STREAM PROJECTS AGAINST PROJECT STREAMS

The intriguing plot for the diversification of gas supplies from the former Soviet Union to Europe thickened last month. In early September, the pumping of gas into one of the two lines of the Nord Stream gas pipeline started, while the first deliveries of fuel along this line are scheduled to begin this October. A pipeline worth 7.4 billion euros, which represents a fundamentally new route for Russian gas exports to Europe, has been successfully launched.

According to forecasts, gas imports to European Union (EU) countries over the next decade will increase by approximately 200 billion cubic metres, or more than 50 per cent. But Russian projects put together can satisfy these additional needs only by 60 per cent. The EU is also worried that the only supplier for the Nord and South streams is the Russian monopolist Gazprom.

This being the case, the EU has decided to present a united front in the negotiations with Azerbaijan and Turkmenistan on the Nabucco project and the Trans-Caspian gas pipeline. In mid-September, the EU provided an official mandate to the European Commission (EC) to sign a legally binding agreement on the construction of the Trans-Caspian gas pipeline.

Expectedly, Moscow sharply criticized this step of the EU, pointing to the absence of a document defining the legal status of the Caspian Sea. A spokesman for the Russian Ministry of Foreign Affairs, A. Lukashevich, said only the five littoral states have the right to use the resources of the sea. Tehran reacted in the same way. But many Western experts have described Moscow's position as biased. For example, Russian's own activities in the northern Caspian Sea show that Moscow is hypocritical and insincere, according to a senior researcher at the Institute for European, Russian and Eurasian Studies at Carleton University in Canada, Robert Cutler. He argues that from the standpoint of international law there are no obstacles to the construction of the Trans-Caspian gas pipeline. The assumption that the consent of all five littoral countries is required ignores the fact that they are all engaged in the development of offshore fields without permission or consent from each other. Since the Trans-Caspian pipeline is to link Turkmenistan and Azerbaijan directly and not pass through the exclusive economic zone of other countries, it should not require the approval of any other country. Robert Cutler believes that even the delineation of national sectors in the Caspian Sea is not necessary for Azerbaijan and Turkmenistan to implement the project. All they need is to reach an agreement and then act. In short, there are no obstacles to a successful conclusion and implementation of the agreement on the construction of the Trans-Caspian gas pipeline other than the political will of the parties involved. A new determination shown by the EU, albeit rather late, can determine its outcome.

As for the "alarm" raised over the biological resources and environmental problems of the Caspian Sea, experts recommend that Moscow first take care of the environment of the Baltic and Black Seas through which the Nord and South streams will flow. Here, in return for economic benefits, Moscow has managed to secure agreement from countries (Sweden, Denmark, Finland and Turkey) that were initially opposed to the idea of laying these pipelines along the seabed. At the same time, the positions of Lithuania, Latvia, Estonia and Poland, which believe that Nord Stream poses an environmental threat to the Baltic Sea and does not reflect the common approach of EU member states, have been ignored.

But apparently, this time the EU is set firm and is calling on Russia not to interfere in the Nabucco gas transportation project and trying to stop it using the expensive South Stream project. This has been stated by the European commissioner for energy, G?nther Oettinger. In his opinion, Russia should be interested in both Nabucco and its alternatives - TAP and ITGI. The EU is not against South Stream - let Russia build it. But it should also put up with the fact that Nabucco and the Trans-Caspian gas pipeline will also be built. In fact, this will benefit Russia itself. "If Moscow accepts the fact that the Southern Corridor is inevitable and that Turkmenistan and Azerbaijan have the right to make independent decisions, the Europeans will trust gas considerably more. If the Russians try to put spokes in the wheels of Nabucco technically, by laying the South Stream pipeline, or politically, by putting pressure on Ashgabat and Baku, I personally will have little trust in long-term gas contracts or believe in the idea that gas is not a political tool for Russia," Oettinger said. In addition, he said, "Europe now speaks with one voice" (probably referring to the previous behind-the-scenes game between Berlin and Moscow), and no "streams" or political pressure on Baku and Ashgabat can force Europe to abandon the idea of building the Trans-Caspian pipeline and Nabucco.

Meanwhile, the discovery of a new major gas field, Abseron, in the Azerbaijani sector of the Caspian Sea has increased the volume of Azerbaijan's proven gas reserves to 2.5 trillion cubic metres. This, according to the managing director of Nabucco Gas Pipeline International GmbH, Reinhard Mitschek, increases interest in Nabucco. But this figure could rise. Experts have high hopes for the Babak, Naxcivan and Zafar-Masal structures, as well as the deep-water portion of Azari-Ciraq-Gunasli. Various estimates put Azerbaijan's potential gas resources at 5 trillion cubic metres. According to the vice-president of the State Oil Company of Azerbaijan, Xosbaxt Yusifzada, by 2025 gas production in Azerbaijan will reach 50 billion cubic metres a year and domestic consumption 11-12 billion cubic metres, which will allow the country to increase exports. Logically, it appears that given domestic consumption and the current export obligations, Azerbaijan can fill the Nabucco pipeline with its own resources over time.

According to most experts, Nabucco fully meet the needs of eight European countries (Romania, Bulgaria, Hungary, Austria, etc.) for the "blue fuel" and eliminates their gas dependency on Russia. Therefore, the fact that Russia is torpedoing a gas pipeline that is designed to bypass it is understandable.

It should also be noted that the slowdown in the implementation of the Nabucco and Trans-Caspian gas pipeline projects was also largely due to Russia's behind-the-scenes games with the leading EU countries - Germany, France and Italy. Speculating with estimates about a lack of reserves, these countries followed Russia's suit in demanding strong political and economic guarantees from Azerbaijan and Turkmenistan. Thus, they attempted to place the responsibility for political and economic risks on the producing countries.

However, while expressing their agreement in principle to participate in the Nabucco project, Baku and Ashgabat did not agree with this approach. The position of Azerbaijani President Ilham Aliyev in this regard is quite clear. He has repeatedly stated that if Nabucco is seen as a project ensuring the energy security of European countries, then Europe should finance its implementation. For Baku this project is not the only route for Azerbaijani gas.

Given all these factors, while EU members were engaged in endless discussions and internal showdowns on financing Nabucco, Moscow has offered Baku and Ashgabat the highest price for wholesale purchases of Caspian gas. As a result, Gazprom has signed an agreement with Azerbaijan on the purchase of 2 billion cubic metres of gas a year. The upper limit of this volume may increase further. A similar situation is observed in Russian-Turkmen energy relations.

The launch of Nord Stream has elevated the need for Nabucco and the Trans-Caspian pipeline projects. First, the construction of the Nord and South streams further raises European dependence on Russian gas. Second, the bypassing of Ukraine, the main transit country for Russian gas, is not going down very well in Kiev, and this is fraught with new "gas wars". It is no coincidence that Ukrainian President Viktor Yanukovych visited Turkmenistan in mid-September, where Kiev was offered alternative volumes of natural gas (40-50 billion cubic metres) for only $200 per thousand cubic metres. The point may even be reached when Kiev is allowed to produce gas in the Turkmen sector of the Caspian by itself. 

On the other hand, Kiev often says the price of Russian gas is unfairly high and incommensurate with the concessions made on the deployment of the Russian Black Sea Fleet in Sebastopol. This confirms the assumption that the short period of cloudless Russian-Ukrainian relations may be subjected to new challenges.

From Russia's perspective, which has been voiced by Prime Minister Vladimir Putin, Nord Stream will allow Moscow to withdraw "from the dictate of transit countries". And this is a major blow to Ukraine as a transit country.

The position of Ukrainian Prime Minister Mykola Azarov on this issue has been eloquently voiced by his spokesman, Vladimir Lukyanenko. "If Russia is building a pipeline to bypass Ukraine, Ukraine wants to get a clear answer: will Russia use the Ukrainian gas transportation system? If Russia is to stop using Ukraine as a transit country to Europe, then the maintenance of the gas transportation system becomes unprofitable for Ukraine, and it has to be dismantled so as not to spend money on its maintenance," Lukyanenko said.

However, most experts are sceptical about the threat of dismantling the Ukrainian gas transport system over which Russia has been unsuccessfully trying to establish control for the last few years. However, serious disagreements with Moscow over the gas issue could trigger a repetition of the situation of early 2009, when a price dispute between the two Slavic neighbours led to the termination of supplies to 20 countries for two weeks. Logically, it turns out that the launch of Nord Stream will not only fail to eliminate Europe's gas dependence on Russia, but, hypothetically (including Kiev's threats to dismantle its gas transportation system), may lead to a reduction in supplies to European countries where 80 per cent of Russian gas is transported through Ukrainian territory.

It is only natural that this situation will put Azerbaijan back in the spotlight as it is a stable strategic partner in ensuring the energy security of Europe. This was mentioned during an international conference of the same name held in the European Parliament office in Paris on 16 September and attended by the first lady of Azerbaijan, Mrs Mehriban Aliyeva. The full exercise of this role primarily depends on the political will of the EU, which clearly stated its intentions in September. It is not ruled out that the EU was hoping for some compliance on the part of Moscow over the Nabucco and Trans-Caspian gas pipeline projects.

The current situation suggests that EU members will still come to a common denominator and a positive outcome on the financing of the construction of the Trans-Caspian gas pipeline and Nabucco. In comparison with the huge financial investments being made to save certain EU economies from collapse, the amount required for the construction of Nabucco looks comical.