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LTC contracts to help EU to get Azerbaijani gas

Oil&Gas Materials 13 January 2011 17:09
The European Union should provide Azerbaijan with long term contracts (LTC) for buying fuel to get gas from the country, editor in chief of the European online magazine Eurasia Energy Observer, Andrej Tibold, said.
LTC contracts to help EU to get Azerbaijani gas

Azerbaijan, Baku, Jan. 13 / Trend A. Badalova /

The European Union should provide Azerbaijan with long term contracts (LTC) for buying fuel to get gas from the country, editor in chief of the European online magazine Eurasia Energy Observer, Andrej Tibold, said.

For Azerbaijan the decision to whom to sell the gas is primarily commercial and it will go for the best possible deal.

"So most of it comes down to whether the EU market can provide Azerbaijan with the right price and contracts that will guarantee long-lasting purchases," he told Trend via e-mail.

The EU's major gas buyers have, however, in recent years become more reluctant to conclude long term contracts (LTC), for several commercial and political reasons.

For Nabucco to be realised, such LTCs are considered as necessary since they will guarantee the commercial viability of the pipeline in the long run. Whether these LTCs be in place in the near future remains to be seen. In such a case the EU can, besides providing some financial incentives for Nabucco, only try to use political means to convince Azerbaijan to choose for the Southern Corridor, but it cannot buy Azerbaijani gas, he said.

The concept of the "Southern Corridor" includes diversifying the routes and sources of energy supplies and increasing the EU energy security. One of the priorities for the EU projects within the Southern Corridor is the Nabucco gas pipeline project, which involves gas supplies from the Caspian region and the Middle East to the EU countries.

President of the European Commission Jose Manuel Barroso and EU Energy Commissioner Günther Herrmann Oettinger intend to visit Azerbaijan and Turkmenistan this week.

Azerbaijan, Turkmenistan and Iraq are considered the main fuel suppliers for the Nabucco project.

The EU's primary is of course to lobby for the Southern Corridor, including Nabucco. In order to assure Azerbaijan and Turkmenistan that Nabucco will be realised, it is in need of a guarantee from these same countries that they will act as suppliers, Tibold said.

According to him, the EU has realised that if wants to be considered a serious competitor for Turkmen gas, it needs to speak and act with a single voice.

The EU's plans for a Caspian Development Corporation (CDC), meant to purchase gas for European companies under EU flag, is taking more concrete shapes, he said. Perhaps that Barroso will try to assure Turkmenistan that the EU will eventually be able to buy Turkmen gas through this entity. Undoubtedly Barroso will also convey the message of the need for political reforms in Turkmenistan.

At present, there is a lack of necessary infrastructure to transport Turkmen gas to Europe through the effective route. The construction of the Trans-Caspian gas pipeline could be one of the solutions to this issue. This issue will also be discussed during the visit of the EU senior officials to Azerbaijan and Turkmenistan, Tibold said.

The Trans-Caspian gas pipeline will have a length of about 300 kilometers and be laid on the Turkmen coast of the Caspian Sea. The pipeline will connect to Azerbaijan where it will link to the South Corridor, which includes the Nabucco pipeline project, which is a priority for the EU.

Its construction is hampered by the unresolved issue of the status of the Caspian Sea now.

Turkmenistan's position is to gain the consent of those countries through which it will stretch (that is, Azerbaijan and Turkmenistan) to lay the gas pipeline.

It is hard to imagine that countries like Russia and Iran would not look for effective ways to oppose the Trans-Caspian pipeline, Tibold said. On the other hand, the Turkmen president recently suggested that exporting gas in a liquified form should also be considered. Perhaps this would be an alternative to the pipeline, at least for smaller volumes. Or it could be interpreted as a sign that Turkmenistan is nevertheless not that convinced about the viability of a Trans-Caspian pipeline in the near future.

Last summer, Italian Eni proposed SOCAR to take part in the transportation of 6.8 billion cubic meters of compressed gas from Turkmenistan through the Caspian Sea by ships.

The parties made a decision within the SOCAR working group SOCAR and Eni to study the whole range of issues within this project, in particular, technical, legal and commercial issues.

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