By Robert M Cutler
MONTREAL - European Union president Jose Manuel Barroso and EU energy commissioner Guenther Oettinger spent last weekend in Azerbaijan and Turkmenistan talking about ways to get natural gas from the Caspian Sea basin to Europe.
Barroso signed an agreement with Azerbaijan's President Ilham Aliev, of which the full text was not published. In general, it is reported to have agreed on the sale of "substantial" volumes of gas over the long term, without saying exactly which deposits they would come from or where in Europe they would go. Such decisions are not Barroso's responsibility, or even Oettinger's.
Azerbaijan is negotiating with several Western companies over 10 billion cubic meters per year (bcm/y) of gas from the Shah Deniz Two field. The consortium building the Nabucco pipeline - being designed to carry Central Asian gas to Europe - is the one most mentioned lately in the press, but 10 bcm/y would not be enough to fill Nabucco's first-stage capacity of 16 bcm/y, and Azerbaijan does not want to commit to a pipeline that might not be able to reach its projected volume.
Consequently, Nabucco is also looking to Turkmenistan, but in the near term increasingly also to Iraq. (See Iraq eases open door to Nabucco, Asia Times Online, January 6, 2011.)
However, Nabucco is only one of the bidders for Baku's gas. Another is the Interconnector Turkey-Greece-Italy (ITGI), which comprises two sections. The Interconnector Turkey-Greece (ITG) section, which runs 295 kilometers to connect the Greek and Turkish gas networks, entered into service three years ago; however, the Interconnector Greece-Italy (IGI) section, whose 805km would include the 215-km Poseidon pipeline across the bed of the Ionian Sea, is on indefinite hold. The ITGI's transit agreement with Turkey is less favorable to its consortium than Nabucco's terms are to its.
The IGI partners have signed an agreement for an Interconnector Greece-Bulgaria, and further linkages are possible, notably the Interconnector Bulgaria-Romania and Interconnector Romania-Hungary projects. Nabucco's pipeline would be a new construction and with a much larger volume (final stage projected at 31 bcm/y), so ITGI is really more of a competing than a complementary project, even though the routes go through all the same countries, if one includes all the proposed interconnections that ITGI is seeking to integrate into its own plan.
Azerbaijan would like to become not just a gas provider to the Nabucco consortium but also a gas seller to these just-named countries in southeast Europe and to others, whose national networks could be hooked together relatively inexpensively. With mechanisms providing for reversibility of the gas flow, such an arrangement would enhance the energy security of all concerned, particular against any future threat of another Russian cut-off of winter heating gas, for example.
Nabucco and ITGI are also bidding against the proposed Trans-Adriatic Pipeline (TAP), which would run from near Thessaloniki in northern Greece, across Albania and under the Adriatic Sea, reaching Italy near the heel of the country's geographic "boot" at Brindisi.
This project was initiated in 2003 by the Swiss energy-trading company Elektrizitaets-Gesellschaft Laufenburg (EGL), which had its eye originally on gas from Iran. Norway's StatOilHydro joined the project in early 2008, and the German major E.ON in May 2010. The German firm owns 15% of the consortium, and the remainder is divided equally by the other two. The Norwegian partner has a 25.5% stake in the Shah Deniz Two development consortium, although this does not guarantee anything. TAP asserts that its full capacity could be 20 bcm/y, double the first stage with which it would like to begin. ITGI's volume is planned at 8-10 bcm/y.
Together with the White Stream pipeline project (which seeks to take gas under the Black Sea from Georgia to Romania for distribution into the various national EU energy networks), the ITGI, TAP, and Nabucco constitute the EU's Southern Corridor strategy adopted in Prague in May 2009.
The White Stream project has successfully completed a feasibility study but appears still to be awaiting financing. The establishment of a Caspian Development Corporation by the EU as foreseen by the May 2009 Prague Summit would not only assist White Stream but also, separately, give Turkmenistan President Gurbanguly Berdimuhamedow a single buyer for his gas, which he seeks.
The reason why Barroso's visit to Ashgabad with Oettinger was so significant is that it gave Turkmenistan's president a single political interlocutor on the other side of the table instead of numerous energy company chiefs. (The Nabucco consortium, for example, comprises six energy companies, all with equal shares.)
In November 2007, Berdimuhamedow had visited Brussels with a large delegation and conducted wide-ranging discussions with senior EU officials and European businessmen. (On a subsequent trip to Germany, he reportedly addressed the national trade association in German.) In April 2008, the EU's then-external affairs commissioner Benita Ferrero-Waldner signed a memorandum of understanding with him, providing for 10 bcm/y of gas to reach Europe.
Since then, the German energy firm RWE, which is one of the Nabucco project leaders, has signed an agreement with Turkmenistan for 10 bcm/y. Conveniently, RWE is exploring one of the country's offshore blocks from where that gas could come - although it could come from another block being developed by Malaysia's Petronas that could begin producing as early as next year. It is Turkmenistan's policy to deliver gas to its international border; the purchasers are responsible for getting it to market.
According to Turkmenistan's official reports, Berdimuhamedow in his joint press appearance with Barroso made a public statement strongly in favor of the pipeline solution for conveying Turkmenistan's gas to Azerbaijan for trans-shipment to Europe, in preference to the condensed and liquefied natural gas options, which are also more expensive.
"The technical, commercial, financial, and organizational questions connected with the realization of such projects," according to Berdimuhamedow, "should be the subject of detailed discussions at the expert level," - which should take place as soon as possible in order that their results may be "consolidated into corresponding agreements and contracts".