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CASPIAN PIPELINE KNOTS TIGHTEN
Robert M Cutler
http://www.atimes.com/atimes/Central_Asia/ LD23Ag04.html
Apr 23, 2010
MONTREAL - Two events coincided this week to point towards further
complications in Euro-Caspian energy geo-economics. Azerbaijan has
signed a memorandum of understanding (MoU) with Georgia and Romania to
promote liquefied natural gas (LNG) transportation across the Black
Sea, and has separately announced the possibility of postponing a
decision on the start-up of production from the offshore Shah Deniz
Two natural gas field until 2017 (press reports cite various years
from 2016 to 2018).
The LNG MoU results directly from an energy conference held
earlier this year in Batumi, Georgia, where there were general
discussions of this possibility. The MoU agrees to establish a
company, Azerbaijan-Georgia-Romania Interconnector (or AGRI), in
Bucharest to evaluate the project's commercial, financial, legal
and technological aspects, including a feasibility study. It would
involve construction of a liquefaction plant, probably at Kulevi, on
the Georgian Black Sea coast, where the Azerbaijan state company SOCAR
owns an oil-export terminal, and a re-gasification plant at Constanta,
Romania. Connections through Romania to Hungary (Arad-Szeged connector)
and Central Europe then become possible.
Significant too is Romania's request that the European Union integrate
AGRI into its "Southern Corridor" strategy for gas supply, which
already includes the Nabucco and White Stream pipeline projects. Since
figures mentioned for the project reach a maximum of 7 billion cubic
meters per year (bcm/y), it seems unlikely that AGRI will replace
either Nabucco or White Stream, even if a compressed natural gas
(CNG) option for export to Bulgaria, also discussed at Batumi, is
later operationalized.
Either project would be significantly more expensive than the White
Stream undersea pipeline project, which seeks to take gas under the
Black Sea from Georgia to Romania, for the truly large quantities that
Europe would like to receive from via Azerbaijan from Turkmenistan. But
a series of offshore discoveries in the Azerbaijani sector of the
Caspian Sea over the past few years make it possible that even as much
as 24-32 bcm/y could eventually be sourced alone through Sangachal
(Azerbaijan's principal onshore terminal) without requiring recourse
to trans-Caspian deposits that could come on line later.
Indeed, of these various cross-Black Sea projects, White Stream is the
only strategic one; but for that reason there is greater difficulty
to insure the tectonic shift in geo-economics that its realization
would require. Romania is nevertheless asking the European Union
to elevate AGRI to the status of a European priority project and
integrate it into the EU's "Southern Corridor" strategy.
Published opinions vary over AGRI's eventual impact on various pipeline
projects in the region. According to some, it will threaten the White
Stream project. According to others, it will threaten the Nabucco
project, which would take gas to Europe through Turkey. However, the 7
bcm/y throughput estimate suggests that it really threatens neither,
at least not anytime soon, given the capital investment necessary
for liquefaction, degasification and construction of tankers to move
the product. Of the 7bcm/y, Romania would itself require only about
2 bcm/y.
The separate option for CNG, also discussed at the Batumi conference
and which would land in Bulgaria rather than Romania, would deliver
gas directly to the ship for compression. This technology could easily
be less expensive than LNG but is untried over long marine distances.
The figure discussed in the press for the two projects together (they
need not be implemented together) would be 8 bcm/y in a first phase and
up to 15-20 bcm/y when fully deployed. This is not enough to replace
either White Stream or Nabucco individually. They must really be
seen as work-arounds in the short- to medium-term for diversification
of Azerbaijan's gas export routes while awaiting the resolution and
coordination of decisions on the other, more "strategic", projects.
Thus in the latest of a series of authoritative statements by
Azerbaijani figures, SOCAR president Rovnag Abdullaev noted, "The
variety of these options will allow us to choose the right path." In
Azerbaijan, EU energy commissioner Guenther Oettinger described the
Nabucco project as the EU's top priority, with the Interconnector
Turkey-Greece-Italy (ITGI) second.
These accorded with the preferences of his Azerbaijani hosts, who
also mentioned the Trans-Adriatic Pipeline (TAP) pipeline already
planned by Swiss energy-trading company Elektrizitats-Gesellschaft
Laufenburg with Norway's StatoilHydro.
Although the TAP was mentioned two years ago in connection with ITGI
as an element in the South Stream project, intended to carry natural
gas by way of the Black Sea from Russia to Bulgaria, no explicit
mention of this larger Russian-sponsored project was in evidence.
Last month, a public disagreement between Gazprom and its prospective
South Stream partner, Italian firm Eni, came to light when Eni's
chief executive, speaking in Houston and responding to the Turkish
parliament's approval of the Nabucco Intergovernmental Agreement,
bruited the possibility of somehow combining Nabucco with South Stream,
while Gazprom's spokesmen strongly demurred. Some European observers
now refer to the combination of ITGI with TAP outside the South Stream
context as "Nabucco light".
On balance, AGRI is at least as likely to make Nabucco obsolete as it
is to make White Stream obsolete, if for no reason other than that
the latter is further advanced than the former from the technical
and feasibility-study standpoint. Nabucco depends on an investment
decision on Azerbaijan's Shah Deniz Two offshore natural gas deposit,
and this week people speaking to the press in Baku suggested that
such a decision might be further postponed. The geo-economics behind
that development are the following.
At the beginning of March, Azerbaijani and Turkish diplomats publicly
indicated that they had reached an agreement in principle concerning
the price that Turkey would pay for gas from the offshore Shah
Deniz deposit for its own domestic consumption. Such agreement is a
precondition for settling the related but separate issue of conditions
for Shah Deniz gas to transit Turkey to Europe through the Nabucco
pipeline. (See Locks turn in Nabucco door, Asia Times Online, March 12,
2010.) Earlier this month, however, the Turkish side publicly stated
that there had in fact been no meetings by then for six weeks (though
this is not necessarily the same as a total lack of communication).
In response, the Azerbaijani side this week stated that it may have to
postpone development of Shah Deniz Two, planned for 2014, for Nabucco,
by several years. Oettinger, the EU energy commissioner, had already
caused a stir this month by suggesting the same idea in an interview
to Suddeutsche Zeitung, which he later clarified by indicating that
the indirect quotation had (perhaps) not fully captured belief that
construction would still begin in 2014.
The Nabucco project company, for its part, holds to the earlier
schedule.
Azerbaijani negotiators with the Turkish side over the bilateral
gas trade have confirmed that the two sides are closer as to price
for earlier contracted non-Nabucco quantities for domestic Turkish
consumption, but observe that their counterparts in Ankara have still
not come to terms about the quantities, transit conditions and tariffs
for these volumes. Inasmuch as there is a Turkish proposal still on
the table from February, it is fair to conclude that there has been
some movement towards agreement but not enough to seal the deal.
Washington's policy in the region and the question of settling the
issue of the disputed territory of Nagorno-Karabakh, an enclave
within Azerbaijan now with a nearly exclusive Armenian population,
come into play here.
Nagorno-Karabakh is internationally recognized as part of Azerbaijan,
which has not exercised power over most of the region since 1991.
Reuters this week quoted Azerbaijan President Ilham Aliev's chief
assistant for public policy Ali Hasanov as asserting that the "United
States does not implement policy towards Azerbaijan as a strategic
partner". He suggested that Azerbaijan might therefore be obliged to
"reconsider our policy towards the United States". Circumstances give
credence to Hasanov's view.
Combined with the US administration's fumbling of the question of its
attitude towards a resolution in a House of Representatives committee
labeling the mass death of Armenians under Turkish administration in
the Ottoman Empire during World War I a "genocide", it is reasonable to
suppose that US's energy policy towards Azerbaijan has been influenced
by the Democratic Party's internal need to consider the views of the
Armenian lobby. Besides its influence on the national level inside
the Beltway, the lobby is especially strong in politics in California,
a key state for domestic US electoral politics.
Reuters also quoted Azerbaijan's Deputy Foreign Minister Araz Azimov as
separately calling the US policy on Nagorno-Karabakh "mistaken" since
Washington's state policy sought to promote a rapprochement between
Turkey and Armenia without reference to the Karabakh issue. This
strategy of a bilateral rapprochement seemed to bear fruit with
the signature last autumn of diplomatic protocols between Turkey
and Armenia.
However, there was disagreement from the start between the two sides
over their interpretation. According to press reports from the time,
US Secretary of State Hillary Clinton's personal intervention was
required to prevent each side from making simultaneous unilateral
statements at the signing ceremony itself, setting out their respective
understandings of what that language meant.
In January 2010, Armenia's Constitutional Court placed major
limitations on the implementation of the terms of the protocols and
also clarified certain interpretations that Armenian state policy is
now obliged to respect. It is highly unlikely that the Turkish Grand
National Assembly will ratify the protocols unless the Constitutional
Court revisits its decision, which is in turn itself highly unlikely.
Turkey now says that it will ratify the accords with Armenia only if
Armenia makes concessions on Karabakh, a linkage that Armenia rejects,
and which the decision of its Constitutional Court excludes. In the
past three days, Turkey has taken steps seeking to mediate between
Azerbaijan and Armenia over the Karabakh question, and Armenia has
rejected the overtures.
Partly under the influence of domestic US politics, Washington helped
to motivate the Turkish-Armenian rapprochement, convincing itself in
the process that success in this matter would help resolve pipeline
routing questions by generally defusing tension in the region. It
has proven impossible to accomplish this in the absence of a Karabakh
settlement in which, necessarily, Azerbaijan must play an important
role, as it has done over nearly two decades through the Minsk Group
process of the Organization for Security and Cooperation in Europe.
That is the context in which the LNG and CNG projects across the
Black Sea are neither trivial nor unimportant. The demonstration of
viability of CNG technology would factor into discussions concerning
the development of Turkmenistan's natural gas deposits for export
across the Caspian Sea and South Caucasus to European markets. But
the LNG and CNG trans-Black Sea projects are no substitute for
implementation of the EU's "Southern Corridor" strategy.
The establishment this month of a bilateral Bulgarian-Turkmenistani
trade commission in the margin of an international gas conference
in Ashgabad does suggest that Bulgaria is not averse to the idea of
becoming a principal East European terminus for trans-Caspian gas,
possibly with CNG as a preferred technology. This could put it in
eventual competition with Romania's Constanta port, the designated
destination for "strategic" quantities not only for the aforementioned
LNG project but also for the planned White Stream undersea pipeline.
It has not at all helped that the United States has for over nine
months now been represented in the Azerbaijan capital only at the
charge d'affaires level, the longest period that the US has gone
without an ambassador in Baku since relations were established in
1992. That by itself makes strong pursuit of any bilateral policy
more difficult.
In this connection it bears remarking that the Armenian National
Committee of America last August intervened publicly, through an open
letter to Secretary of State Clinton, requesting a meeting with her,
against the nomination as US ambassador to Azerbaijan, as had been
rumored in the press, of a career foreign service officer having
nearly two decades experience in Caspian Sea Basin energy matters.
Dr Robert M Cutler (www.robertcutler.org), 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.
Robert M Cutler
http://www.atimes.com/atimes/Central_Asia/ LD23Ag04.html
Apr 23, 2010
MONTREAL - Two events coincided this week to point towards further
complications in Euro-Caspian energy geo-economics. Azerbaijan has
signed a memorandum of understanding (MoU) with Georgia and Romania to
promote liquefied natural gas (LNG) transportation across the Black
Sea, and has separately announced the possibility of postponing a
decision on the start-up of production from the offshore Shah Deniz
Two natural gas field until 2017 (press reports cite various years
from 2016 to 2018).
The LNG MoU results directly from an energy conference held
earlier this year in Batumi, Georgia, where there were general
discussions of this possibility. The MoU agrees to establish a
company, Azerbaijan-Georgia-Romania Interconnector (or AGRI), in
Bucharest to evaluate the project's commercial, financial, legal
and technological aspects, including a feasibility study. It would
involve construction of a liquefaction plant, probably at Kulevi, on
the Georgian Black Sea coast, where the Azerbaijan state company SOCAR
owns an oil-export terminal, and a re-gasification plant at Constanta,
Romania. Connections through Romania to Hungary (Arad-Szeged connector)
and Central Europe then become possible.
Significant too is Romania's request that the European Union integrate
AGRI into its "Southern Corridor" strategy for gas supply, which
already includes the Nabucco and White Stream pipeline projects. Since
figures mentioned for the project reach a maximum of 7 billion cubic
meters per year (bcm/y), it seems unlikely that AGRI will replace
either Nabucco or White Stream, even if a compressed natural gas
(CNG) option for export to Bulgaria, also discussed at Batumi, is
later operationalized.
Either project would be significantly more expensive than the White
Stream undersea pipeline project, which seeks to take gas under the
Black Sea from Georgia to Romania, for the truly large quantities that
Europe would like to receive from via Azerbaijan from Turkmenistan. But
a series of offshore discoveries in the Azerbaijani sector of the
Caspian Sea over the past few years make it possible that even as much
as 24-32 bcm/y could eventually be sourced alone through Sangachal
(Azerbaijan's principal onshore terminal) without requiring recourse
to trans-Caspian deposits that could come on line later.
Indeed, of these various cross-Black Sea projects, White Stream is the
only strategic one; but for that reason there is greater difficulty
to insure the tectonic shift in geo-economics that its realization
would require. Romania is nevertheless asking the European Union
to elevate AGRI to the status of a European priority project and
integrate it into the EU's "Southern Corridor" strategy.
Published opinions vary over AGRI's eventual impact on various pipeline
projects in the region. According to some, it will threaten the White
Stream project. According to others, it will threaten the Nabucco
project, which would take gas to Europe through Turkey. However, the 7
bcm/y throughput estimate suggests that it really threatens neither,
at least not anytime soon, given the capital investment necessary
for liquefaction, degasification and construction of tankers to move
the product. Of the 7bcm/y, Romania would itself require only about
2 bcm/y.
The separate option for CNG, also discussed at the Batumi conference
and which would land in Bulgaria rather than Romania, would deliver
gas directly to the ship for compression. This technology could easily
be less expensive than LNG but is untried over long marine distances.
The figure discussed in the press for the two projects together (they
need not be implemented together) would be 8 bcm/y in a first phase and
up to 15-20 bcm/y when fully deployed. This is not enough to replace
either White Stream or Nabucco individually. They must really be
seen as work-arounds in the short- to medium-term for diversification
of Azerbaijan's gas export routes while awaiting the resolution and
coordination of decisions on the other, more "strategic", projects.
Thus in the latest of a series of authoritative statements by
Azerbaijani figures, SOCAR president Rovnag Abdullaev noted, "The
variety of these options will allow us to choose the right path." In
Azerbaijan, EU energy commissioner Guenther Oettinger described the
Nabucco project as the EU's top priority, with the Interconnector
Turkey-Greece-Italy (ITGI) second.
These accorded with the preferences of his Azerbaijani hosts, who
also mentioned the Trans-Adriatic Pipeline (TAP) pipeline already
planned by Swiss energy-trading company Elektrizitats-Gesellschaft
Laufenburg with Norway's StatoilHydro.
Although the TAP was mentioned two years ago in connection with ITGI
as an element in the South Stream project, intended to carry natural
gas by way of the Black Sea from Russia to Bulgaria, no explicit
mention of this larger Russian-sponsored project was in evidence.
Last month, a public disagreement between Gazprom and its prospective
South Stream partner, Italian firm Eni, came to light when Eni's
chief executive, speaking in Houston and responding to the Turkish
parliament's approval of the Nabucco Intergovernmental Agreement,
bruited the possibility of somehow combining Nabucco with South Stream,
while Gazprom's spokesmen strongly demurred. Some European observers
now refer to the combination of ITGI with TAP outside the South Stream
context as "Nabucco light".
On balance, AGRI is at least as likely to make Nabucco obsolete as it
is to make White Stream obsolete, if for no reason other than that
the latter is further advanced than the former from the technical
and feasibility-study standpoint. Nabucco depends on an investment
decision on Azerbaijan's Shah Deniz Two offshore natural gas deposit,
and this week people speaking to the press in Baku suggested that
such a decision might be further postponed. The geo-economics behind
that development are the following.
At the beginning of March, Azerbaijani and Turkish diplomats publicly
indicated that they had reached an agreement in principle concerning
the price that Turkey would pay for gas from the offshore Shah
Deniz deposit for its own domestic consumption. Such agreement is a
precondition for settling the related but separate issue of conditions
for Shah Deniz gas to transit Turkey to Europe through the Nabucco
pipeline. (See Locks turn in Nabucco door, Asia Times Online, March 12,
2010.) Earlier this month, however, the Turkish side publicly stated
that there had in fact been no meetings by then for six weeks (though
this is not necessarily the same as a total lack of communication).
In response, the Azerbaijani side this week stated that it may have to
postpone development of Shah Deniz Two, planned for 2014, for Nabucco,
by several years. Oettinger, the EU energy commissioner, had already
caused a stir this month by suggesting the same idea in an interview
to Suddeutsche Zeitung, which he later clarified by indicating that
the indirect quotation had (perhaps) not fully captured belief that
construction would still begin in 2014.
The Nabucco project company, for its part, holds to the earlier
schedule.
Azerbaijani negotiators with the Turkish side over the bilateral
gas trade have confirmed that the two sides are closer as to price
for earlier contracted non-Nabucco quantities for domestic Turkish
consumption, but observe that their counterparts in Ankara have still
not come to terms about the quantities, transit conditions and tariffs
for these volumes. Inasmuch as there is a Turkish proposal still on
the table from February, it is fair to conclude that there has been
some movement towards agreement but not enough to seal the deal.
Washington's policy in the region and the question of settling the
issue of the disputed territory of Nagorno-Karabakh, an enclave
within Azerbaijan now with a nearly exclusive Armenian population,
come into play here.
Nagorno-Karabakh is internationally recognized as part of Azerbaijan,
which has not exercised power over most of the region since 1991.
Reuters this week quoted Azerbaijan President Ilham Aliev's chief
assistant for public policy Ali Hasanov as asserting that the "United
States does not implement policy towards Azerbaijan as a strategic
partner". He suggested that Azerbaijan might therefore be obliged to
"reconsider our policy towards the United States". Circumstances give
credence to Hasanov's view.
Combined with the US administration's fumbling of the question of its
attitude towards a resolution in a House of Representatives committee
labeling the mass death of Armenians under Turkish administration in
the Ottoman Empire during World War I a "genocide", it is reasonable to
suppose that US's energy policy towards Azerbaijan has been influenced
by the Democratic Party's internal need to consider the views of the
Armenian lobby. Besides its influence on the national level inside
the Beltway, the lobby is especially strong in politics in California,
a key state for domestic US electoral politics.
Reuters also quoted Azerbaijan's Deputy Foreign Minister Araz Azimov as
separately calling the US policy on Nagorno-Karabakh "mistaken" since
Washington's state policy sought to promote a rapprochement between
Turkey and Armenia without reference to the Karabakh issue. This
strategy of a bilateral rapprochement seemed to bear fruit with
the signature last autumn of diplomatic protocols between Turkey
and Armenia.
However, there was disagreement from the start between the two sides
over their interpretation. According to press reports from the time,
US Secretary of State Hillary Clinton's personal intervention was
required to prevent each side from making simultaneous unilateral
statements at the signing ceremony itself, setting out their respective
understandings of what that language meant.
In January 2010, Armenia's Constitutional Court placed major
limitations on the implementation of the terms of the protocols and
also clarified certain interpretations that Armenian state policy is
now obliged to respect. It is highly unlikely that the Turkish Grand
National Assembly will ratify the protocols unless the Constitutional
Court revisits its decision, which is in turn itself highly unlikely.
Turkey now says that it will ratify the accords with Armenia only if
Armenia makes concessions on Karabakh, a linkage that Armenia rejects,
and which the decision of its Constitutional Court excludes. In the
past three days, Turkey has taken steps seeking to mediate between
Azerbaijan and Armenia over the Karabakh question, and Armenia has
rejected the overtures.
Partly under the influence of domestic US politics, Washington helped
to motivate the Turkish-Armenian rapprochement, convincing itself in
the process that success in this matter would help resolve pipeline
routing questions by generally defusing tension in the region. It
has proven impossible to accomplish this in the absence of a Karabakh
settlement in which, necessarily, Azerbaijan must play an important
role, as it has done over nearly two decades through the Minsk Group
process of the Organization for Security and Cooperation in Europe.
That is the context in which the LNG and CNG projects across the
Black Sea are neither trivial nor unimportant. The demonstration of
viability of CNG technology would factor into discussions concerning
the development of Turkmenistan's natural gas deposits for export
across the Caspian Sea and South Caucasus to European markets. But
the LNG and CNG trans-Black Sea projects are no substitute for
implementation of the EU's "Southern Corridor" strategy.
The establishment this month of a bilateral Bulgarian-Turkmenistani
trade commission in the margin of an international gas conference
in Ashgabad does suggest that Bulgaria is not averse to the idea of
becoming a principal East European terminus for trans-Caspian gas,
possibly with CNG as a preferred technology. This could put it in
eventual competition with Romania's Constanta port, the designated
destination for "strategic" quantities not only for the aforementioned
LNG project but also for the planned White Stream undersea pipeline.
It has not at all helped that the United States has for over nine
months now been represented in the Azerbaijan capital only at the
charge d'affaires level, the longest period that the US has gone
without an ambassador in Baku since relations were established in
1992. That by itself makes strong pursuit of any bilateral policy
more difficult.
In this connection it bears remarking that the Armenian National
Committee of America last August intervened publicly, through an open
letter to Secretary of State Clinton, requesting a meeting with her,
against the nomination as US ambassador to Azerbaijan, as had been
rumored in the press, of a career foreign service officer having
nearly two decades experience in Caspian Sea Basin energy matters.
Dr Robert M Cutler (www.robertcutler.org), 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.