CHANGING THE ENERGY MAP OF THE WORLD

A new source of diversification of energy supplies, a vital region in ensuring energy security, changing the energy map of the world - these were the key phrases at the traditional 21st exhibition and conference "Oil and Gas of the Caspian", that was held in Baku.

And this is not surprising - the conference was held following the adoption of an investment decision on the implementation of the Shah Deniz-2 [Sah Daniz-2] project, which is designed to deliver natural gas from Azerbaijan to Europe, the choice of the gas export route (the Trans-Adriatic Pipeline Project - TAP) and the conclusion of contracts for the sale of the gas.

In the new changing world natural gas is acquiring special importance and its role in ensuring energy security is increasing which, as Azerbaijani President Ilham Aliyev noted at the opening of the exhibition, is directly linked with the national security of countries.

In this respect Azerbaijan has already ensured its own energy security - the oil and gas produced in the country meet its own requirements and the country is self-sufficient in electricity. Moreover, all these three sources of providing energy security are being exported abroad with the prospect of expanding both volumes and geography.

As far as the oil component is concerned, all is already quite clear: three oil pipelines - Baku-Novorossiysk, Baku-Supsa and Baku-Tbilisi-Ceyhan - are fully operational and Azerbaijani oil is highly valued not only in the Black Sea and Mediterranean regions, but also in South-East Asia and America. Incidentally, according to a recent report of the Wood Mackenzie company, Azerbaijan's additional revenues from the sales of Azeri Light oil for 2008-2013 amounted to 1.7bn dollars. And 1.1bn dollars was generated as a result of SOCAR Trading SA providing reliable and high-quality long-distance supplies of oil, and the rest as a result of external influences of the market, i.e. the high quality of Azeri Light compared with Brend and the impact of the Libyan crisis.   

Meanwhile, gas is now starting to play the role of lead violin throughout the world. And possessing fairly large reserves of 2.5-3 trillion cu m of natural gas allows Azerbaijan to lay claim to a significant share in the big game.

The main burden here, of course, lies with the Shah Deniz field, which has some of the world's biggest reserves of gas at 1.2 trillion cu m. Thanks to the first stage of the development of this field about 9bn cu m of gas are already being produced annually and the Baku-Tbilisi-Erzurum gas pipeline has been built, allowing gas to be exported to Georgia and Turkey.

But regional markets are small for a country with big ambitions, backed up by broad opportunities. "We must, of course, reach out to new markets because our existing large gas potential cannot be restricted to the regional market only. We need large markets, and in these markets there is a demand for Azerbaijani gas. The implementation of the 'Southern Gas Corridor' depends to a considerable degree on the development of the Shah Deniz field…I should also point out that the Trans-Anatolia Gas Pipeline (TANAP) and the Trans-Adriatic gas pipeline projects will provide Europe with gas from a new source. This is not just a new route. It is a new source, and that is why this project is so special," President Ilham Aliyev said at the opening of the exhibition.

This was the main subject of discussion at the conference which ran alongside the exhibition. According to Charles Hendry, the British prime minister's trade envoy in Azerbaijan, Kazakhstan and Turkmenistan, in the next few decades Azerbaijan will play a vitally important role in providing gas to the European market. "Azerbaijan is at the heart of the region and the country's large energy resources are fundamental for the European and global energy market," he said. The envoy stressed that the "Southern Gas Corridor", which is designed for the transportation of Caspian gas to European markets, will play an important part in the diversification of supplies to the EU. 

With the deterioration in relations between Russia and Ukraine and the possibility of a new gas war, the importance of the "Southern Gas Corridor" has increased even more, a point that was made by Daniel Stein, Senior Advisor in the Bureau of Energy Resources of the US State Department. "Energy security means the security of the nation. And European national security is closely linked with general security," Stein said. The advisor stressed that the final investment decision on the Shah-Deniz-2 project, which was taken at the end of last year, was an important step on the way to increasing Europe's energy security.

At the same time, Stein pointed out that despite the small volumes of supplies of Azerbaijani gas (10bn cu m annually) to Europe via the "Southern Gas Corridor", the existence of this source and the new route, to which Iraq and Turkmenistan may be connected in the future, is important. In connection with this, Stein once again reaffirmed US' support for the EU's efforts in the context of the negotiations between Azerbaijan and Turkmenistan on forming a legal base for the Trans-Caspian pipeline.

Europe's demand for additional sources of gas is important to Azerbaijan when it comes to reaching out to new markets. Specifically, the construction of the TAP pipeline via Albania makes the gasification of that country possible. In the future Azerbaijani gas could reach Bosnia and Herzegovina, as well as Croatia, via this country, which will contribute to the creation of a trans-Balkan gas market. And TAP, the terminus of which will be southern Italy, could change the direction of gas supplies in this country. According to Kjetil Tungland, TAP's managing director, Italy has an extensive network of pipelines linking the country with Western and Central Europe.

"In Italy the gas flows from north to south. TAP could change the direction of the flow to Germany with an outlet to the markets of Western Europe and Austria, and on to Central Europe," Tungland said, noting that as part of the implementation of the TAP project, 15 tenders for the construction of sectors in Greece, Albania, Italy, the delivery of pipes, and so on, will be announced in the summer.

Of no less importance in providing Europe's general energy security is the outlet of Azerbaijani gas to countries which at the moment have 80-100 per cent dependence on one source. In this connection, the first to obtain benefit will be Greece and Bulgaria, who have 66- and 100-per cent dependence respectively on Russian gas.

According to Lachezar Matev, a spokesman of the Bulgarian foreign ministry, it is the countries of South-East Europe that are the most vulnerable because there is no alternative to supplies from the East. "We don't want to be so dependent on Russia, especially in the light of the events in Ukraine," he said. To reduce dependence the countries of Eastern Europe intend to merge their gas-transportation networks into a single North-South corridor. This is an initiative of seven countries - Greece, Bulgaria, Romania, Hungary, Slovakia, Czech Republic and Poland. Apart from the branching off of domestic networks, this initiative provides for opportunities of obtaining gas from new sources and possibilities for the construction of gas storage tanks and terminals for receiving liquefied gas. And in this connection the Caspian region, and Azerbaijan in particular, which will provide a new source not only for this initiative but also for a further outlet to the markets of the Baltic region that are also 100-per cent dependent on Russian gas, acquires strategic importance. This idea was expressed by Lithuania's Minister for Energy Jaroslav Neverovich. "We are trying to diversify supplies and to create a new system and we are working on the construction of a liquefied gas terminal in Klaipeda, which will help to diversify gas supplies to Lithuania, Latvia and Estonia. Azerbaijan which, by way of this system can deliver its own gas to the region, is also playing an important role in this question," the minister said.

Ukraine has also suggested its own possibilities for Azerbaijani gas. According to Oleksandr Todiychuk, deputy head of Ukraine's Naftohaz company, Ukraine has large gas storage tanks with a volume of 31bn cu m, of which half is virtually unused. "Ukraine could become an eastern gas hub, bearing in mind the possibilities of the gas-transportation system and storage tanks. Azerbaijan could take advantage of our potential when considering the increase in the importance of the gas swap market," Todiychuk said.

As we can see, Europe sees Azerbaijan as the main source of providing energy security, and the "Southern Gas Corridor" as the main route for the supply of energy resources. In the long term this route will also help to draw gas from the eastern seaboard of the Caspian, Iraq and the Near East to Europe. Especially as pipeline gas will still be more advantageous from the point of view of price compared with liquefied gas. The "Southern Gas Corridor" will not only bring new sources of gas to Europe, but will also help improve the system of reliability of gas supplies, and that means energy security, too. In this connection, Europe should start thinking about ensuring Azerbaijan's security, because it is no secret that the Nagornyy Karabakh conflict and Armenia's occupation of 20 per cent of Azerbaijan's territory is the main destabilizing factor in the South Caucasus region. And export pipelines run just a few dozen kilometres from the conflict area. This factor should prompt European structures into including the speedy settlement of the conflict in their own energy security systems.