Baku, Ankara, Ashgabat Give Green Light for Diversifying Caspian Energy Exports - Ariel Cohen

Oil&Gas Materials 5 December 2008 13:17 (UTC +04:00)

Azerbaijan, Baku, 5 December / Trend / Ariel Cohen, Ph.D., is Senior Research Fellow in Russian and Eurasian Studies and International Energy Security at the Heritage Foundation, especially for Trend .

Turkey, Azerbaijan and Turkmenistan are attempting to reassert themselves as key Caspian region players. They are working to diversify export routes for the Caspian energy - a vital priority for the Europe and the U.S. Ankara, Baku and Ashgabat are making moves to ensure the flow of hydrocarbons to the Western markets, where they get top dollar. This is particularly important as energy prices and budgetary revenues are slumping.

Last week, the leaders of Azerbaijan, Turkey and Turkmenistan discussed cooperation in the -Caspian gas pipeline project at their summit in the Turkmen port city of Turkmenbashi. Besides the common Turkic roots, the countries share the interest in making the most out of their hydrocarbon riches and strategic location for energy transit.

No binding agreements have been signed yet. But the step-by-step progress in the talks signals a cooperative mode taken by Turkmenistan; the Turkish re-engagement in the Caucasus and the Caspian; and the evolution of an energy export route free of Russian control.

The thawing of ties between Azerbaijan and Turkmenistan, which have been locked in a dispute over the demarcation of the southern Caspian Sea, is also significant. It's a promising development for the future of the regional energy cooperation.

Baku had initiated the trilateral summit in its attempt to promote the U.S.- and EU-backed Nabucco gas pipeline that would bring Central Asian gas to Europe via Turkey. However, in an elegant diplomatic move, Nabucco was not mentioned in the communique to avoid angering Russia.

Moscow is assertively opposing the Western-controlled pipeline projects transporting Eurasian oil and gas to the European markets. In the 1990s, it was dead set against the Baku-Tbilisi-Ceyhan (BTC) oil pipeline and the Baku-Erzurum gas pipeline. Moscow also has been enlisting support among the European capitals for its South Stream gas pipeline that would directly compete with Nabucco and possibly derail it.

Azerbaijan is in the heart of the Nabucco project. While the western capitals provide support mostly in words, Baku works for the project in deeds. Azerbaijan has reaffirmed its strategic choice by carefully avoiding Gazprom's repeated offers to buy its available export gas from 2009 onward and by signing a five-year gas supply agreement with Georgia.

At the first stage of the Nabucco project, Azerbaijan will be a designated gas supplier. At the second stage, it will also be a transit point for the Turkmen gas. This is when the proposed trans-Caspian gas pipeline connects to Nabucco. It would link Turkmenistan to Azerbaijan, and later to Turkey via the existing Baku-Erzurum pipeline.

Turkmenistan's Gas Wealth In Turkmenistan, where the recent gas reserves audit has confirmed vast wealth, the interest in selling its riches to the west at the market prices is growing. Ashgabat also recognizes the geopolitical advantage of having multiple pipelines, and not depending on a single buyer.

While the late Turkmen leader Saparmurat Niyazov had committed majority of the gas production to Russia at low prices, Turkmenistan now sells some two-thirds of its 70 billion cubic meters annual output to Gazprom, supplying a big share of Gazprom's exports to Europe.

However, President Gurbanguly Berdimukhamedov may finally authorize his country entering the international project to sell its gas directly to the European consumers. Trans-Caspian Gas Pipeline (TCP) linking with the future Nabucco pipeline is clearly the most attractive and realistic option. For western consumers, Turkmenistan's participation would be a relief and a hope to ease their escalating dependence on Russia.

Although the Turkmen president supports diversifying gas transport routes, he displays great caution towards Russia. To ensure Ashgabat's lasting commitment, the West must take steps to shield Turkmenistan from Russian pressure, something it found difficult with the late Turkmenbashi.

Trans-Caspian Oil Route

Besides gas pipelines, Baku is also advancing its role as the regional oil transportation hub. During the Baku energy summit held on Nov. 14, 2008, the state oil companies of Azerbaijan and Kazakhstan agreed on the core principles of bringing Kazakh oil across the Caspian Sea to Azerbaijan for further export via the BTC pipeline starting from 2013. The BTC has been the primary export route for Azeri oil since 2007. Kazakhstan decided to join the BTC in 2006.

The recent agreement comes as a follow-up to an earlier 2008 bilateral treaty to take Kazakh oil across the Caspian for export via the BTC. The two states agreed to build the needed oil tankers and barges, as well as develop loading infrastructure on both sides of the sea. With the initial capacity of some 23-25 million tons a year, the project should become operational in time to provide a transportation outlet for the forthcoming Kashagan oil.

Some analysts suggested that with this agreement, Astana might shift attention to westward trans-Caspian oil exports. This would allow the oil from Kazakhstan to maintain sufficient flow in the BTC to make it profitable and validate the western-led efforts to bypass Russia.

As the Kazakh oil output will grow to reach at least 3 million barrels a day by 2020, a new Trans-Caspian oil pipeline (TCP-oil) may bring Kazakh oil into the BTC. The TCP-oil is an ambitious and politically sensitive project advocated by the U.S. government and international oil companies. It would greatly boost BTC throughput and give regional capitals additional oil export options.

Geopolitical implications Azerbaijan and Turkey have become an important energy corridor from the Caspian to the West. The U.S. and Europe should applaud these developments. Europe became especially interested in direct Central Asian gas supplies after a short supply disruption in the winter of 2006 due to Russia's dispute with Ukraine. Besides, according to the U.S. Energy Secretary Samuel Bodman, the August confrontation in Georgia underscored the need for Europe to diversify its energy supplies, who suggested that the Obama administration would remain engaged in the regional energy security.

Ironically, Russia's and Iran's attempts to control Caspian energy exports have pushed other Caspian players -- such as Azerbaijan and Turkmenistan -- closer to their European customers. The need to diversify customer base, of which the Russian Premier Putin talks often, applies to Baku and Ashgabat as well.

The commitment of energy producers and transit states to diversification is a positive economic and geopolitical trend. In this situation, the Ashgabat-Baku-Ankara consideration of a new strategic export route serves the national interests of each country and their western partners.