MOSCOW AND BRUSSELS MAKE THEIR MOVES

The European Union and Turkmenistan have reached an agreement on cooperation in the oil and gas industries; Turkmen President Gurbanguly Berdymuhammedow and European Commissioner for Energy Andris Piebalgs signed a memorandum to this effect in Ashgabat.

The agreement plans further cooperation in the oil and gas sectors and includes investment in the development of Turkmenistan's fuel and energy complex. The agreement will serve as a legal basis for contracts between Ashgabat and European energy companies to develop Turkmen deposits. The memorandum will also facilitate the participation of international financial institutions in crediting projects to export energy to the European market.

The particularity of the agreement is that it does need to be ratified by the European Parliament and will replace the current, temporary trade agreement between Turkmenistan and the EU, which has long been opposed by international rights organizations which point to human rights violations in Turkmenistan.

According to Berdymuhamme-dow, his country is investing a lot of money in major energy projects and this guarantees that Turkmenistan will honour its obligations. It must be noted that Turkmenistan has entered into a number of obligations; Berdymuhammedow has promised to supply Turkmen gas to "all four corners of the world".

In April 2008, the European Commission said that Ashgabat had promised to supply 10 billion cubic metres of gas to the EU from 2009 - as part of Turkmenistan's participation in the trans-Caspian gas pipeline (Nabucco), which reduces the dependence of EU countries on the monopolistic policy of Russia's Gazprom. Nabucco will become an export route for Turkmen gas to the West, while guaranteed fuel supplies will secure the practicalities of this project. Earlier, however (in May 2007), the leaders of Russia, Kazakhstan and Turkmenistan agreed to build a Caspian littoral gas pipeline which was proposed by the Kremlin as a counterbalance to Nabucco. By re-exporting Turkmen fuel, Gazprom intends to maintain its position in the European market. 

In addition to the "conflict of interests between Russia and the West", Berdymuhammedow is actively engaged with his southern and eastern neighbours. Ashgabat has already signed an agreement on gas supplies to China and is considering new routes to India via Afghanistan and Pakistan. The resumption of supplies to Iran confirms Ashgabat's importance as a geopolitical partner.

However, the president of Turkmenistan says that he is by no means pursuing selfish ends or playing off his main clients against each other. "Turkmenistan is capable of supplying gas to all the planned gas pipelines," a Turkmen TV channel quoted Berdymuhammedow as saying.

The president said that, according to independent international experts, his country's potential fuel reserves are among the largest in the world, exceeding 24,000 billion cubic metres. "In order to convince the sceptics who question these figures, we requested the well-known British audit company Gaffney, Cline & Associates Ltd to certify the hydrocarbon reserves of our southern region according to current international practice in the classification of reserves," said Berdymuhammedow.

The foreign press writes that the EU delegation left Ashgabat in an upbeat mood. The Turkmen president combined the signing of this "peace with the West" with the opening of a new gas compressor station at the major deposit of Dovletabad, which will secure supplies to the Caspian littoral pipeline.

In this way, Berdymuhammedow showed Russia and the EU that he intends to cooperate with both options. The decision should satisfy both Moscow and Brussels, which are now mobilizing their technical and financial facilities in order to build their pipelines as soon as possible.

Both the West and Russia have difficulties to surmount. Both have great projects, but only on paper. Neither Brussels nor Moscow has guarantees that the European Nabucco and Russian South Stream will be supplied with raw material and the cost of both projects is growing very rapidly.

The West's position has been weakened by news that the cost of the Nabucco project has increased by 1.5 times and reached 7.9 billion euros. The official website of the Nabucco pipeline company says that the reason for the increase in expenses is the increasing price of oil and steel. The consortium building the gas pipeline reviewed its planned expenses and established that another 2.6-2.7 billion euros will be required to implement the project.

The opposition camp hurried to take steps to seize the initiative. Kremlin envoys proposed that Azerbaijan, which is the backbone and only guaranteed supplier of Nabucco, review its gas export priorities in a northerly direction, suggesting that Baku reject the projects offered by Brussels and Washington.

Gazprom says in its report that the chairman of the company's board, Aleksey Miller, offered a long-term agreement to buy Azerbaijani gas at market rates at a Baku meeting with President Ilham Aliyev.

"As a major producer of hydrocarbon reserves in the CIS, Azerbaijan is an objective partner of Russia and we have common interests. We are already linked by a gas transport infrastructure. We are interested in developing mutually beneficial cooperation between Gazprom and Azerbaijan in the energy sector," Miller said.

Russian news agencies quote a source familiar with the monopoly's proposals as saying that gas purchases may start next year. Gazprom is ready to buy any volume that Azerbaijan can offer at world prices.

The Russian buyer is ready to calculate the "market price" from the cost of gas sold in Europe, excluding transport expenses and at a reasonable norm of revenue, the source said. Gazprom currently receives 350-370 dollars per 1,000 cubic metres of gas and the price is expected to reach 400 dollars by the end of the year. Baku is still making much less from the sale of its gas. Gazprom believes that profit should be the main trump card for the company. To all appearances, Moscow is ready to share part of its European revenues with Baku but, in exchange, it may demand that Baku give up planned supplies to the Nabucco, Poseidon and Trans-Adriatic pipelines.

The "strike" is accurately targeted. If they manage to knock Azerbaijan out of the "European" game, the whole Nabucco project will fail. Without the South Caucasus corridor, Turkmen gas can only be pumped to Europe via Iran, an option likely to be rejected by the main ally and proponent of Nabucco - the White House.

There are technical facilities available to export Azerbaijani gas via Russia. It would be sufficient to use in reverse mode the already existing pipeline which supplied fuel to Azerbaijan until recently.

Baku has yet to give its official answer and President Ilham Aliyev promised to think about Miller's offer, according to the Russian press. The president of the State Oil Company of Azerbaijan (SOCAR), Rovnaq Abdullayev, said that Gazprom's proposal is being examined. "We will be exporting our gas by the most lucrative routes," he said.

However, we should not forget that Baku is the main stronghold of Western diplomacy in the Caspian. Until now, Azerbaijan has led the group in support of Caspian energy supplies to Europe, bypassing Russia. The issue of diversifying gas supplies has not previously been on the agenda, especially to Russia, which was to be bypassed by alternative projects.

Here we may recall Azerbaijan's relations with Gazprom and the unfriendly tone of their last talks. Two years ago, the Russian company increased the price of gas supplied to Azerbaijan from 110 to 230 dollars per 1,000 cubic metres, despite its contractual obligations. After a series of unsuccessful negotiations, Baku refused to buy Gazprom gas and was forced to focus on increasing its own gas extraction, losing revenue from the export of gas from the Sah Daniz deposit. Moreover, if the Russian monopoly's offer is accepted, this will empty the whole pipeline to Turkey.

Such circumstances indicate that there is little chance for the "Russian option".