EU practices acrobatics with Caspian gas flip-flop
By Robert M Cutler

MONTREAL – The changing geo-economic environment around the Central
Asian and South Caucasus hydrocarbon energy producers is reflected in
a public flip-flop by a major European Union official this week.

At a news conference in Berlin, European Union Energy Commissioner
Gunther Oettinger, who last November became the first EU figure to
admit that the EU-sponsored Nabucco and Russian-sponsored South Stream
gas pipeline projects were rivals, reversed course and declared they
were not actually competing projects.

Nabucco seeks to take gas from the Caspian Sea region through Turkey
to Southeast and Central Europe. Russia seeks to lay the South Stream
pipeline across the bed of the Black Sea to the Balkans, although its
Prime Minister Vladimir Putin is ready to scrap the project if he can
find another way to block Nabucco. (See Compressed gas on the Caspian
table, Asia Times Online, March 25, 2011.)

Saying that the EU positively evaluates Russia’s contribution to
European energy security, Oettinger publicly asked Russia not to put
pressure on Central Asian countries against participation in the
Nabucco project. Oettinger said that the EU’s Southern Gas Corridor
(SGC), a program adopted in May 2009 to channel natural gas to Europe
from the Caspian Sea basin through Turkey and under the Black Sea,
rather than through Russia, was simply the shortest route. (See
Nabucco is still alive, Asia Times Online, July 3, 2009.)

It was an odd performance, of which the main purpose may have been to
conform to the new EU line that economics, not politics, will
determine European preferences over natural gas pipelines from Central
Asia. In this connection, a high-level Azerbaijani figure publicly
disclosed last week that his government was working on two documents
with Turkmenistan with a view towards facilitating the construction of
a Trans-Caspian Gas Pipeline (TCGP).

The first document is a political declaration in which the two
countries affirm that they are ready to assist in creating the SGC.
The second would define more specifically the rights and
responsibilities of the two countries with respect to the physical
project construction, including legal provisions.

The latter document in particular signifies that there is definite and
specific progress in creating the conditions for overcoming the
territorial disagreement between Azerbaijan and Turkmenistan over
delimitation of subsoil Caspian Sea mineral and energy rights sectors.

The press leak to the media comes three weeks after Azerbaijan’s
parliament ratified a declaration that its government had signed with
the EU on the SGC project.

There are hints that Russia is not the only player discontent with the
specific pipelines that the EU has defined for inclusion in the SGC.
These are: Nabucco; White Stream, which would go under the Black Sea
from Georgia to Romania; and the Italy-Turkey-Greece Interconnector.
For example, the British firm BP has suggested that it might prefer to
evacuate 10 billion cubic meters per year (bcm/y) of gas from
Azerbaijan’s Shah Deniz Two deposit by some route other than Nabucco.

The implication is that BP would like to build another string of the
South Caucasus Pipeline (running from Baku through Georgia into
Turkey), of which the throughput volume is 8 bcm/y but which is not
filled entirely to capacity. BP has in mind to transit this gas to
southern Italy through Turkey and the Trans-Adriatic Pipeline (TAP).
(See Nabucco, and Baku, filling up on gas, Asia Times Online, May 14,
2010.)

The reason behind this is the fact that BP’s other major partner in
Shah Deniz, the Norwegian firm Statoil owning 25.5% of that
development, also owns 42.5% of the TAP project, which is planned to
transit Greece and Albania, then passing under the Adriatic Sea to
reach southeastern Italy.

However, it is not certain that this idea by itself would be better
received in Baku than the Nabucco route. That is because it does not
make clear that Azerbaijan would own the gas for sale in addition to
merely supplying it. For Azerbaijan has made it clear that it wishes
not only to supply gas to Nabucco but also to sell gas to countries
along the route to Austria (ie, Bulgaria, Romania, and Hungary).

Moreover, Azerbaijan also wants to be able to sell to adjacent
countries in the region such as Albania, Croatia, the Czech Republic,
Macedonia, Slovakia, and so forth. Indeed, these countries in general
are those with the greatest gas dependence on limited number of
sources.

This possibility could be implemented through a series of relatively
inexpensive interconnectors to create a gas ring in the region. The
European Commission (EC) adopted such a decision in principle nearly
three years ago, calling it a “supergrid” project permitting members
states to share electric power from different sources.

However, like so many policy initiatives born in Brussels, the
implementation is the prerogative of the national governments, which
may have their own motives for ignoring the suggestions or adopting
them only in part. Moreover, due to industrial history in the energy
sector, such interconnectors for a gas ring are much easier to
implement in Southeast and Central Europe than among, for example, the
founding members of the European Economic Community from the 1950s.

If the EU cannot find itself able to provide a window for funding such
projects, then the European Bank for Reconstruction and Development
(EBRD) should step in through its well-established cooperation with
the Central European Initiative (CEI) and the CEI’s Secretariat as
well as with the associated Central European Chambers of Commerce
Initiative.

Indeed, under the EBRD’s aegis, the CEI is already involved in five
EU-funded projects, including a “transport axis coordination” project
in Southeast Europe. The fact that Azerbaijan is able to make and
stick to a demand to be the seller of its own gas in Southeast and
Central Europe is in radical contrast to its relative powerlessness in
negotiations with Western energy majors in the 1990s.

The emergence of the country’s relative autonomy and its capacity to
assert its own interests with at least some success reflect the
beginning of the unfolding of a new phase of energy geo-economics in
the region, to which I pointed over a year ago. (See A delicate dance
of power, Asia Times Online, December 24, 2009.)

Dr Robert M Cutler, educated at the Massachusetts Institute of
Technology and The University of Michigan, has researched and taught
at universities in the United States, Canada, France, Switzerland, and
Russia. Now senior research fellow in the Institute of European,
Russian and Eurasian Studies, Carleton University, Canada, he also
consults privately in a variety of fields.

From: A. Papazian