PROJECT OF THE 21st CENTURY

Azerbaijan and Turkey have finally resolved all disputes concerning the terms of the transportation of the gas produced in the second stage of the development of the Sah Daniz gas condensate field. During President Ilham Aliyev's visit to Turkey, the entire package of gas contracts, which includes the cost of Azerbaijani gas for Turkey, shipments from the field after 2017 and a transit agreement on the transportation of gas via Turkey, was signed on 25 October in Izmir.

These agreements constitute a complete set of documents that provide for the transportation of Azerbaijani gas to Turkey as far as the Turkish-Greek and Turkish-Bulgarian border. In fact, all conditions are right for the construction of the "Southern Gas Corridor" connecting the Caspian region to Europe and meant to provide 10-20 per cent of the EU's demand for gas by 2020.

But the real sensation was not the solution to transit problems with Turkey - just a couple of days after the signing ceremony, Rovnaq Abdullayev made a truly stunning statement in an interview with a local television station: Azerbaijan and Turkey agreed to build a completely new pipeline for Azerbaijani gas supplies. To briefly describe the significance of this project, it is enough to cite the following statement by the SOCAR chief: "I think that if the national leader Heydar Aliyev once called the joint development of the Azari-Ciraq-Gunasli block of fields 'The Contract of the 20th Century', this project will be the 'Project of the 21st Century', which will be initiated by Azerbaijani President Ilham Aliyev."

`The agreement with Turkey finally reassures Europe, which seeks to diversify its sources of gas supplies and reduce its energy dependence on Russia. If one considers that additional gas reserves have been discovered in Azerbaijan and that Turkmenistan is also expected to join the new transit route, it is a fairly stable and long-term opportunity to meet the Europeans' demand for "blue fuel". It is no accident that the signing of the agreements was immediately welcomed by the US, EU and representatives of companies developing transit routes of gas supplies to Europe.

Until now, these projects have been engaged in a "silent war" for Azerbaijani gas - each of them is trying to prove its efficiency and financial profitability and get support from the government of Azerbaijan, while Baku has been keeping silent about its preferences, diplomatically referring to the absence of agreements with Turkey. Now, according to Turkish Energy Minister Taner Yildiz, there are no obstacles to the delivery of Azerbaijani gas to Europe.

Moreover, whatever the choice, the European Commission reminds the partners that there should be a mechanism to connect Turkmen gas when the source is ready. By the way, the EU has begun negotiations with Azerbaijan and Turkmenistan on the legal basis of the Transcaspian gas pipeline. According to Azerbaijan's Deputy Foreign Minister Mahmud Mammadquliyev, the first meeting within the framework of these talks was recently held in Brussels. It is assumed that the Transcaspian gas pipeline will link the Turkmen and Azerbaijani coasts of the Caspian Sea to export gas to Europe via Azerbaijan. It is planned to transport 20-30 billion cubic metres of gas annually by the Tengiz (Kazakhstan) - Turkmenbashi (Turkmenistan) - Baku (Azerbaijan) - Tbilisi (Georgia) - Erzurum (Turkey) route. The project is estimated at 7.9 billion euros.

Azerbaijan will have to make a difficult choice between the projects, and the struggle between them will take on a "full scale". The Azerbaijani side promises to make up its mind in early 2012 the latest, although initially the deadline was "the end of 2011". Apparently, more time is necessary for Europe to recognize and digest the presence of another but the most realistic project to construct an absolutely new pipeline infrastructure in the territory of Azerbaijan and Turkey, which was mentioned by Rovnaq Abdullayev.

Unfortunately, the details of this grand endeavour by Azerbaijan and Turkey have not yet been reported. What's in it? First of all, additional revenues from transit. Secondly, transit independence - Azerbaijan and Turkey are fraternal countries, and if so far there have been any disputed issues on economic issues between them, they have been regulated primarily on the basis of principles of friendship and good neighbourliness. That is it will be much easier for Azerbaijan if there is a route constructed by both countries. It's only two of the most visible advantages of the new agreement.

There is no doubt that the countries will be able to implement the project from a financial point of view. Azerbaijan has become strong enough financially in recent years. In addition, according to Abdullayev, builders are willing to accept foreign shareholders, and the project is so cost effective that it will surely attract credit resources without any problem. "We intend to resolve all issues related to the pipeline project in 2012 and proceed with construction work without wasting time to ensure that the new pipeline is ready by 2017, i.e. by the beginning of the development of the 2nd stage of the Sah Daniz project," the SOCAR president said.

At the same time, we should note once more that the new project does not mean that the Azerbaijani side dismisses all projects hitherto announced within the "Southern Corridor". The matter is only about the delivery of gas to the borders of Europe. In addition, Azerbaijan is currently carrying out extensive exploration work, and it is predicted that by 2025, up to 50 billion cubic metres of gas will be produced, i.e. this volume is not enough for a single project. But, nevertheless, consumers, i.e. Eurozone countries will decide on the issue of purchase on the basis of financial gain. So now it's necessary to define lucrative transit fees.

One thing is clear: the Baku-Tbilisi-Ceyhan and South Caucasus gas pipeline are just the beginning of the "transit" history of Azerbaijani energy resources. And the new gas pipeline project - the project of the 21st century - will become the culmination of the history.