make the Nabucco project
redundant when considering the gas oversupply of South Stream, a
Russian-orchestrated gas pipeline aiming to transfer Caspian gas
via the Black Sea to Eastern Europe. However, President Medvedev
said their motives are solely based on economic, not political,
interest. Miller said they are looking forward to getting special
privileges in the second phase of the Shah Deniz gas field, which will
be inevitable unless other companies offer more attractive deals to
Azerbaijan. Although the current deal only allows 500 million cubic
meters of gas to be sold to Gazprom, the company foresees annual
increases in supplies to Russia in the future.

Although the Nabucco pipeline’s sources of gas are still to be decided,
the project has been seen as one of the primary actions to counter the
difficulties raised by Russia’s harsh and strict energy policies. The
EU is not a partner in the Nabucco project, but it has great interest
in keeping it safe and out of Russia’s control. In the meantime,
Russia is planning to establish the rival South Stream gas pipeline.

Commenting on the rivalry between Nabucco and South Stream, Shirvani
Abdullayev, Russia’s Alfa Bank’s top oil and gas analyst, told The
Associated Press that giving Gazprom priority for the Shah Deniz gas
field would spell the end for Europe’s Nabucco project. "Nabucco was
designed to use Shah Deniz gas," he said. "Now it is left without
the source of gas." Abdullayev said it was "unrealistic to think"
that South Stream and Nabucco could coexist. "The market does not
need so much gas," he said.

Ferruh Demirmen, an independent energy analyst based in Texas,
told Today’s Zaman that "Azerbaijan sent a message to Turkey and to
the West by signing a contract with Russia." He continued, saying,
"The first gas supply for Nabucco will be from Shah Deniz-2. Nabucco’s
future is in question as Shah Deniz-2’s gas went to Russia."

Also speculating on the aftermath of the agreement on the Nabucco
project, Demirmen said, "It is undeniable that with Shah Deniz-2’s
gas stream to Russia, Nabucco will be adversely influenced." Demirmen
also claimed that this agreement would "force" the other partners in
the Shah Deniz Consortium to act the same way as SOCAR. "Although
as a partner country, SOCAR has only a 10 percent share of the gas
consortium, according to the Production Sharing Agreement," Demirmen
said, "SOCAR will get the rights for a significant portion of the gas
and sell it to Russia. This situation will also push other partners
to sell their shares of gas to Russia."

Azerbaijan, undoubtedly, also plans to use the agreement in its foreign
policy. The long protracted conflict over the disputed territory
of Nagorno-Karabakh, an Azerbaijani territory currently controlled
by Armenian military forces, has been Azerbaijan’s primary foreign
policy challenge for nearly two decades. In his interview with Today’s
Zaman, Demirmen said: "Azerbaijan plans to use its gas reserves in
its foreign policy with this agreement, too. Russia, throughout the
history of gas trade with Europe, has also used its gas policy as a
geopolitical tool. This agreement shows that Azerbaijan has allied
itself with Russia. Azerbaijan’s primary message to the West is about
its Nagorno-Karabakh problem."

Sami Sevinc, a member of the Turkish Industrialists and Businessmen’s
Association’s (TUSÄ°AD) Energy Working Group, told Today’s Zaman that
"Turkey still produces 60 percent of its electricity from gas. If
Turkey gets gas through Gazprom and not directly from Azerbaijan,
it will be a losing situation for Turkey." At a Strategic Cooperation
Conference in Baku in September of last year there was great support
for the Nabucco project. "Azerbaijan is not giving up on the Nabucco
project," Azerbaijani Industry and Energy Minister Natiq Aliyev had
said, "This is a project that has a future."

Sohbet Karbuz, the head of the oil and natural gas department at the
Union of Mediterranean Energy Companies (OME), told Today’s Zaman
that "the details of Azerbaijan’s agreement with Gazprom are not
yet clear. An annual 500 million cubic meters of gas does not really
have importance. What’s important is Shah Deniz’s second phase. There
was a short ‘gas crisis’ between Russia and Turkmenistan, and thus
Russia’s agreement with Azerbaijan also sends a warning alarm to
Turkmenistan. However, Russia cannot give up Turkmenistan. For
the South Stream [pipeline] Russia needs Turkmen gas." Speaking
optimistically about Azerbaijan’s intention not to cooperate with
Nabucco, Karbuz said: "Right now, the most reasonable deal is to
send gas to Russia as there is a real gas pipeline. However, as the
fate of Nabucco is not clear, Azerbaijan, I believe, will not become
involved in large-scale agreements with Russia".

In his interview with Today’s Zaman, Mert Bilgin, a professor
at BahceÅ~_ehir University, said: "Azerbaijan’s political
goal is about Nagorno-Karabakh and the limits of compromise in
Turkey-Armenia talks. If Russia supports Azerbaijan’s cause to keep
the Nagorno-Karabakh region within Azerbaijan’s territory with a
largely autonomous nature, then Azerbaijan may increase the gas
supply to Russia. If Turkey makes solving this problem a priority,
the normalization of relations with Armenia, for whatever goals and
real intentions, will not be welcomed in Azerbaijan, and Russia’s
regional influence will increase."

To end the discussions on the issue, Azerbaijani President Ä°lham
Aliyev, in a Monday speech at Chatham House in London, said they have
enough oil to sell to various parties.

From: Emil Lazarian | Ararat NewsPress