Tag: Energy

Caucasus Update, Issue 13, December 8, 2008

Released by Caucasian Review of International Affairs (www.cria-online.org)

In late November a trilateral summit was hosted in the city of Turkmenbashi , on Turkmenistan ’s Caspian coast. In attendance were President Gurbanguly Berdimuhammedov, the host; President Ilham Aliyev of Azerbaijan , and President Abdullah Gul of Turkey . Apart from a number of cultural and transportation agreements, the three leaders were there to discuss the much-hyped Nabucco project. Nabucco would transport Central Asian and Azerbaijani gas to Europe, via an undersea pipeline in the Caspian Sea, through Azerbaijan , Georgia and Turkey . The project would do for gas what the Baku-Tbilisi-Ceyhan pipeline did for oil – tap into Central Asian resources bypassing Russian territory.

The concluding statements emerging from the summit were typically vague. However, Vladimir Socor at the Jamestown Foundation has suggested that the official line was to avoid publicly naming particular projects for fear of offending Russia (although the Kremlin can hardly have doubted the topic of discussions). This explains the oblique reference to Azerbaijan and Turkmeniatan’s “common position on the policy of diversification of exports of energy resources to the world”, and President Gul’s ‘keen interest’ in energy collaboration. Similar rectitude with the name of Nabucco was observed during a recent oil and gas conference in Ashgabat.

Such reluctance on the part of the Turkmen government was to be expected, however frustrating to Western energy pundits. The country’s secretive attitude towards its oil and gas wealth is a reflection of its isolationist political stance. It is highly unlikely that President Berdimuhammedov will be prepared to publicly back a project of Nabucco’s size without cast-iron guarantees on transit infrastructure, destination markets, and prices. However, the references to energy diversification and the role of the Caspian region’s energy potential as a bridge between Asia and Europe are extremely significant, signalling that, in principle at least, Turkmenistan is on board.

Where would this leave Moscow ? Russia currently accounts for almost all of Turkmenistan ’s gas exports, and has been staging a rearguard action – or a determined offensive, depending on your viewpoint – against Nabucco for months. In November 2007 Gazprom struck a gas deal with Turkmenistan in which the Russian gas corporation would pay $130 per thousand cubic metres (tcm) in the first half of 2008, and $150tcm in the second half. This was a major rise from the 2007 level of $100, but it pales into significance next to the deal that Gazprom chief Alexei Miller made with Ashgabat in July. This would raise the price to around $350tcm: according to Mr Socor, once an expected rise in transit fees by other states is accounted for, Turkmenistan would still pocket between $225 and $295/tcm. An attractive offer. But President Berdimuhammedov remains unwilling to place all his eggs in one basket, however financially appealing, hence his moves towards Nabucco. It is not implausible that Gazprom will offer to pay even higher prices, since the July deal was already underpinned by political, rather than economic, motives. Pushing the price even higher would be a gamble for the Kremlin, already reeling from the financial crisis. In any case, even a price hike will not be enough to tempt Turkmenistan , provided that Nabucco’s other backers, principally the EU and Azerbaijan , remain committed. Azerbaijan has not yet given a positive response to Russia ’s offer to buy its whole gas at European prices, judging that such a Faustian pact would cost more in political terms than it would provide in economic terms. President Aliyev has insisted that, since Azerbaijan lacks the reserves to fill Nabucco alone, “this is not only our project”, implying that the West must apply pressure to Ashgabat instead of Baku .

The EU is a different matter. The Union’s backing of Nabucco has been, like much of the EU’s policy towards the former Soviet Union , fitful and patchy. In mid-November President Berdimuhammedov made an unprecedented visit to Germany and Austria . As at the Turkmenbashi summit, no concrete plans were formally announced, but much noise was made about the chances for co-operation in the energy sector amongst others. Germany’s reputation as something of an apologist for Russia within the EU (certainly in the eyes of Britain and Scandinavia) makes these statements of intent rather interesting, suggesting that Berlin is willing to throw its weight behind Nabucco (the growing German support for Nabucco could also be linked to the ongoing difficulties with the construction of the North European Gas Pipeline from Russia to Germany). This probably reflects growing support for Nabucco amongst the Union as a whole. For instance, EU special representative to Central Asia Pierre Morel announced, after talks with President Berdimuhammedov on December 3, that the Union would take “concrete steps” towards including Turkmenistan in Nabucco (somewhat undermining the official veil of silence on the project in Ashgabat). It may take a dramatic event, such as an escalation of the current Ukraine-Russia gas dispute, to underline the urgent need for supply diversification and prod Europe into action.

It would be unfair to characterise the EU as the only obstacle to Nabucco, however. Turkey has been surprisingly obstructive for a country so eager to portray itself as a regional energy hub. The prices it has offered for Azeri gas are unacceptably low for Baku , and it has also allegedly demanded 15% of the project’s supply to feed its own rising demand. In the light of Russia ’s ongoing offer to buy Azeri gas, this is a move that could conceivably backfire on Ankara . Although it will calculate – correctly – that Azerbaijan ’s commitment to Nabucco will force it into concessions regarding Turkish transit, this would sour relations at a time when Azerbaijan is already wary of Turkey ’s diplomatic overtures to Armenia .

Energy analyst Andrew Neff has argued that planned gas links between Iran and Turkey will allow Ankara to use Iranian gas for domestic consumption and therefore allow Turkmen and Azeri gas to pass to Europe : the political complications with such an approach are obvious. This situation would create an uncomfortable scenario in which Europe was indirectly reliant on Tehran for the security of its gas security, since any cuts in supply to Turkey would draw off Azeri and Turkmen gas from the European route to feed Turkey ’s internal consumption.

Nabucco still has a long way to go before becoming reality. Although there is a tendency to overstate the political, as opposed to economic, risks involved in any trans-national pipeline project, in this case the tendency seems justified. The problems with implementing Nabucco tap into a whole range of wider (geo)political issues – the EU’s relationship with Turkey , the future of the landlocked Central Asian states, Russia ’s role in Eurasia, and the isolation of Iran – of profound significance. One should not, therefore, underestimate the importance of the Turkmenbashi summit. Although it produced no clear victories for Nabucco, negotiating these obstacles will only be possible one small step at a time.