WILL THERE BE ALTERNATIVES?

Several events that took place last month somewhat clarified the situation surrounding the diversification of energy supplies from the Caspian region to European markets. At the beginning of September, during a visit to Baku by Russian President Dmitriy Medvedev, the Russian gas concern Gazprom and SOCAR signed an agreement increasing the volume of annual supplies of Azerbaijani gas to Russia up to 2 billion cubic metres. No upper limit was established on these supplies. Gazprom CEO Alexey Miller said Russia wants to buy all of Azerbaijan's gas exports - and at the best prices for Baku. Gazprom's desire is more than understandable. It would be strange if, as one of the most influential players in the world gas market, Russia did not try to derive economic and political benefits from cooperation with such a major supplier of natural gas as Azerbaijan.

Baku is certainly interested in cooperating with Gazprom in its policy of diversifying energy export routes. After all, Azerbaijani's proven reserves of gas alone constitute 2 trillion cubic metres, while together with unexplored reserves they constitute 5 trillion cubic metres. Some experts suggest there are reserves of 7-8 trillion cubic metres, which is sufficient to meet demand not only from Russia but also from other directions, including the European-initiated Nabucco project.

But, apparently, Russia's success in purchasing Azerbaijani gas has seriously disturbed Europe, which is very interested in pursuing alternative energy projects. On 6 September, immediately after Medvedev's visit to Baku, the shareholders in Nabucco sent a letter to the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB) and the International Finance Corporation (IFC). This marked the beginning of the Nabucco project evaluation process and the implementation of measures to provide a potential funding package amounting to 4 billion euros. After a careful evaluation of commercial, social and environmental aspects of the project, a final decision on funding will be made. The remaining funds, about 4 billion euros, needed for the project, are to be attracted from the private sector. Reinhard Mitschek, Managing Director of Nabucco, is optimistic and confident that by the end of this year the financial aspects will be solved successfully. An end has almost been reached of a long and tedious debate about funding; this in itself is a successful step forward.

Thus, the competition for Caspian gas and delivery routes to European markets is gaining new momentum. This is evidenced by a statement made by Russian Prime Minister Vladimir Putin in Sochi while speaking to Russian and foreign experts. "The Nabucco project does not have guaranteed supplies, and Russia will not be supplying anything there. The pipeline cannot count only on Azerbaijan, as the latter has signed a contract on gas supplies with the Russian gas company Gazprom, while the dispute over maritime boundaries in the Caspian will prevent the transit of Turkmen gas via Azerbaijan to Europe," he said. Some experts believe that the tough tone adopted by the Russian prime minister and the content of his statements indicate that Moscow has almost no hope left of winning the struggle against Nabucco. 

The harsh statement by Vladimir Putin met a no less robust riposte from former German foreign minister, Joschka Fischer, who accused Putin of political bias. In an interview with the Handelsblatt newspaper, Fischer argues that the Russian leadership is politicising the diversification of energy routes itself. "Putin is doing everything to prevent the construction of Nabucco. He has plans for a rival branch, the South Stream gas pipeline, which will send Siberian gas to Europe. "Nabucco" is not a political project, but such a large energy project certainly has political implications. If the Nabucco gas pipeline is not built, Turkmenistan's huge gas reserves will be lost to Europe, in which case Turkmenistan will send the gas to Asian countries, primarily to China. The Russian government must separate its own economic interests from political ambition. I am sure that for Russia it is not just about gas, it is also about power in the region." Herr Fischer also does not conceal his critical attitude towards the South Stream project, for which Moscow is lobbying. "This project is not only extremely expensive, it is also politically incorrect. The South Stream is a Russian response to Nabucco. But it does not contribute to the diversification of sources of energy. The South Stream pipeline will mainly deliver "old gas" to us. The purpose of the project is to enable Russian gas to bypass Ukraine, but the price is extremely high if the supply of natural gas is used as leverage to exert pressure on Ukraine and try to re-bind it to Russia, Europe cannot agree to that. From an economic point of view, the South Stream makes no sense. And politically, this project is not in European interests."

At the same time, Fischer says that Azerbaijan will play the main role in the realization of Nabucco. "The key question is whether Azerbaijan will join this project. If this happens, it will be followed by Turkmenistan. Negotiations with Azerbaijan are on the right track. At the same time, supplies from northern Iraq are no longer just an abstract hope. In fact, specific results have been achieved in talks with the Kurdish regional government. This, in turn, will influence Turkmenistan and Azerbaijan." And the problem of transporting Turkmen gas across the Caspian Sea is, in his opinion, solvable. "Turkmenistan's most western and Azerbaijan's most eastern fields are located only 70 kilometres from each other. Therefore, it is possible to overcome this gap."

As for the Turkish factor, the former foreign minister of Germany, now a lobbyist for the Nabucco project, underlines that Turkey has a fundamental interest here - it wants to reduce its dependence on Russian oil and gas supplies and is therefore very interested in the Nabucco project. Moreover, he said, Turkey has never tried to use Nabucco as a means of exerting pressure in its negotiations on accession to the European Union (EU). Ankara itself makes no secret of its intention to become an energy distribution hub, because it has a favourable geopolitical location. And Turkey may well be expected to play this card.

However, some experts believe that recent advances in the Nabucco project do not yet mean that it is about to start. Their scepticism is explained by the position of German Chancellor Angela Merkel, who last year opposed the financing of its construction from the EU budget. It was her position, tacitly supported by Paris and Rome, that strongly disappointed other European countries interested in Nabucco. Sceptics do not rule out that this time Moscow will try to take advantage of Merkel's negative response to financing Nabucco from the EU budget. This prediction is confirmed by Russian expert Dmitriyevskiy who, angered by the former German foreign minister's statement, recalls Russian Prime Minister Vladimir Putin saying that Germany and Europe need to make up their mind as to whether they need Russian gas or not.

Other experts believe that the Nabucco project is already irreversible. The tremendous steps taken in this direction, as well as a statement in the European Parliament by the European Commission member responsible for energy issues, Gunther Oettinger, leave no doubt about it. "It is not necessary to transport this gas through Russia. The Russians should be partners with regard to their own gas. The gas from the Caspian Sea should be delivered to us bypassing Russia. Of course, the shortest route must be chosen. There is no need to depend on the Russians here either. But if EU members are divided, EU partners will take advantage of these differences. The construction of the Nabucco pipeline through which the EU will receive gas from the Caspian region, bypassing Russia - through Turkey, Romania and Bulgaria - will weaken the EU's dependence on Russian hydrocarbons. If we can finally receive gas through the Nabucco gas pipeline, it will be a success. Talks will be held with Azerbaijan and Turkmenistan next month. We cannot decide for others, but we can try to work in partnership with the countries of Central Asia. I am convinced that Nabucco is on the right path,"- Oettinger said.

We should also remember that the EU signed an agreement with four countries in early May to accelerate the construction of pipelines to supply natural gas to Europe. The agreement was signed with Azerbaijan, Georgia, Turkey and Egypt. The USA, Russia and Ukraine were observers to the signing of the agreement. 

Nabucco supporters are further bolstered by the position of Turkmen President Kurbangulu Berdimuhammedov. He said at a news conference after a summit of leaders of Turkic-speaking countries in Istanbul that Ashgabat has no doubts about the prospects for implementing various projects to export gas in any direction, including to Europe through Nabucco. He believes that Turkmenistan has huge potential for supplying its raw materials to Europe, including along this route. But even if we assume that Ashgabat for some reason can't participate in Nabucco, there should still be no problem with filling the pipeline. Let's make some simple calculations. Nabucco's full design capacity is 31 billion cubic metres of gas per year. Azerbaijan can supply 12 billion and this is probably not the limit. Gas production in Azerbaijan this year will already amount to 28 billion cubic metres, while domestic needs are 11-10 billion. With this rate of production growth, Baku can easily increase the volume of gas delivered to Nabucco. Given the fact that it is also planned to attract 10 billion cubic metres a year of Iraqi gas, the picture becomes clear.

Apparently banking on these calculations, the consortium managing the Nabucco project is optimistic about the construction of a 520-km Trans-Adriatic Pipeline (TAP) intended to transport gas from the Caspian region and the Middle East to Europe. The pipeline will originate in Greece, pass through Albania and the Adriatic Sea to Italy and on to Western Europe. But this, i.e. alternative energy routes, is only one side of the coin.

There was another significant event in mid-September. On 14 September, the Presidents of Azerbaijan, Georgia and Romania, as well as the Prime Minister of Hungary, signed the Baku Declaration, "which effectively signalled the start of work on drafting the AGRI (Azerbaijan-Georgia-Romania Interconnector) project to supply Azerbaijan liquefied gas to Romania through Georgia. The project envisages the transportation of Azerbaijani natural gas through pipelines to the Black Sea coast, where the gas will be liquefied at a special terminal, and then shipped by tanker to the terminal in the Romanian port of Constanta. Then the liquefied gas will be returned to its natural state and, using the country's available gas infrastructure, used to meet the needs of Romania and other European countries. A feasibility study will be prepared in three versions - with annual supplies of 2, 5 and 8 billion cubic metres. Depending on the volume of supplies, the cost of the AGRI project will be 1.2-4.5 billion euros. Appreciating the project's potential, Azerbaijani President Ilham Aliyev expressed his confidence that it would take its place among the important energy and gas projects in the region and Europe. It is also noteworthy that AGRI is the first project for the transit of liquefied gas to be implemented in the Black Sea. The Baku Declaration shows that both producing and consuming countries interested in diversifying energy routes intend to implement projects, which are themselves alternatives to the already alternative projects.