14 March 2025

Friday, 21:49

TWO LINKS OF ONE CHAIN?

Azerbaijan and Turkmenistan are selecting a route for their gas

Author:

15.09.2008

Until recently, it was quite difficult to imagine that Azerbaijan and Turkmenistan might become political and economic partners - relations between the two countries were quite strained in the post-Soviet period. However, following the thaw in political relations after the May visit to Baku by Turkmenistan's President Gurbanguly Berdymuhammedov, the two countries immediately established economic relations, and the dominant factor here is energy. The president of the Azerbaijani State Oil Company, Rovnaq Abdullayev, said in an interview with journalists that though it is too early to speak about specific joint projects, Azerbaijan has already offered Turkmenistan to use its oil and gas infrastructure. Secondly, what links the interests of the sides is naturally their joint participation in major regional projects aimed at diversifying energy supplies to Europe. As is known, Europe is currently concerned about its energy dependence on Russia, which is why many European countries are searching for new sources. In this situation, the Caspian region is of special importance as its reserves are estimated at 28 billion tonnes of oil and 40,000 billion cubic metres of gas.

 

Is there still enough potential?

As is known, the European Union (EU) and the USA are currently actively lobbying the construction of new routes for the transportation of hydrocarbon reserves bypassing Russia. They are pinning great hopes on three Caspian countries - Azerbaijan, Kazakhstan and Turkmenistan. Things do not end only with the transportation of oil here - the USA and the EU are in favour of the swift implementation of the trans-Caspian gas pipeline project (TCGP). This was confirmed once again during the visit to Baku by US State Department Special Envoy for Eurasian Energy Boyden Gray. "The negotiations on the trans-Caspian are continuing," Gray said.

According to the TCGP plan, gas will be exported from the eastern coast of the Caspian to Turkey through Azerbaijani territory. In March 2006, Azerbaijan expressed its desire to join these talks, and in May 2007, the government of Kazakhstan announced to the public that it is considering building a gas pipeline. It is quite understandable: the implementation of the project will bring Kazakhstan not just financial dividends, it will also strengthen its positions in the whole world, especially as by 2010, "blue fuel" extraction in Kazakhstan will reach 22bn cubic metres and by 2015 - 40 billion. This means that the republic can maintain its gas export to the foreign market at a decent level for the next 15-20 years.

Meanwhile, the TCGP project can succeed only if Turkmenistan agrees to transport gas through its territory. It must be noted that Turkmenistan was previously believed to have the second or third largest "blue fuel" reserves (after Russia and approximately the same amount as Qatar and Iran). However, later American experts "suddenly" realized that in fact, nothing is known about real, not theoretical, natural gas reserves in Turkmenistan. In order for Ashgabat's statements about gigantic reserves on the Caspian shelf to be confirmed, many years of geological-exploration work and investments worth billions in the development of reserves will be required. Almost nothing has been done in this direction so far.

However, some figures were announced at the international conference "Oil and Gas Potential of Azerbaijan and Turkmenistan: Energy, Economy and Ecology - Strategy of Cooperation", which was held in Baku on 9-10 September. The director of the Turkmen Institute for Strategic Planning and Economic Development, Ashirguly Gurbanguliyev, said that according to the programme on the development of Turkmenistan's oil and gas complex until 2030, natural gas extraction in the country will total 250 billion cubic metres and oil - up to 110 million tonnes.

He said that Turkmenistan "is setting itself great tasks of increasing oil and gas extraction, and currently, large-scale investment projects have been launched to diversify export potential". "The construction of the Turkmenistan-China main gas pipeline has already begun, and the study of such gas pipelines as Turkmenistan-Afghanistan, Pakistan-India, Caspian and trans-Caspian, is under way at a high pace," Gurbanguliyev said.

 

Nabucco: Politics getting in the way of business?

Obviously, Turkmenistan aims to diversify its gas export routes. Though Russia secured Turkmenistan and Kazakhstan's consent to build the Caspian pipeline, this project still remains on paper.

Experts suppose that the trans-Caspian pipeline will not get the right to life soon. Member countries need to solve the issue of financing, redistribute extraction quotas and define the status of the Caspian. However, we can confidently say today that Ashgabat intends to redirect a large amount of its energy reserves to Azerbaijan, Turkey and China. Just like any other country that has oil and gas, Turkmenistan is trying to make maximum use of high energy prices. We can only suppose which project will be a priority for Ashgabat - the trans-Caspian project or, say, the construction of a new line with a capacity of 26-30 billion cubic metres along the Central Asia - Centre system (CAS) which is being reconstructed with Russia's participation. Again, investments in these projects need long-term guarantees of shipment from Turkmenistan.

It must be noted that the trans-Caspian pipeline will become only the beginning of a chain of gas pipelines that will deliver "blue fuel" to Europe. As is known, several pipeline companies are struggling for the right to extend a pipeline from Azerbaijan. One of them is Nabucco which is supported by the USA and the European Union. However, the foreign media recently reported that Azerbaijan refused to take part in the project, which disappointed the West. It turned out later that there are really some difficulties in the negotiating process with participants in Nabucco, and the reason is the politicization of the construction of the gas pipeline. According to Azerbaijan's Minister of Industry and Energy Natiq Aliyev, "this project is so politicized that its implementation is in question".

He said that representatives of Azerbaijan are holding regular meetings and consultations with managers of the Nabucco gas pipeline construction project. "We give them support and hold some joint surveys, but there is no physical participation in this project," he added.

According to the minister, Azerbaijan can export 60 billion cubic metres of gas per year for 20 years, which will be possible owing to extraction from the Sah Daniz deposits, accompanying gas extraction from the Azari-Ciraq-Gunasli (ACG) deposits, deep gas from ACG and confirmation of reserves at a number of promising structures - Abseron, Naxcivan, Umid, Babak and Araz-Alov-Sarq. Thus, Azerbaijan has the raw material, but has yet to make up its mind on its routes of delivery to the world market.

 

Stakeholders cheering up

Meanwhile, Nabucco stakeholders are optimistic about Azerbaijani gas supplies to Europe. The general director of the Nabucco project, Reinhard Mitschek, told journalists in Baku that Nabucco is more attractive to Azerbaijan than the sale of gas to Russia's Gazprom because the project is long-term. "Nabucco is a very long-term project, and we hope that Azerbaijan and other Caspian littoral states will choose this project. We are ready to pump Gazprom's gas as well because Europe's demand for gas is high," Mitschek said while commenting on the advantages of this project over Gazprom's proposal to Azerbaijan to sell its gas to the company.

It must be remembered that the Nabucco project envisages the construction of a new gas pipeline to link the Caspian region, the Middle East and Egypt through Turkey, Bulgaria, Romania, Hundary and Austria and to Central and Western Europe. The length of the pipeline is about 3,300 km from Turkey to Baumgarten in Austria. The pipeline was designed to transport a maximum amount of gas - 31 billion cubic metres per day.

The planned investment expenses on the project, including financing of the totally new system of the pipeline, are about 7.9 billion euros. The construction work is to start in 2009 and supplies in 2012. The participants in the project are Turkey's Botas, Bulgaria's Bulgargaz, Hungary's Mol, Austria's OMV, Germany's RWE and Romania's Transgaz. Each of them has 16.67 per cent of shares in the project.

According to Mitschek, the essence of today's negotiations with SOCAR is to minimize expenses on gas transit and secure a maximum price for sales in Europe. Touching on the lack of an agreement on the transit of Caspian gas to Europe through Turkish territory, he pointed out that he did not expect any problems in this issue. "Turkey's Botas is a stakeholder in the Nabucco project, which is why it has an interest in delivering Caspian gas to Europe, Mitschek said.

It must be noted that Turkish Energy Minister Hilmi Guler said earlier that he had no doubts about the implementation of the Nabucco gas project. "Nabucco is realistic," Guler sid. The issue is when it becomes a reality…


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