THERE ARE NO TWO STREAMS ALIKE

Despite the West's campaign in support of the Nabucco project, the chances of its implementation are diminishing daily, moving to the fore the question of alternative routes to get gas to European markets.  This fact, in turn, intensifies the struggle between the West and Russia for energy transit supremacy.  The possible failure of Nabucco means victory for Russian options and a problem for Europe, which is trying to avoid a Russian gas "trap".  This also affects Azerbaijan's transit functions; it is bad for our country from the financial point of view. Many analysts believe that the future gas pipeline map of the world depends in large part on how successfully the complex political and economic problems in this region and neighbouring ones will be addressed.

North and South

Western analysts straightforwardly blame the failure of Nabucco on Russia.  In particular, Alexander Rahr, a European expert on energy issues and CIS countries, maintains that the project is at an impasse because Russia has skilfully and successfully persuaded several Balkan countries to join South Stream.  "Very successful talks on South Stream are under way between Turkey and Russia, and there have also been changes in the Ukrainian authorities, who say that they are now ready to invite Russian companies to the country," Rahr told the 1news agency.

At the pre-investment phase of the project, several options for the route of the South Stream gas pipeline are being considered, including land sections across Russian territory and a number of European states, and sea sections across the Black and Adriatic seas (in case the option to deliver gas to south Italy is chosen).  The capacity of the sea section of the South Stream will be up to 63 billion cubic metres a year.  To implement the land sections of the project abroad, intergovernmental agreements have been signed with Bulgaria, Serbia, Hungary, Greece and Slovenia.  There are also plans to sign up with Austria.  The project's official web site notes that the main objective of the South Stream project is to meet the increasing demand for natural gas in Europe.  Incidentally, there is also a reservation.  "At the same time, Russia does not rule    out the possibility of the implementation of gas pipelines like Nabucco, whose route runs across the Transcaucasus countries and Turkey, because the estimated demand from Europe for additional volumes of natural gas makes it possible to implement several projects, with the proviso, of course, that the resources are available."

Precisely the latter is Russia's main trump card; its successful policy on natural gas extraction has reduced the resource potential of Europe's main hope to zero.  According to A. Rahr, the "Turkmens sell their gas almost entirely to either Russia or Turkey, so only Azerbaijani gas remains for the Nabucco pipe."  "Azerbaijan currently sells large volumes of gas directly to Russia and to Iran.  Thus there is simply no gas for Nabucco at present," he added, noting that the "West hopes that Nabucco can be filled with Iraqi gas, but the situation there is unstable, so it is a big question whether sufficient amounts of gas would arrive at the European market."  "However, this is the only chance for Nabucco, there is no other way," Rahr concluded.

Russia's gas policy does indeed merit applause:  Moscow has not only managed to win over many potential Nabucco partners, using purely commercial ploys, but it also offers them new, reliable options for delivery, which are no longer linked to unstable Ukraine.  Incidentally, the Ukrainian leadership, in the person of newly elected President Yanukovich, did try to improve the situation post factum by inviting Gazprom to include Ukraine on the South Stream route, but the Russian company apparently decided not to take further risks and has not renewed partnership with Kiev.

In addition, besides South Stream, Russia has yet another ambitious project aimed at Europe: North Stream, a gas trunk pipeline across the Baltic Sea, which will connect the Baltic shores of Russia near Vyborg to the Baltic shores of Germany, near Greifswald.  The 1,200-km gas pipeline is to be put into operation as early as in 2010, and the capacity of the first line will be 27.5 billion cubic metres per year.  In the next phase, capacity will be nearly doubled to 55 billion cubic metres per year, by building a second line.

Incidentally, these two projects will enable Russia to increase the amount of gas exported to Europe if need be and to begin to transit Central Asian gas.  The Caspian gas pipeline project, which Russia, Kazakhstan and Turkmenistan are implementing, stems from this plan.  According to the initial agreement on construction of the Caspian gas pipeline, the estimated amount of gas transiting from Kazakhstan was up to 10 billion cubic metres a year but, later, the Turkmen side said that it could supply 20 billion cubic metres more.  Kazakhstan, for its part, undertook not only to supply its 10 billion cubic metres, but also to increase the capacity for Turkmen gas transit by 20 billion cubic metres.

The analyst believes that construction of the Caspian gas pipeline is very important for Russia; it needs Central Asian gas because its own deposits, for example in Western Siberia, are not developed yet and Gazprom cannot, at present, stop supplying gas to Europe.  In addition, the Central Asian countries have also expressed more than once their desire to diversify their gas supplies, which explains their support for the Transcaspian gas pipeline project, which was to go across the Caspian Sea to join Nabucco.  However, besides the problems with Nabucco, implementation of the Transcaspian project is also a practical impossibility because of the unresolved status of the Caspian - yet another interlacing of political and economic intrigue in the region.

The show goes on

However, it is premature to speak about Nabucco as a matter of history because, despite the fact that South Stream is relatively cheap and more feasible than Nabucco, the world is more inclined towards the latter project.  For example, International Energy Agency (IEA) General Director Nabuo Tanaka told journalists that Nabucco is a "more effective means of improving gas supplies to EU countries than South Stream, because it increases the number of gas suppliers."  In his words, when constructing gas pipelines, the effectiveness of investments is also an important issue.  South Stream will bypass Ukraine, which will certainly improve energy security.  But it will transport the same Russian gas as is carried by other pipelines in the region.  Instead of building a new gas pipeline, it would be more effective to resolve the Ukrainian problems," the IEA head said.

Many experts believe that the acuteness of the situation lies in the fact that the South Stream and Nabucco projects are incompatible because, if both are implemented, one of them may become unprofitable.

Incidentally, yet another problem with South Stream is the White Stream project, which is funded by the EU and which envisages the delivery of Central Asian and Azerbaijani natural gas to Eastern Europe via Georgia, Ukraine, Moldova and Romania.  White Stream's route crosses both South Stream and the already operational Blue Stream (Russia-Black Sea-Turkey).  It is notable that White Stream gas will also be delivered to Crimea via a branch.  This apparently aims to separate Crimea from its Russian gas supply (for now, the region receives 70% of its gas supplies from Russia).  And, in a broader context, this will undermine the competitiveness of South Stream and, possibly, take over its route.  With all this in mind, European Energy Commissioner Andris Piebalgs said that if North Stream is implemented within the next few years, the future of South Stream will look uncertain.  The European commissioner said that Brussels has always been cautious about the South Stream project because North Stream seems much more realistic.

Be that as it may, if the international community's chances of implementing new pipeline projects are reduced, this will, as already mentioned, have a serious affect on Azerbaijan's transit position, and this is bad news for the country's economy.  Baku currently sells gas through the existing network of pipelines, but diversification is always good, and President Ilham Aliyev has always said this.

Azerbaijan, therefore, does need alternative routes and the most realistic option seems to be selling liquefied gas at special terminals, transporting it by sea to Azerbaijan and on to Europe.  It has to be said that the Azerbaijani State Caspian Shipping Company already has experience of transporting liquefied gas by ferry from Turkmenistan.  The ferries were equipped with the special security systems needed for transporting this type of gas.  However, transportation by ferry will not deliver sufficient amounts to fill gas pipelines.  Experts estimate that, in the absence of a Transcaspian gas pipeline, building the gas liquefaction infrastructure and using special gas pipelines to transport the product can be profitable only if the route carries 30 billion cubic metres of gas.

At present, a project for the liquefaction of Caspian gas for transportation to Europe is being considered by more than just the Caspian ports.  Representatives of the State Oil Company of Azerbaijan say that the possibility of building a terminal to process Azerbaijani gas on the Black Sea coast of Georgia is being examined (SOCAR owns a terminal in Qulevi) , thence to transport it by sea to Romania or Bulgaria for further transportation via Europe's internal gas pipeline network.  The feasibility of two technologies, LNG and CNG, is being studied.  The former means building a gas liquefaction plant, the latter - loading gas onto ships for onboard liquefaction.  The project could have a capacity of 7 to 20 billion cubic metres of gas.

But let us repeat:  in terms of efficiency, these projects are inferior to pipelines, which is why the clash of pipelines will continue.  However, US Undersecretary of State for Political Affairs William Burns does not believe that a "great game" is in the offing between the USA and Russia for Central Asian energy resources.  "We believe that we can achieve more by working together than by working against each other," he said in Baku.  "Although there are always elements of competition in energy matters, the USA does not believe that energy security is a zero-sum game," Burns concluded.

That is an official statement.  The outcome of today's "underwater" gas pipeline struggle between Russia and the West depends in large part on what both sides are willing to stake.  In any case, economic profitability will win.