FORERUNNER OF THE TRANS-CASPIAN

Azerbaijan's main gas asset has replaced one of its shareholders. Norway's Statoil left the project to develop the Shah Deniz field. Statoil sold its 15.5-per-cent stake to Malaysia's PETRONAS for 2.25bn dollars.

"Statoil has created significant value by participating in the deve-lopment of this asset over the years and we are pleased to announce this deal with PETRONAS. The divestment optimizes our portfolio and strengthens our financial flexibility to prioritise industrial development and high-value growth," Statoil Vice-President Lars Christian Bacher said.

Earlier, in December 2013, Statoil had sold 10 per cent of its 25.5-per-cent stake in Shah Deniz to two other shareholders in the project - BP (it bought 3.3 per cent) and SOCAR (it bought 6.7 per cent) - for 1.45bn dollars.

However, this move by the Norwegian company does not mean that it stops operations in Azerbaijan. "We remain committed to our business in Azerbaijan, which continues to play an important role in Statoil's international portfolio," Bacher said. The company retains a stake in the project to develop the Azeri-Chirag-Guneshli [Azari-Ciraq-Gunasli] fields and the Baku-Tbilisi-Ceyhan pipeline.

So, what is the reason that one of the recognized leaders of the European gas industry leaves Europe's most promising gas project? The answer is plain: given the continuing crisis, many European companies seek to reduce costs. In the case with Shah Deniz, there is no doubt about the project's prospects. However, to make a profit in the long term, massive investment is required - the second stage of the development of the field with infrastructure for gas delivery to the Turkish border alone will cost 28bn dollars. Precisely for the same reason, France's Total also left the project recently. It sold its stake to Turkey's TPAO.

However, Statoil remains in the ACG project as most investment there has already been made and companies are currently recording profits. Moreover, as First Deputy President of SOCAR Xosbaxt Yusifzada previously said, Statoil is studying shallow waters in the Azerbaijani sector of the Caspian in order to identify new promising structures. One way or another, Statoil's exit from Shah Deniz is a fait accompli, and of greater importance for Azerbaijan now is the fact that there is a new shareholder and what benefits cooperation with it promises.

Malaysia's state oil company PETRONAS plays a crucial role in the economy of its country, providing up to 40 per cent of budget revenue. Founded in 1974, the company now does business in 35 countries, and its daily extraction exceeds 2.5m barrels of oil equivalent. The Malaysian company is not new to the Caspian region. PETRONAS has agreements to develop the Mah-tumguli-Ovez-Diyarbakir bloc of oil and gas fields with reserves in the Turkmen sector of the Caspian Sea being 245bn cu.m. of natural gas and about 75m t of oil. Moreover, oil, which has been extracted from the bloc since 2006, is transported to world markets via Azerbaijan through the Baku-Tbilisi-Ceyhan pipeline. In order to extract gas from the Turkmen bloc, PETRONAS built a gas terminal with a capacity up to 10bn cu.m. on the shore of the Caspian Sea.

On the whole, the future of Turkmenistan's Caspian oil fields is viewed very positively. According to Turkmen geologists and the US company WesternGeco, overall resources in the Turkmen sector of the Caspian are estimated at 6.5 trillion cubic metres of gas and 12bn tonnes of oil. In the next few years, extraction from Turkmenistan's offshore fields in the Caspian Sea could reach 17-20bn cu.m. a year. All of this volume is envisaged for export either through existing pipeline systems to Russia and Iran or through the possible trans-Caspian gas pipeline to Europe.

The trans-Caspian option actually seems to be the most promising one for Ashgabat. It is not a coincidence that Turkmen President Gurbanguly Berdimuhamedow highlighted the topic of the trans-Caspian pipeline at the most recent summit of heads of Caspian state in Astrakhan. "In the Caspian, the interests of our states in the energy sector do not have deep-seated disagreements. I would like to emphasize that we are against giving political overtones to any unresolved issues here. This fully applies to prospects for laying pipelines along the bottom of the Caspian Sea. In this issue, it is necessary to strictly adhere to universally recognized international legal norms and the principles of mutual respect and consideration of partners' interests. Turkmenistan is firmly convinced that the construction of such pipelines is a sovereign right of states along the bottom of whose sectors they run, and therefore it can only be done with their consent. Naturally, provided that the highest international environmental standards are complied with," Berdimuhamedow said.

Azerbaijan holds the same point of view. "Under international law, no approval is required for construction of pipelines along the bottom of the Caspian Sea. Naturally, there are legal and political aspects regarding the Caspian Sea. In addition, there are also other points that need to be coordinated with the other countries," Deputy Foreign Minister Xalaf Xalafov said.

He also said that Baku supports activities in the Caspian Sea that meet environmental requirements. "Each project that is implemented in the Caspian Sea has an environmental aspect to it. It is for this reason that these issues are discussed today. We favour the idea that any kinds of activities carried out in this sea should meet the highest environmental standards," the deputy minister said.

So far, Russia and Iran have been the main opponents of the construction of trans-Caspian pipelines, with their main argument being that the environment in the Caspian is vulnerable. However, when it comes to this matter, people forget that Azerbaijan has been for more than half a century actively operating offshore fields in the Caspian Sea, and other Caspian countries have joined it in the past couple of decades. Therefore, most experts believe that Russia's objections have been caused more by the possibility of competitors from the Caspian emerging in the European gas market.

Meanwhile, in recent years Europe has been making its own insistent efforts to find alternatives to Russian gas. In parallel, it has been blocking new initiatives by Gazprom regarding additional routes, as evidenced by the fate of the South Stream project. What is more, the most recent confrontation between Russia and the West in the light of the Ukrainian crisis even further nullifies possible new projects to increase Russian gas exports to Europe. Europe prefers to find alternative sources of gas, increase use of coal, minimize the need for gas but not to buy more gas from Russia. This restriction, naturally, affects levels of gas production and the revenues of both Gazprom and the country as a whole. Therefore, it is no coincidence that at the peak of the crisis in its relations with the West, Russia has signed a 30-year agreement to supply 38bn cu.m. of gas to China. The agreement had been discussed for 10 years.

However, while Russia hopes to enter the Chinese market only in 2018, Turkmenistan is already there and expects to deliver to China 65bn cu.m. of gas a year by the end of the decade. In recent years, Turk-menistan has held a tougher stance regarding the selling price for its gas to Gazprom, and the Russian monopoly is actually not particularly interested in buying Central Asian gas. Moreover, Gazprom is considering a complete halt to buying Central Asian gas. In current conditions, all surplus of Turkmen gas can only go to China. After all, the decrease in gas purchase by Gazprom from the annual 40-45bn to almost 10bn cu.m. in recent years has made Ashgabat seek new markets.

So, a new situation has taken shape, where for Russia it is more important to win the gas competition with Turkmenistan not in the European, but in the Chinese market. In these circumstances, it may be more beneficial for Moscow not to impede Turkmen gas supplies to Europe. And this increases the chances of the implementation of the trans-Caspian gas pipeline, and, what is more, within the same time frame as that within which further infrastructure for gas supplies to Europe through the Southern Gas Corridor will be ready.

Therefore, is no coincidence that Malaysia's PETRONAS, which has the best possibilities to deliver Turkmen gas to European markets, has joined the Shah Deniz project.