Four seas energy accord, new era of energy cooperation

Business Materials 15 October 2012 17:43 (UTC +04:00)

Azerbaijan, Baku, Oct.15/ Trend D. Khatinoglu/

Former Iranian Oil Ministry senior official and energy expert Mahmoud Khagani's exclusive article for Trend.

The result of former ECO Secretary General M.Yahya Maroofi's meeting with Iranian Petroleum Minister Rostam Qassemi on May 30 in the run up to the Third ECO Energy Petroleum Ministerial Meeting was reportedly the emergence of an innovative concept for establishing the ECO Energy Charter. But What is the Energy Charter?

There appears to be some confusion, as the meaning has literally been lost in translation as to what exactly the charter is and how it relates to the existing framework of the Energy Charter Treaty (ECT) in Europe.

In simple terms, the charter is a framework for investments in energy resources, and its principal purpose is to enable investments by advanced nations, particularly in Europe, in the securing of energy supplies. The focus, which addresses the energy security concerns of sponsoring nations, hinges on the extractive industries and specifically the production of non-renewable oil and natural gas.

ECO energy

The ECO region comprises an area of around 8 million square kilometers endowed with rich energy resources and a diverse population of more than 400 million sharing cultural heritage, common economic interests and common geographical borders and hinterland, such as watersheds.

To access the massive investment necessary in energy resources, many ECO Member States are members of the charter, which provides a legally binding set of rules for international energy investment.

But as the region develops economically and competes in the global economy it is increasingly using the region's energy resources domestically which results in a reduction in energy export potential. One of the key economic questions to solve is how to optimize the use of finite carbon fuel resources and to manage the transition to a sustainable ECO economy in the long term.

There are several policy issues addressed by the proposed ECO Energy Charter and this article will address the most important.

Energy security

The basic principle is simple. Energy producers want secure demand, while energy consumers want the secure supplies.

During the recent Euro- Med E&P: Oil & Gas Exploration & Production Summit (24-26 September 2012, Larnaca, Cyprus) Dr. Saleh S. Jallad, Chairman & Publisher of Middle East Economic Survey (MEES) had much to say in relation to energy security.

In Dr. Jallad's view some of the global challenges includes volatile prices of hydrocarbon sources, geographic imbalance of energy sources & users, demand growth in developing nations as incomes increase, vast capital investments at all stages of the energy supply chain, globalization of Losses and Privatization of Profits.

Energy investment

Observers generally agree that the ECT has yet to create the firm legal bonds necessary to provide a safe investment environment for energy resources development and transit guarantees.

Dr. Iranmanesh, the president of the Institute of International Energy Studies has stated: "Holistic systems thinking is necessary in ECO energy policy. The energy market is evolving rapidly; new economies are emerging; but energy prices are unpredictable and unstable, with fluctuations which make investment decisions particularly difficult for emerging market participants."

Investments in the energy industry are mostly agreed upon on a bilateral basis and therefore fragmented and short-sighted basis rather than within a regional framework.. ECO energy co-operation is essential for the necessary 21st century networked energy systems."

Looking forward

Based upon 30 years experience of regional and international energy policy and the geophysical realities which underpin them, I foresee a Four Seas Energy Accord, linking the resources of the Caspian Sea, Persian Gulf, Black Sea and Mediterranean Sea.

I have long believed the starting point - the source, if you will - of such a 21st century energy initiative will be the energy resources of the Caspian Sea and the littoral nations generally, as well as the creation of a Caspian gas market hub, benchmark and market instrument in particular.

Moreover, I believe that Azerbaijan, as the gateway to the Caspian from the West, will be crucial to leading a new era of energy co-operation, and it is a source of pleasure to me that the new ECO Secretary General, His Excellency Dr. Shamil Aleskerov is so well versed in the energy field generally and energy diplomacy specifically.

Unquestionably, this was the core subject of the 2006 Baku Initiative aimed at the progressive convergence of energy market integration of the Black Sea and Caspian Sea region with the EU. Such a process implied progressively converging energy policies on issues of trade, transit and environmental rules as well as standards.

I am confident that there is now an opportunity to transcend existing groupings based upon conventional economic competition and a dysfunctional financial paradigm - the G-7, G-8, G-20 and so on - to new groupings based purely upon energy co-operation: an E-3 or E-10.
Mahmood Khaghani, now retired, had over 33 years of service in senior international positions in the Iranian petroleum industry, including as the head of the ministry's Caspian Sea Department.He was also the director for energy, minerals and environment at the ECOSecretariat in 1996-2000.