THE GAME GOES ON

If the footballers of Azerbai-jan's national team had known what was at stake in their game against Russia, they would probably have made a little more effort to achieve at least a draw. But alas, the score was 0-2 in Russia's favour, and the team's sponsor, the State Oil Company of Azerbaijan, was forced to sign a declaration with Gazprom, sponsor of the Russian team, on the sale of Azerbaijani gas to Russia. "Our agreement was made after the match - we lost and signed the document," a SOCAR spokesman said, trying to laugh it off.

Joking apart, for three months now Azerbaijan has been pondering and guessing the content of this declaration, what sort of gas we will sell to Russia and on what conditions. Some media are wondering what this means. Is it that Azerbaijan has given up on gas transportation to Europe and banks on Russia, in return for resolution of the Karabakh issue? Or is it simply a matter of partial supplies to neighbouring Dagestan? A conference on the sidelines of the Caspian Oil and Gas 2009 exhibition, held in Baku in early June, clarified these issues.

Russia buried Nabucco too soon

Let's start by saying that, according to some Russian media, the Gazprom open joint-stock company is prepared to buy all Azerbaijani gas produced from the development of Stage 2 of the Sah Daniz gas condensate deposit, where proven reserves are estimated at 1.2 trillion cubic metres. According to another report, the memorandum specifies that the Russian monopoly will buy gas belonging to SOCAR. What is the truth?

"One of the points of the memorandum on cooperation with Russia's Gazprom, which was signed on 27 March this year, contains a provision of confidentiality. Unfortunately, the Russian side broke this provision - as soon as we had signed the document and returned to the hotel, Russia's RBK TV channel drove the last nail into the coffin of Nabucco. I respect the agreements that have been reached and will not divulge any information without the written permission of the other side," SOCAR Vice-President for Investment and Marketing Elsad Nasirov told journalists.

However, we managed to find out that talks continue with Gazprom about the commencement of Azerbaijani gas supplies from 2010. According to Vaqif Aliyev, head of the SOCAR investment management department, the Gazprom delegation which visited Azerbaijan acknowledged the good quality of local gas and the good technical condition of the pipeline which would take it to Russia. "Now we have to resolve commercial and technical issues to conclude an agreement on gas exports to Russia," said Aliyev. According to Azerbaijan's Minister of Industry and Energy, Natiq Aliyev, the talks require a long time because they concern a long-term agreement and solving strategic tasks today. "We are not talking about the sale of one billion cubic metres, but about the sale of gas from the first and second stages of the development of the Sah Daniz gas condensate deposit," he said. It should be noted that Azerbaijan already has the technical capability to supply five billion cubic metres of gas to Russia every year.

Of course, this does not mean at all that the Nabucco project can be buried. Azerbaijan has enough gas and export potential for many more projects. The president of StatoilHydro Azerbaijan, Kristian Hausken, said that more than 30 billion cubic metres of natural gas can be extracted annually from the Sah Daniz deposit over the next 30 years and, 10-15 years later, exports could reach the same volume. "This is not going to be easy but, on the whole, the volume of gas extraction in Azerbaijan will increase, in view of the potential of the Azari-Ciraq-Gunasli deposits," he said.

It must be noted that BP recently published a strategic review of world energy which increased the estimate of proven gas reserves in Azerbaijan by 40 billion cubic metres - up to 1.2 trillion cubic metres. Thus, the volume of proven gas reserves in Azerbaijan at 1 January 2009 accounted for 0.6 per cent of world gas reserves. For the time being or, to be more precise, this year, Azerbaijan is planning to export almost one third of its gas - 8 billion cubic metres of the 27 billion to be extracted.

Speaking the same language as Turkey

In other words, there is gas, there is the opportunity to sell it and there are clients. Now we have to distribute the gas between clients so that no-one is hurt on the one hand, and to achieve maximum benefit on the other. It seems that this is not an easy thing to do. According to Minister of Industry and Energy Natiq Aliyev, the Azerbaijani side will be investigating the expediency of each proposal via negotiation and will choose the most lucrative from a financial point of view. "Gas will not be sold in one direction, but price will be taken into account - gas will be sold to the one who offers a better price," the minister said.

"The main task today is to find the perfect option for exporting Azerbaijani gas and for exporting Caspian gas through Azerbaijan," said Nasirov. He pointed out that all the pipelines to be laid through Turkey might be involved. "Moreover, it might be necessary to build another, similar gas pipeline after 2025," he added. The Europeans themselves estimate their demand for gas from the Caspian region at no less than 70 billion cubic metres per year, allowing for the growth in consumption to 700 billion cubic metres per year expected in Europe.

The Turkish direction is really the best solution to the issue. First of all, there is a secure infrastructure, and second, Turkey is a key country for the conveyance of Azerbaijani gas supplies to the European market because three projects for such export - the Nabucco, ITGI and TAP pipelines - involve Turkey, and third, Turkey is a friendly neighbour of Azerbaijan and it is easier to establish a common language. Incidentally, this was graphically proved by the agreement with Turkish partners that they will not interfere in the resolution of issues of extraction, the volume of gas and the destination of natural gas to be supplied from Azerbaijan to Europe through Turkish territory. This gave impetus to negotiations on the whole range of gas issues. The sides are also close to agreement on the price and volume of gas supplies to Turkey from the second stage of Sah Daniz development.

"We are close to agreement on the price and volume of gas for Turkey to be supplied from the second stage of the development of the Sah Daniz gas condensate deposit in the Azerbaijani sector of the Caspian Sea. There is also progress on the price of gas supplied from the first stage of development," Nasirov told journalists.

At the same time, there is another country in need of Azerbaijani gas. It is also a neighbour of strategic importance to Azerbaijan - Iran, a country with a population of 70 million, which is actively developing its own gas market. "They wish to buy gas from the second stage of the development of the Sah Daniz deposit. The gas price offered by Iran is quite attractive," Nasirov pointed out. Iran has also been quite helpful to Azerbaijan in the matter of maintaining the energy security of blockaded Naxcivan, and it would not be good to ignore a proposal to cooperate in the gas sector.

The client is not "ripe" yet

As for the Nabucco project, which has become the talk of the town and which largely depends on Azerbaijani gas and Azerbaijan as a transit country, Minister Natiq Aliyev, who is already tired of journalists' questions as to whether Azerbaijan is going to participate or not, explicitly said that, in his opinion, this project is still unripe. "It is discussed only at conferences, summits or odd meetings, and only some countries support it. Things are not progressing," Aliyev said.

"When we began implementation of the Baku-Tbilisi-Ceyhan project, there were decisions by member countries and governments, decisions to allocate plots of land, and we also knew what the width of corridor would be and what land would be bought up. No such work is being carried out within the framework of the Nabucco corridor, we don't know whose gas will be pumped through it etc. But, at the same time, I would not like to politicize this issue - Nabucco is not an easy project, it covers many countries and many political and legal problems have to be negotiated. This is a laborious job - look how long the fraternal states Azerbaijan and Turkey have been negotiating, let alone a project that covers several countries," the minister said in conclusion.

We have to say that it was Azerbaijani President Ilham Aliyev who categorically spoke out against the politicization of energy supplies at the opening of the Caspian Oil and Gas 2009 Exhibition. "Energy security means security for all - not just for consumers, but also for producers and transit countries. However, cooperation between these three sides should definitely be transparent. This cooperation should be based on international experience. It should be based on mutually beneficial bases, principles of market economy and free and healthy competition. This is very important, because in recent years the oil and gas sectors have become very politicized, and there are plenty who want to politicize it. This is our fundamental approach and an important part of our energy policy. If we note that energy security for the region and the continent cannot be totally ensured without Azerbaijan's participation, I have no doubt that our position will prevail," said the head of state.

Meanwhile, the executors of this project link the resolution of issues mentioned by Natiq Aliyev to guarantees of supply for the new pipeline. "In order make an investment decision, guarantees for the supply of 8-10 billion cubic metres of gas are required for the project to be attractive to investors and financiers. Capacity of the pipeline will then increase to 20 billion and later, to 65 billion cubic metres," said Mitschek, director-general of Nabucco.

"We have already received permission from the European Commission for a 50-per-cent discount for the gas of third parties. In the second half of 2009, it is planned to begin assessing the environmental impact. Then detailed engineering will be carried out in various countries and specifications for the tender to select contractors will be clarified," Mitschek continued. He also said that the throughput capacity of the gas pipeline at the final stage may reach 65 billion cubic metres, while at the first stage it will be only 8-10 billion cubic metres, which will presumably be supplied from the Caspian, specifically, Azerbaijani gas. At the second stage, pipeline capacity will reach 20 billion cubic metres.

At the same time, despite the optimism he expressed in Baku, the real state of affairs, namely the postponement of the signing of an intergovernmental agreement on Nabucco (originally scheduled for 25 June), proves that Natiq Aliyev is right. Well, if Nabucco fails, Azerbaijan has enough time to choose and enough options to choose from. The president of StatoilHydro Azerbaijan, Kristian Hausken, said that negotiations on gas supplies to Europe are proceeding very slowly. "However, we very much hope that the intensification of talks between Azerbaijan and Turkey will bring us closer to this objective. I think that the EU market offers the most transparent and competitive prices today," Hausken said in conclusion. Thus, whatever happens, the Europeans will get some gas, maybe even most of it.