"THE ICE HAS BEEN BROKEN!"

Towards the end of June two major events occurred simultaneously - two important stages towards implementing plans for the export of Azerbaijani gas to Europe were overcome. First, the signing of an international treaty between Azerbaijan and Turkey of a project for the construction of a Trans-Anatolian Gas Pipeline (Trans Anadolu Pipeline, TANAP), designed for the transportation of Azerbaijani gas from the Georgian-Turkish border to Turkey's western borders, took place in Istanbul.

Second, a consortium for the development of the Shah Deniz field completed its appraisal of potential routes for the export of gas to South-east and Central Europe, as a result of which Nabucco West was chosen as another priority project for the delivery of gas in this direction. It will be recalled that in February 2012, of the two options for the routes for the export of Azerbaijani gas towards Italy (the TAP gas pipeline, the Trans Adriatic Pipeline and ITGI, the Interconnector Turkey-Greece-Italy), the TAP project was chosen for further appraisal.

And so, the third and final official link in this chain - the choice of the final route between what is now Nabucco West and the TAP project, i.e. deciding whether our gas will go in the Italian direction or via Bulgaria to Austria - remains. At this point the formation of the legal basis for the supplies of Azerbaijani gas in a European direction may be considered completed.

The basis of a gas strategy

Let us note to start with that the contract on TANAP was signed on 26 June in Istanbul by Azerbaijani President Ilham Aliyev and Turkish Prime Minister Recep Tayyip Erdogan. The contract was also signed by Azerbaijani Minister for Industry and Power Engineering Natiq Aliyev and the Turkish Minister for Energy and Natural Resources Taner Yildiz. An interim agreement between BOTAS and SOCAR (the Azerbaijan State Oil Company) on organizational questions at the TANAP project company was signed by Natiq Aliyev, Taner Yildiz, the Azerbaijani State Oil Company's President Rovnaq Abdullayev and the deputy General Director of BOTAS Mehmet Konuk.

It will be recalled that the Trans Anadolu Pipeline will be implemented in four stages. The first deliveries through the pipeline will start in 2018. At the second stage, i.e. by 2020, the gas pipeline's capacity will increase to 16bn cu m. By 2023 (the third stage) the pipeline's capacity will be 23bn cu m. And the fourth and final stage will be implemented in 2026. By that year the pipeline will have a throughput capacity of about 31bn cu m. The cost of construction is estimated at $7bn.

As Recep Tayyip Erdogan said at the signing ceremony, with the implementation of the project our countries will be making a particularly valuable contribution to the diversification of energy sources of the European Union, and at the same time will undertake an important commitment in Europe's energy security. "In other words, all these projects, which form the East-West energy corridor, are strategic steps aimed at strengthening security and peace and ensuring economic development in the region."

President Ilham Aliyev noted that the major projects jointly implemented by the two countries today have brought new shades of colour to the world's energy map. "In recent years talks and discussions have been conducted on the transportation of Azerbaijani gas to Europe and various measures are being carried out. We have seen how these discussions have been continuing uninterrupted, but there has been no result. In carrying out, as always, bilateral consultations, we decided that Turkey and Azerbaijan should assume leadership in this question and jointly implement this project. This project is exclusively Turkish and Azerbaijani, which is confirmed by the documents signed today. We are implementing this project ourselves, by our own efforts, with our own money and our own technical potential," the head of state said.

SOCAR's president Rovnaq Abdullayev for his part said that, apart from everything else, TANAP is a project which is of extreme importance for the supply of gas for Turkey's domestic market and for ensuring the energy security of a fraternal country. It will be noted that, according to Erdogan, Turkey first planned to purchase 6bn and then 10bn cu m of natural gas. "The main aim is to bring this figure to 50bn cu m," he stressed.

It will be recalled that in December of last year Azerbaijan and Turkey signed a memorandum of mutual understanding on the creation of a consortium which will build a gas pipeline for the delivery of gas from the Azerbaijani maritime Shah Deniz field to Europe via Turkey. Today SOCAR has an 80% participatory interest in the TANAP project, but 20% belongs to the Turkish side in the shape of TPAO and BOTAS (TPAO will possess 15% in the project and BOTAS 5%, because it will be responsible for the transportation of 6bn cu m of gas annually through the pipeline for Turkey's domestic consumption). At the same time, in the future, if any company wants to take part in the project SOCAR is prepared to concede half its share. It is well known that the BP company has already given its consent to participate in TANAP, and it also expects other participants in the Shah Deniz consortium, such as the Norwegian Statoil and the French TOTAL to join the project as well.

In the future TANAP will be able to join any gas export project which will be chosen in a European direction.

A very important element of the agreement is the fact that it will be regulated not by Turkish legislation, but European. So, the headquarters of the TANAP consortium will be in the Netherlands, i.e. a neutral country.

So TANAP is quite an exclusive project which will make Baku an important player not only on the world gas market, but also a major transit of gas. Bearing in mind that Azerbaijan possesses huge supplies of gas (the stocks of Shah Deniz alone are estimated at 1.2 trillion cu m, and confirmed supplies of gas taking into account other fields in Azerbaijan are 2.6 trillion cu m), the TANAP project will for long years to come ensure Azerbaijan's interests. But today this is the biggest transit project in which Azerbaijan has such a large participatory interest.

The battle of the pipelines - the beginning of the end

Almost immediately after the signing ceremony in Istanbul this step was welcomed by the Trans-Adriatic Pipeline and Nabucco West projects. Logically another pipeline company should have been included in this list - SEEP, with the participation of the British-owned BP concern. However its "silent" position, it transpired, could be easily explained - the Shah Deniz consortium announced on 28 June that it had chosen Nabucco West as a priority as a potential supplier of Azerbaijani gas to central Europe, thereby reducing the number of claimants for this role to two companies. 

Now the consortium will be cooperating with this project to determine its capacity, technical potential and commercial conditions. On the same conditions in February of this year the Trans-Adriatic gas pipeline project was selected as a potential route for the export of gas to Italy. An agreement on cooperation was concluded between the Shah Deniz consortium and TAP. And by the middle of 2013 the partners in Sah Daniz plan to make a final investment decision on the second stage of the development of the project. Before this date the choice of one of the routes will be completed - Nabucco West or TAP - and an agreement on the sale of the gas will also be concluded.

According to BP's regional president for Azerbaijan, Georgia and Turkey, Rashid Javanshir, the choice of the Nabucco West project (along with TAP) is another important step towards the implementation of the second stage of the development of the Shah Deniz field and the transportation of gas supplies from the Caspian to Europe.

However, it was not the easiest of decisions - opinions were voiced often in the media both by government officials and analysts about the unsuitability of the Nabucco project, in connection with which ideologists of the project, finally aware of the seriousness of competition, decided to make adjustments - to reduce the gas pipeline project and make it "digestible". Whereas before the construction of a gas pipeline of 3,900 km (to the Turkish-Georgia and Turkish-Iraqi borders) was proposed, in the new concept - Nabucco West - it was reduced to 1,300 km (from the Turkish-Bulgarian border to the Austrian Baumgarten). The pipeline's throughput capacity also underwent significant changes, being reduced from 31bn to 20bn cu m. 

"The choice of Nabucco West as the second priority option for the route for the export of Azerbaijani gas to Europe is an important landmark for the project," said the managing director of Nabucco Gas Pipeline International GmbH, Reinhard Mitchek. "This decision is an important landmark for Nabucco and an important step towards a final investment decision."

Meanwhile, the decision of the Shah Deniz consortium on the Nabucco West pipeline has been approved by Gunther Ettinger, the European commissioner for energy questions. "This interim decision has brought us a step nearer to obtaining gas directly from Azerbaijan and other countries of the Caspian region," he said. Ettinger described it as a success for Europe and its energy security, adding that the Nabucco consortium will fight for victory in the tender for the construction of TANAP. If its efforts are successful the European Union will be able to implement the construction project of the Nabucco pipeline in its original, complete form. The winner of the tender for the construction of TANAP from the eastern to the western border of Turkey will be announced in 2013. 

However, such "European support" in no way gives any advantages to Nabucco West in the forthcoming "pipeline race" with TAP. This project will soon have its own, no less formidable "trump card" - the BP company intends to acquire a considerable share in the project in the near future. According to BP's vice-president for Shah Deniz, Alastair Cook, "BP has basically completed talks on joining the TAP project and in the short term will assist it in the question of funding, and an agreement on signing up to the TAP project will be signed next week."

Nevertheless, BP is convinced that a decision to invest in this project does not assume a final decision has been made on the choice of the route of the pipeline for the transportation of gas to Europe. However, it is also important that today one of TAP's shareholders is also the Norwegian Statoil (42.55%), which plays the role of "first violin" in the Shah Deniz consortium (the other shareholders are the Swiss EGL - 42.5% and the German E.ON Ruhrgas - 15%). It will be recalled that TAP was urged to transport gas from the Caspian region to Western Europe. "We are still confident that the economic, commercial, technical and strategic advantages of our project will swing the decision in our favour," TAP's managing director Kjetil Tungland says.  

In other words, it may be said that today the forces between the two gas pipelines are equal, and therefore to bet on this one or that one is an unenviable task at this stage, especially as in the time allotted until the final stage of the choice, the projects may still be supplemented and refined. However, it is already gratifying that the outlines of this actual "finish" have become more visible and close. As the "great schemer" Ostap Bender would have said about this, "the ice has been broken, ladies and gentlemen of the jury!" There is not long to wait…

FROM FIRST HAND

"In recent years talks and discussions have been conducted on the transportation of Azerbaijani gas to Europe and various measures are being carried out. We have seen that these discussions are continuing uninterrupted, but there has been no result. By carrying out, as always, bilateral consultations, we decided that Turkey and Azerbaijan should assume leadership in this question and jointly implement this project" 

Ilham Aliyev, President of Azerbaijan.