A BIRD IN THE HAND...

As 2010 began, the intrigue around issues of energy security in Europe and diversifying sources and routes of gas supplies from the Caspian region took on a new "turn". Extraordinary statements and decisions by representatives of countries involved in it seem to have ceased to surprise experts and analysts. Buyers and sellers are running out of time. The situation "things haven't gone forward" does not benefit anyone in this case, but at the same time it is also impossible to achieve a specific documented solution. For the sake of fairness, the Azerbaijani side has long awaited a solution to problems with Nabucco, to the issue of prices with Turkey and other promising pipeline projects to deliver gas to Europe. But every day of endless negotiations postpones the start of Phase 2 of gas production from Sah Daniz, and this means project shareholders' dissatisfaction, which has been extremely rate in relations between Azerbaijan and its foreign partners. So there is no other choice but to accept the proposals which are cost-effective and do not require extra negotiating red tape.

Real buyers

On 1 January 2010, Azerbaijan began to supply gas to Russia. It is reported that in the initial stage, the amount of supplies will be 1.5 million cubic metres per day, and this gas will be delivered to the southern regions of Russia. It must be noted that the medium-term contract (with a possibility of extension) on the sale of Azerbaijani gas was signed between SOCAR and Gazprom in Baku on 14 October 2009 and covers 2010-2014. Under the contract, the Azerbaijani side will annually supply no less than 500 million cubic metres of gas to Russia. But the "trick" is that the contract does not specify the upper limit of gas supplies, i.e. SOCAR will notify the opposite side with six months' notice on the amount of the gas that the company can deliver. The Azerbaijani side took this opportunity very quickly: in late 2009, the president of the State Oil Company, Rovnaq Abdullayev, said that Azerbaijan has the potential to increase gas supplies: "In 2010, we will deliver one billion cubic metres of gas to Russia."

Maybe it's just a coincidence, but the statement was made during Azerbaijani Foreign Minister Elmar Mammadyarov's visit to Turkey. As you know, the price of the gas, which the neighbouring state is going to buy from our country in the future, is currently one of the main subjects of discussion at different levels. Although than 10 rounds of negotiations have been held, they still have not yielded any practical results. Although no official statements have been made to this effect, it is possible that the problem of prices was also addressed during the Azerbaijani foreign minister's visit, but also to no avail. As the Turkish media reported that in February, Azerbaijan and Turkey will finally agree on the gas price, which will increase to 399 dollars per 1,000 cubic metres from the current 120 dollars, a spokesman for the Turkish Ministry of Energy and Natural Resources denied the report, stating that the parties are still discussing this issue. At the same time, he did not rule out a consensus in the next month, which, he said, will depend on the progress of the negotiations.

Nevertheless, "probability" is not reality, and the latter, as mentioned above, requires Azerbaijan to find a buyer for its gas as soon as possible. In 2010 alone, we will have produced over 28 billion cubic metres of gas, and that's without Phase 2 of Sah Daniz. That is to say the country currently has free volumes of gas that must be sold. Today, apart from Russia, Azerbaijan has yet another real buyer - Iran, a long-term five-year contract (with a possibility of extension) with which involves the export of up to 5 billion cubic metres of gas per year to that country. It must be noted that gas production in Iran, according to BP, amounted to 116.3 billion cubic metres in 2008 although it consumed 117 billion cubic metres. Azerbaijani gas will be delivered to the northern regions of this country, which are too far from major gas fields.

Turkmen crossroads

Thus, Azerbaijan is making up its mind about the buyers of its gas. Although export to Europe still remains the priority, what the route of fuel delivery to Europe will be is a rhetorical question today. Nabucco, which is the main project actively promoted by the Europeans, has not yet been declared "bankrupt" (although a certain share of pessimism is present in officials' statements), many media and experts already predict its failure. The issue is not about Azerbaijan. One of the "big" nails in the coffin of Nabucco can be driven by Turkmenistan, which was one of promising countries when the pipeline was designed. The second branch of the Turkmenistan-Iran gas pipeline was officially commissioned on 6 January 2010, which will increase natural gas supplies to Iran up to 20 billion cubic metres a year. Even earlier - in December 2009, a gas pipeline from Turkmenistan to China was commissioned in Turkmenistan in the presence of the leaders of Turkmenistan, Uzbekistan, Kazakhstan and China. The "Pipeline of the Century", which is 7,000 km long, will make it possible to export to China 40 billion cubic metres of natural gas per year. In addition, in January 2010 Turkmen resumed gas deliveries to Russia, supplying 30 billion cubic metres a year.

Thus, as Turkmenistan has several directions of gas sales and has resumed gas relations with Russia, it may simply lose interest in Nabucco. And it is not that there may not be enough gas for this project. The country has enormous resources. According BP, proven gas reserves in Turkmenistan in early 2009 totalled 7.94 trillion cubic metres.

In addition, in late December, Turkmenistan signed a number of contracts with foreign companies for the development of one of the five biggest fields in the world - South Yolotan. After the commissioning of all projects in the field, it is planned to produce 30 billion cubic metres of gas annually. The reserves here are estimated at 14 trillion cubic metres. Given the strong demand for its gas, the country can take the opportunity to seek higher prices for it, as it has already occurred in relation to Russia. And Europe in this sense is not an exception.

At the same time, Turkmen officials declare their interest in Nabucco within the framework of the country's commitment to diversifying energy supply routes, but again here we can see the same picture as with Azerbaijan - there are no plans on the agenda to sign contracts on specific routes of joining the project. As you know, another key point in Nabucco is Turkey, with which Turkmenistan has no common borders. Ankara and Ashgabat studied the project to export Turkmen gas to Turkey in the middle of the 1990's, and the feasibility study was conducted by Shell. There was a plan (though no-one has yet cancelled it) to build a trans-Caspian gas pipeline under the Caspian Sea, through which gas would be shipped to Azerbaijan and from there to Erzurum in Turkey by the South Caucasus gas pipeline. The project is expensive and causes some discontent with environmentalists.

There is a second option - through Iran, by the existing route described above. More recently, Turkish Energy Minister Taner Yildiz put forward another option for Turkmen gas supplies, which affects both Iran and Azerbaijan. Rather, according to the Turkish minister, the proposal was made at a meeting with Turkmen President Gurbanguly Berdymuhammedov during Yildiz's visit to Ashgabat to attend the opening of the Turkmenistan-Iran gas pipeline. The third option provides for swap supplies of Turkmen gas to Turkey via Iran and Azerbaijan. It must be remembered that the latter two countries are bound by the Qazimahammad-Astara-Bind-Biand pipeline with a length of 1474.5 km (on the territory of Azerbaijan - 296.5 km). This route is a branch of the Qazax-Astara-Iran pipeline which was opened in 1971. Three compressor stations were built along its route - in Qazimahammad, Agdas and Qazax. The diameter of the pipeline is 1,200 mm. The upgrading of the infrastructure will enable daily supplies of about five million cubic metres of Azerbaijani gas to Iran (about 1.8 billion cubic metres per year). Now the infrastructure allows us to deliver about 500 million cubic metres a year. This time, Turkey is more determined and, according to an official representative of Ankara, "the day is near when Turkey will get Turkmen gas through Iran or across the Caspian Sea".

In summary, we can only say that the further we go, the harder it becomes to anticipate and predict how this interesting and politically motivated game around "blue fuel" will end. No matter how trite it may sound, we have to rely on time...