Wednesday, September 1, 2010

Nabucco a ‘bargaining chip’ between Russia and Europe

Ilham Shaban

News.Az interviews Ilham Shaban, head of the Baku-based Oil Research Centre.

Would you comment on reports of a new gas war between Russian monopoly Gazprom and the European Union?

A number of leading countries of Central and Eastern Europe are already dissatisfied with the prices for imported Russian gas. They have already achieved a 15% decrease in prices but negotiations are under way about a further price decrease of 15% for European consumers. This is because the gas price on world markets has fallen to about $300 per 1,000 cubic metres, while the spot price on the European gas market was $190-220 in July. Gazprom is making concessions as it is aware of the situation. Of course, a process of mutual concessions does not go smoothly and may lead to reports of possible conflicts.

Why are the leading countries of Europe that are gas consumers not making more effort with the Nabucco project?

In order to answer this question, it should be mentioned that this year almost saw the bankruptcy of a European country, Greece. New EU member Latvia was also on the verge of bankruptcy. Spain and Portugal have huge financial problems. The situation has stabilized somewhat thanks to the large credits extended to these countries. However, wildfires and further flooding throughout most of Eastern Europe show that a return even to the minimum standards of the European Union is out of the question. In other words, Europe has no money. The profitability of the Nabucco project is uncertain if it’s built by the shareholder countries without the support of investors. In the prevailing conditions, the Nabucco project is becoming a bargaining chip between Europe and Russia; the European aim in the bargaining is to bring down the price of Russian gas.

But what does Azerbaijan gain from this bargaining?

In the bigger picture, nothing, but the bargaining does have an indirect impact on Azerbaijan. We were to have reached a planned capacity of 8.6bn cubic metres of gas in 2008 as part of Stage 1 of the Shah Deniz project, but by the end of the year we had produced only 6.5bn cubic metres of gas, and today have just brought the figure up to to 7bn cubic metres. The reason is the lack of buyers. In the prevailing conditions, Azerbaijan is obliged to play the “gas game” with Russia, to make expenditure and mobilize efforts to improve the infrastructure for supplies to Iran. This is dictated by the fact that in 2011 Azerbaijan will produce a 3-3.5bn cubic metre surplus of gas which has to be sold to someone.

Is there a purely economic, rather than political, rationale for Azerbaijan to agree to Russia’s repeated offers to buy all our gas?

Certainly, the easiest, the simplest solution would be to put all our eggs in one basket. But we all understand that oil and gas have long ceased to be only a commodity; they are a tool for political dialogue. This means that Azerbaijan should now look for new ways to supply gas to different markets and the sale of liquefied gas becomes a priority.

Akper Hasanov

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