NEW STREAM

Hardly had the ink on the investment agreement on "Shah Deniz-2", which provides for a second stage in the development of this giant gas field and opens the road for Azerbaijani gas to Europe, dried out when a number of other producing countries began to take interest in using the emerging route for the exports of their "blue fuel" to the Old World.

During a visit of Azerbaijani Foreign Minister Elmar Mammadyarov to Iraq, the possibility of this country's access to the Southern Gas Corridor was also discussed. The Minister told journalists in the Iraqi capital that officials in Baghdad have already expressed an interest in joining the large-scale project, the Turkish Hurriyet agency reports citing Agence France Press.

"This is a huge project ... and it is possible, if Iraq is also interested, to deliver its natural gas through it," Mammadyarov said in a joint press conference with his Iraqi counterpart Hoshyar Zebari.

"Any other countries that have already expressed an interest, including Iraq, may also join the Southern Gas Corridor, and we are ready to start negotiations," Mammadyarov said.

In this case we are talking about the possibility of pumping Iraqi gas through the Trans-Anatolian (TANAP) pipeline in Turkey to the borders with Greece. From then on, the route can be different - the Trans Adriatic Pipeline (TAP) to Italy or the option involving the revival of Nabucco West to Austria.

Azerbaijan itself, based on its own resources, was going to revive Nabucco West in the next few years.

"I hope that in the coming years we will work together with our partners in Romania, Hungary and Austria to extend the pipeline in this direction", Azerbaijani President Ilham Aliyev said at the 17 December signing ceremony of the "Shah Deniz-2" final investment decision.

"There is the potential for expanding the Southern Gas Corridor in the coming years, as it will cover major gas suppliers in the Middle East. And this, in turn, can become a major contribution to the energy security of Europe. Competition in the European gas market will increase. And this will make prices on energy more affordable," British Foreign Secretary William Hague said at the ceremony.

Gas production in Azerbaijan, which has reserves of 3 trillion cubic meters, will increase to 40-50 billion cubic meters in the next few years taking into account the yet explored fields as such Babak, Umid, the deep-lying horizons of Azeri-Chirag-Gunashli, Absheron and several others. Naturally, the TAP pipeline with a capacity of 10 billion cubic meters will not be enough even with the possibility of its double extension. And this will make the revival of Nabucco West more relevant.

The involvement of Iraqi gas to the pipeline projects of TANAP, TAP and Nabucco West will greatly improve their economic viability and accelerate their return on investment.

Possessing vast oil resources (around 120-140 billion barrels), Iraq was not worried about the gas component until recent years. However, it was Iraq that was considered by the European Union as another source to fill the "frozen" Nabucco pipeline.

Gas reserves in this Middle Eastern country are close to 3 trillion cubic meters. However, most of these resources (90 per cent) are located in the northern part of the country - the province of Iraqi Kurdistan.

And here the main problem may only be associated with the political settlement of economic disputes. As R+ already reported, according to the Iraqi constitution, the revenues of the Kurdish autonomy should be shared between Baghdad and Erbil in the ratio of 83 and 17 per cent respectively. The Kurdish authorities are not against to such a division provided that the assets will be transferred directly into the accounts of the regional government, something the central leadership of Iraq disagrees with.

But in any case such differences are unlikely to slow down the process of turning Iraq into a regional gas player. Turkey too is taking steps to improve the situation as it is very interested in the stability of Iraq as a whole and in the Iraqi Kurdistan in particular. Indeed, in this case Turkey will be able to kill two birds with one stone - to try to finally resolve the old problem of Kurdish terrorists and to become an important energy hub on the way to Europe. In this issue Azerbaijan is also taking steps to facilitate the achievement of long-term strategic objectives of both Baku and Ankara. The talks of the Azerbaijani Foreign Minister in Iraq can also be viewed from this angle.

Another "client" for TANAP and its extensions into Europe could be Iran. The thaw in its relations with the West in light of the possible solution of Iran's nuclear problem opens the way for Iranian gas to Europe. After all, Iran, just like Iraq, was one of the resource bases for the Nabucco project and it was the disagreement over Tehran's nuclear program that left it without a share of the "gas cake" of Europe. But the replacement of the more conservative Mahmoud Ahmadinejad by liberal Hassan Rouhani has revived the idea of Iranian gas supplies to Europe.

Iran accounts for 18 per cent of the world's natural gas reserves. However, the country's share in global production is only 5 per cent and in world exports less than 1 per cent. In December 2013, the general director of the National Iranian Gas Export Company, Ali Reza Kameli, described the growth of Iran's share in the global gas market to 16 per cent as the main goal of the country. Gas exports are to be carried out not only by pipeline as is the case now, but also in the form of LNG. According to the Wall Street Journal, the Iranian authorities expect to receive up to $130 billion from gas trade every year.

In this regard, Iran and Turkey have begun negotiations on the construction of a pipeline that will ship Iranian gas to Europe via Turkey. At this stage it is expected that the pipeline will run through the central part of Turkey and Greece and its length will be about 5,000 kilometers. Even though there is no mention of the possibility of using the TANAP pipeline, this option is certainly worthy of attention. Given the fact that the construction of the TANAP 1,700 km in length will cost $10 billion, the cost of the Iranian route will be at least three times higher. Is it worth investing so much money if there is a possibility of using the existing infrastructure especially since the capacity of TANAP is sufficient at least for the initial volumes of transport? The initial capacity of the pipeline will be 20 billion cubic meters a year, while in the future it be increased up to 32 billion cubic meters.

In this regard, the Middle Eastern players on the gas market should "spur their horses" to be able to join the Azerbaijani gas stream.