"THE ''GOLDEN AGE'' OF NATURAL GAS"

Year after year the managers of the leading gas-pipeline projects converge on Baku in June with but one aim - to show off their projects at the International Caspian Oil & Gas Exhibition & Conference Incorporating Refining and Petrochemicals and to get at least verbal promises from Azerbaijan that it will review the possibility of their participation. This time there were calls to resolve the problem of the choice of route by the end of this year.

Azerbaijan-Turkey: a legal nuance

Everyone knows that Azerbaijan is regarded as a leading source of European energy security. As President Ilham Aliyev said at the opening ceremony of the exhibition - 

the 18th so far - there is enough gas in our country to keep us and foreign consumers supplied for at least the next 100 years. "If you bear in mind that today we are extracting perhaps twice as much oil as was provisionally projected, then I can say with every confidence that our gas supplies are of the order of 2.2 trillion cubic metres. That, as they say, is a modest figure. There are predictions of even more, and I am confident that after drilling, even greater amounts of gas will be discovered," the head of state said.

Nor is it a secret that for Europe's growing demands Azerbaijan is in this sense a real godsend, bearing in mind also the political and economic stability in the country, its terms of trust with all investors up to now and the authorities' guarantees of security of investment. "From 1994 up to this day there have been no serious disputes, confrontation or any desire to review contracts between Azerbaijan and foreign oil companies. We have won over their trust and we value this. I believe that the most important factor for investors is full confidence that their investments are protected by the state at the proper level, and this policy will remain unchanged," Aliyev said.

At the same time, the current situation enables Baku to make a careful study of the route along which it will export its energy resources. Azerbaijan is now a self-sufficient state with its own conditions of cooperation. Therefore, despite noises from Europe calling for Baku to make its choice quickly, Azerbaijan will not make any hasty decisions, pointing out that the legal aspects of the transit agreement with Turkey remain unresolved.

And so, in his speech at the exhibition Aliyev spoke of Azerbaijan's hope that the relevant clauses in the protocol on gas transit signed between Azerbaijan and Turkey exactly a year ago will soon be translated into a final document. "Once the transit agreement is signed all obstacles to Azerbaijani gas will be removed," Aliyev said.

SOCAR representatives give the reassurance that the difficulties at the talks with fraternal Turkey merely concern the legal aspects and the wording. According to Rovnaq Abdullayev, president of the State Oil Company, the main reason for the delay in signing the agreement on the transit of Azerbaijani gas to Turkey is the disparity in principles of law, and SOCAR's legal team is currently trying to find a common denominator in this question.

As I have already said, potential importer countries and leading gas pipeline projects which need guaranteed supply sources in written form in order to attract investments are trying to hurry Azerbaijan. Official Baku has more than once voiced its intention to take part in the Southern Gas Corridor and in January of this year a Joint Declaration On the Southern Gas Corridor was even signed between Azerbaijan and the European Union, and a working group was also set up which is working on a package of documents as part of this agreement. However, there is as yet no specific basis for working out the second stage of the Sah Daniz project, just as there is no precise decision as to which gas pipeline project will be chosen as the main route.

One way or another, according to SOCAR's president, the question of choice of route will be resolved in the autumn, regardless of a settlement of the transit agreement with Turkey. The Southern Corridor projects - the Nabucco gas pipeline, the Trans Adriatic gas pipeline (TAP), White Stream and ITGI (the Interconnector Turkey-Greece-Italy) - must submit their proposals for the transportation of Azerbaijani gas to Europe by the beginning of October.

The torment over Nabucco

There is no question that the Nabucco project is the one that has been given the most publicity. Despite very questionable possibilities of attracting enough gas to fill the line or investments to fund building work, the project has very strong support not only from the European political elite, but also the US.

In the last couple of weeks Nabucco has had to endure quite a bit - from a near refusal by Azerbaijan to take part in the project to a signing of agreements with the ministries of the five countries (Austria, Bulgaria, Hungary, Romania and Turkey) on support for it. And at the end of May came a statement by the head of SOCAR that Azerbaijan might not supply its gas to Europe via the Nabucco project but via other, more beneficial routes. The surprising thing about this statement was that it was made 10 days before the signing of documents on the project. The EU was really startled: literally the next day Roland Kobia, the head of the EU's office in Azerbaijan, was quick to point out that Abdullayev was not talking about a final decision, but merely a supposition. "We understand that Azerbaijan needs time to make a decision. Nabucco is of benefit not just to us but also to Azerbaijan which will gain from exporting its energy resources to the European market. We believe that up to now there has been productive cooperation with Azerbaijan in energy and we are confident this will continue," he said.

A week later Gunther Oettinger, the EU commissioner for energy, said for starters at a press conference in Baku that the West was not accusing Azerbaijan of blocking Nabucco, as some of the media had claimed. But at the same time he made it perfectly clear that Europe was expecting a completely opposite decision from Azerbaijan, describing a possible decision to sign up to the project as historic for Azerbaijan. "We understand that a certain amount of time is needed to adopt it," Oettinger said. "Azerbaijan is a key partner in the Southern Corridor, and SOCAR is the main company," he added for greater conviction. 

Either Europe has finally understood that Azerbaijan has no intention of compromising on its economic benefits (Abdullayev himself has often said that, given the choice over transit projects, preferences would be on the side of beneficial tariffs) or they have realized the whole seriousness of SOCAR's attitude but in a matter of days there was a report that Nabucco could be merged with ITGI to make it more attractive.

For Azerbaijan such a prospect does, of course, look more beneficial, because that would mean a more realistic project than Nabucco's spurious economic potential. After all, as Richard Morningstar, the US State Department's special representative for energy issues in Eurasia, admitted, "a major project like Nabucco may be considered attractive both from the political and the strategic aspect. But it must also be beneficial from the commercial aspect."

Meanwhile, Vitali Baylarbayov, SOCAR deputy vice-president, believes that the export of Azerbaijani gas to the European market could cost no more or no less than $40bn, which includes the development of Sah Daniz, laying new and extending old gas pipeline capacities in Azerbaijan and Georgia, and also implementing at least one of the transit projects to Europe. Incidentally, it should be noted that the European companies are proposing that SOCAR becomes a participant in the new infrastructure that will be created in central Europe - a very attractive proposal which will to a certain extent save on tariffs in the long term.

In any event…

There are just a few months left to anticipate and guess about the future supply route of Azerbaijani gas. Meanwhile, all the sides involved will continue to give assurances that their projects are attractive in any event. For example, Turkey's energy minister, Taner Yildiz, had this to say about Nabucco: "Like all major projects, it is fraught with a number of problems but I think they will soon be resolved. I am very pleased that the number of optimists outweighs the number of sceptics. This gives us hope that the project will go ahead. One recalls that at the beginning of the 1990s many people also believed that the Baku-Tbilisi-Ceyhan project would not be implemented, that it was all fantasy, but it is now operating successfully. I believe that in a few years' time we shall all be talking about how successful Nabucco is."

For its part, Azerbaijan also believes that our gas will go to Europe anyway. Moreover, France has now joined the list of potential consumer countries. In other words, the number of countries wanting to acquire natural gas extracted in Azerbaijan's sector of the Caspian is growing. This is perfectly natural, bearing in mind that the demand for gas in countries intending to purchase fuel as part of the Southern Gas Corridor projects increased in 2010 alone by 10.1bn cu.m compared with 2009 to 198bn cu.m, according to BP's world energy statistical review. And if you take on board the ever greater trend towards using natural gas against a backdrop of danger in nuclear energy production, then these volumes will undoubtedly continue to rise. As one of the speakers at the 18th International Caspian Oil & Gas Conference said, we are living through the "golden age" of natural gas. And it is important for Azerbaijan to obtain maximum "gold revenue" during this period to ensure a "vibrant present" and a "bright future"…