"NABUCCO" GAS PIPELINE AND ARMENIA
Sevak Sarukhanyan

"Noravank" Foundation
21 July 2009

"Nabucco" gas pipeline is one of the most ambitious energy projects.

It supposes the construction of large gas pipeline network from Central
Asia to Iran and Azerbaijan, which can supply the EU countries up to
80 billion cubic meters of gas annually.

April and May 2009 were rather eventful and this was connected
with large energy projects. "Natural Gas for Europe: Security and
Partnership" summit, which took place on April 24-25 in Sofia, laid
the first real foundation for the implementation of "Nabucco" gas
pipeline project, which is of strategic importance for Europe. And
on May 8 during "South Corridor: New Silk Road" summit in Prague the
joint declaration on the construction of "Nabucco" pipeline was signed
by the representatives of Azerbaijan, Georgia, Turkey and Egypt.

The signing of that declaration is of interest for Armenia due to
several reasons.

Firstly, the project of the pipeline is carried out in our region and
it would create new infrastructural relations in the line of import
of Caspian and Iranian gas to the European market.

Secondly, the pipeline is directly connected with the political
relations, which, despite the fact whether the gas pipeline goes
through Armenia or not, concerns our interests.

Thirdly, amid the normalization of=2 0the Armenian-Turkish dialogue
and activation of the negotiations on Nagorno-Karabakh one may have
an impression that it is possible that "Nabucco" would go through
the territory of Armenia.

To go into all the aforementioned problems, including the last one,
which is the most important for Armenia, it is necessary to turn to
the essence of "Nabucco" project, as well as to the signing of the
Prague declaration.

Certainty and uncertainty of "Nabucco" In one thing "Nabucco" is
definitely certain, i.e. it is directed to the reduction of the role
of Russia as the main supplier of natural gas to Europe. This is the
main and the only aim of the project.

The idea of the gas pipeline, which emerged in 2003, is closely
connected with the logic and spirit of two other projects –
Baku-Tbilisi-Ceyhan oil pipeline and South Caucasus gas pipeline
(Baku-Tbilisi-Erzurum). These two projects were supposed to create
alternative routes for the supply of Caspian oil and gas to world
market round Russian territory. Here it is necessary to pay attention
to the fact that the new pipelines could not and cannot influence
international energy balance; they do not suppose any oil or gas
production volume growth. Baku-Tbilisi-Ceyhan and South Caucasus gas
pipeline are created to diversify the routs of hydrocarbon resources
supply.

Azerbaijani oil and Central Asian hydrocarbons were supplied easily to
world markets, and they can still be supplied, without new pipelines
but only through the territory of Russia, and Baku-Tbilisi-Ceyhan
and South Caucasus gas pipeline were supposed to reduce its role.

"Nabucco" is based on the same logic but with one peculiarity. And
the only peculiarity of "Nabucco" is that as opposed to the pipeline
built in South Caucasus it goes to new, vast and undeveloped gas
pools of Iran. Iran, which is the second in the world in the context
of gas resources, do not export considerable volume of gas and the
gas pipeline going to Armenia and Turkey influence neither global
energy balance nor the energy security of the EU.

Under such conditions "Nabucco" can become a real and considerable
project if Iranian gas is pumped through the pipeline. But (and this
is the problem of all the regional energy projects) "Nabucco" is not
only energy project but it is also political project. And the political
developments in the region, the deepening of the confrontation between
Iran and the USA compelled to exclude Iran from the priorities of
"Nabucco". As a result, in 2004 "Nabucco" became a project, which was
oriented to get natural gas from Azerbaijan, Central Asia (for this
purpose Transcaspian pipeline should be built), Egypt and Iraq. In 2005
Iraq falls out of the project as the civil war in that country came
to prove=2 0its unreliability as a long-term energy partner. During
next two years the project was actively discussed in the context
of the activation of European foreign policy in Central Asia. Death
of Turkmenbashi and the election of the new leader of Turkmenistan
gave hope that this country could join the project soon. In 2008
the relation between Baku and Ashgabat activated, the president of
Turkmenistan even visited Azerbaijan for the first time. This allowed
supposing that the project of Transcaspian gas pipeline, without
which Turkmen gas couldn’t be supplied to Azerbaijan and "Nabucco",
would be carried out soon. But further developments came to prove
that the EU and the US would not breakthrough in the line Central Asia.

Last year Iran "returned" to "Nabucco" project. After the election
of B. Obama as the US president and the statement of his intentions
to improve the relations with Tehran served as a political signal to
start the negotiations with Iran on the "Nabucco". At the beginning
of 2009 Turkey, represented by the prime-minister, initiated active
lobby of Iran’s participation in "Nabucco". R.T. Erdogan even stated
in Brussels that there was no sense to build the gas pipeline without
the participation of Iran.

And indeed, the joining of Iran to the project may lay foundation
for its implementation. But there are no official talks with Tehran
regar ding "Nabucco" started and one cannot state that in case such
talks are initiated they will have a fast and positive effect. Iran
is very hard negotiator and the recent experience proves that this
country is not the one to make fast decisions. The negotiations on the
construction of Iran-Armenia gas pipeline had lasted for eight years,
and the negotiations on the construction of Iran-Pakistan-India began
in 1995 and nothing but for the signing of the declaration has been
done for a while. The official statements by the minister of oil of
Iran that the country is interested in "Nabucco" means nothing in
the Iranian political context.

Interesting and striking example: at the beginning of March
Iranian minister of oil stated that Iran was ready to embark on the
negotiations on the joining to "Nabucco" and at the end of March the
same minister stated that the construction of Iran-Iraq-Syria gas
pipeline and liquefied natural gas plant construction was priority,
meanwhile "Nabucco" was not of great importance for Iran".

Declaration of construction Back on the topic of the Prague declaration
we can state that Iran, Kazakhstan, Turkmenistan, Uzbekistan have not
signed it. Two gas exporting states, which have signed the declaration
– Azerbaijan and Egypt – do not play essential role in the global gas
production. And not only. The signing of declaration by Azerbaijan ha
s another important peculiarity. The point is that there has already
been South Caucasus gas pipeline, which supplies Azerbaijani gas to
Turkey without any trouble. Having 25-30 billion cubic meters annually
flow capacity, South Caucasus gas pipeline can pump Azerbaijani oil
to Turkey without any problem. It follows that the signature of the
Azerbaijan’s representative under the declaration and the joining of
Baku to "Nabucco" project will make any definite contribution neither
to the project nor to the European energy security. Summarizing all
said above we can make several conclusions:

"Nabucco", in its essence, is generally anti-Russian project, The
project is rather uncertain; it has undergone various changes for
recent years and, probably, it is still to be changed, Generally, at
a given stage "Nabucco" project can hardly be regarded as successful
and the signed declaration will not make any essential changes in
global energy security.

But at the same time it is obvious that in the years to come the
lobby of joining the project by Iran and Central Asian countries will
intensify and this will naturally:

Provide to the strong resistance on behalf of Russia, Become a real
boost to the regional political relations, Continue to influence
project, change its mode, maybe, making it more definite.

Armenian prospects The aforementioned factors should lay the foundation
for starting the discussion20of the prospects of joining the project by
Armenia, and ignoring those factors makes any forecasts and projects
on our participation in the construction of the gas pipeline rather
subjective and unreal. And this is equally important, because you
cannot connect directly and roughly the problem of Armenia’s joining
the project with the thaw in the Armenian-Turkish relations. The
opening of the border with Turkey is really closely connected with the
energy future of our country. The normal inter-state relations with
Turkey will have positive effect on the development of energy sector
of Armenia. Setting the export of electricity to Turkey will create
good basis for carrying out new large-scale projects directed to the
development of energy producing capacities, i.e. the construction of
new Nuclear power plant, finishing of the construction of the 5th block
of Hrazdan thermoelectric plant, full-fledged usage of Iran-Armenia
gas pipeline, the construction of Hydroelectric plant and etc.

But it is wrong to say that Armenia would join "Nabucco" project
automatically. To take part in that project special concentration
of forces is necessary, because from the point of view of geography
Armenia is not the most practical way to supply gas to Europe. It is
not excluded that by the coincidence of circumstances Iran-Armenia gas
pipeline can be extended so that it can re-export Iranian gas to Turkey
or Georgia, with the prospect of 0D its joining "Nabucco". It may
seem that such a policy contradicts to the spirit of Armenian-Russian
strategy partnership, but at the same time, if Iran joins "Nabucco",
it will be important for Russia that a part of Iranian gas would go
through Armenian gas pipeline network, which belongs to "ArmRusGasprom"
CJSC. Not to speak of the fact that this company will provide the
extension of Iran-Armenia gas pipeline flow capacity, build new
pipelines, which, however, will be at the balance of the company.

We think that at the current stage one can speak and think about the
prospects of Armenia joining "Nabucco" project. Of course, there is
a chance that this prospect will never become real for us, but active
policy may bring to positive results.

Armenia has acquired high level of energy system stability, which
is a result of real and long work done both by the authorities and
biggest energy company in the republic – "ArmRusGasprom". It is
necessary to preserve stability today, to provide conditions for
foreign investments, and to think about Armenian investments in the
foreign energy assets, which is quite real. At the same time under
the conditions when the countries of Central Asia are deprived of
direct energy transportation connection with global markets and Iran
is mainly closed for foreign investments, the acquisition of energy
assets in those countrie s is more plausible than after everything is
changed. And in our opinion Armenia is fated to acquire such assets
because without them the long-term stability of energy system may be
under the threat.