By Robert M Cutler
MONTREAL - The recent announcement that Azerbaijan and Turkey will construct on Turkish territory a pipeline for transiting natural gas from the Caspian Sea basin to Europe is a signal from Baku that it will drive its own energy export policy rather than have it driven by others.
It betrays Azerbaijani dissatisfaction with the three plans submitted to it by the Nabucco, Trans-Adriatic Pipeline (TAP), and Interconnector Turkey-Greece Italy (ITGI) consortia, all of which insisted on maintaining their own respective visions without taking sufficiently into account Baku's own preferences and plans.
At the same time, the bilateral agreement signifies the re-elevation of Ankara's relations with Baku to the level of strategic cooperation, transcending past tactical and political disagreements. Hints as to this new level of Azerbaijani-Turkish cooperation emerged soon after the October 25 signature of bilateral agreements in Izmir concerning the transit to Turkey of Azerbaijani gas from the second phase of development of the Caspian offshore Shah Deniz deposit ("Shah Deniz Two").
Rovnag Abdullaev, president of the State Oil Company of the Azerbaijani Republic (SOCAR), said as early as October 27 that the two countries intended to build what he called the Trans-Anatolian Gas Pipeline (TAGP) from Turkey's eastern to its western border, but few people took close notice.
An early November dispatch by Bloomberg from Ankara quoted SOCAR vice-president Elshad Nasirov to the effect that his company and the Turkish state pipeline company BOTAS would set up a group to build such a pipeline, and that this group would also include partners in the Shah Deniz consortium.
Nasirov told journalists earlier this month that the final determination of the transit route for Azerbaijani gas through Turkey to Europe should fall in mid-2012. "We will try to make the decision on the Azerbaijani gas sales route by the end of the year," he said, "and the decision on the transit route of Azerbaijani gas through Turkey to Europe will be made in the middle of next year."
Yet it was not until Abdullaev repeated this news at the end of last week, at the Third Black Sea Energy and Economic Forum, a gathering annually organized by the Atlantic Council, that greater notice was taken.
It has been widely reported that Turkish energy officials estimate the cost of pipeline project, the volume of which is put in the 16-17 billion cubic meters per year (bcm/y) range, to be between US$5 billion and $6 billion. The 16-17 bcm/y figure is nominally justified as the sum of the 10 bcm/y that Azerbaijan has definitely committed to export to European markets from Shah Deniz Two - and will still belong to Azerbaijan even as it transits Turkey - plus the 6 bcm/y that Turkey will receive from it and might re-export itself. The whole is in addition to the 6.6 bcm/y that Turkey will continue to receive from Shah Deniz One for domestic consumption.
This 16-17 bcm/y figure is close to the 15 bcm/y that Azerbaijani officials began to talk up as long ago as 2009 without committing it all to Europe, for the sake their own security of demand. Since 2009, the proving of the new offshore deposits Absheron and Umid makes such an eventual quantity eminently credible, although actual development of them has not yet formally begun. Each of these two newer fields credibly holds 300-400 bcm.
An anonymous Turkish official speaking to the press called it a "SOCAR-led project [that is] likely to have a Turkish partner", meaning that there is no designated Turkish partner at present. Although it was said that the TAGP would commence construction "without delay, this appears to refer to no more than symbolic groundbreaking on Azerbaijani territory. The TAGP's route through Turkey has not even been definitely decided.
Nor is it clear how the cost figure was determined. At first glance, this seems to be based upon BP's next-to-last-minute bid, before the window closed at the end of September, to construct a 10 bcm/y South East European Pipeline (SEEP) to take Shah Deniz Two gas to Austria via Turkey, Bulgaria, Romania, Hungary and (depending upon the report) possibly also Croatia and/or Slovenia. BP owns 25.5% of the Shah Deniz consortium and is its operator. Other consortium members are: Norway's Statoil, 25.5%; Azerbaijan's SOCAR, 10%; the Italian-Russian joint venture LukAgip, 10%; Iran's NICO, 10%; and Turkey's TPAO, 9%.
The TAGP project shares with the SEEP proposal both the principle of utilizing some existing infrastructure segments and the announced intention of upward scalability to multiple times the original volume. However, it is open to question whether simply some repair jobs on existing pipes and the addition more compressors would suffice to provide carriage for SEEP's 10 bcm/y, let alone TAGP's 16-17 bcm/y, or multiples thereof.
In the margins of the Atlantic Council conference, Turkey's Minister of Energy and Natural Resources Taner Yildiz mentioned that the TAGP would not necessarily exclude any of the other projects. Its purpose, he said, was rather to reduce the cost of their implementation within the scope of the European Union's Southern Gas Corridor.
"The implementation of such projects as Nabucco, ITGI, and TAP seemed doubtful," he said. "However, after a new gas pipeline is built between Turkey and Azerbaijan, the question of their implementation will come better into focus."
This is to say that if 10 bcm/y will transit Turkey in the first instance, then the choice is merely postponed among the Trans-Adriatic Pipeline, the ITGI, and also the idea sketched in the last-minute BP plan, that the gas goes into the Balkans for distribution there, with Nabucco also in principle still in the running but now more than ever dependent upon eventual volumes from Turkmenistan. The difference is that now it is Azerbaijan (and Turkey) setting the agenda, and not the project consortia....