Nabucco and struggle of giants

Analysis Materials 25 January 2011 11:04

On the eve of arrival of the European Commission President, Baku once again demonstrated its merit in the policy of diversifying energy resources to international markets by signing a long-term contract with Iran for the supply of Azerbaijani gas. Under the contract, which was concluded for five years, Azerbaijan will supply to Iran one billion cubic meters of gas in 2011, with increasing the volume over the coming years. As repeatedly stated by the Azerbaijani President Ilham Aliyev, "we have no desire to avoid or evade someone, we have never played against someone in our energy strategy. The most important thing for us is that we realize our gas potential in full volume". These words can be fully referred to the Nabucco project.

Using not only its advantageous geographical position, which is often emphasized, but also skilful policy of diversifying its energy resources, Azerbaijan has long been unofficially recognized as a "player" by the European politicians, who verify steps for long-term development of the European continent. Azerbaijan is predictable, knows on what to count, conducts the policy of distributing its hydrocarbon resources, which, in principle, satisfied all, the revenues are invested in the development of its economy, particularly in non-oil sector, the European experience is actively introduced in many spheres.

In short, Azerbaijan acts as a civilized state according to its capabilities. Europeans have long appreciated this. In other words, Barroso's visit to Baku took a somewhat formal nature. The main goal of the visit to Ashgabat was the same, and it was an important step in the game entitled "Separation of spheres of interest, and access to Central Asian countries." The EU's main competitors in this case are not Russia, but China and to a lesser extent, India - two countries with the highest rates of economic growth.

According to the EIA International Energy Outlook 2010 report, among the Asian countries - in India and China, the natural gas demand is growing fastest. According to the prospective evaluation of EIA, natural gas consumption in China will grow by an average of 5 percent per year - the highest growth rate in the world - and by 2035 (forecast period) will reach 9.7 trillion cubic feet.

In 2008, gas consumption in China amounted to 4 percent of the total consumption of energy resources, where the lion share is taken by coal, followed by oil. China, which is the world's second largest oil importer, is trying to reduce dependency on it. Firstly, because the country itself produces little, while spending huge sums on imports, and secondly, its prime cost is much higher than the prime cost of natural gas, and thirdly, its price tends to rapid and uncontrolled growth.

In addition, China was announced (in 2007) the main culprit of environmental pollution, and being under the pressure of international requirements, can not ignore the problem of emissions of huge quantities of CO2 into the atmosphere, as well as sulfur dioxide from burning coal - the main component in the Chinese energy resources. Therefore, the government will intensify efforts to increase the share of natural gas as the cheapest and most environmentally least harmful source of energy in the long-term period. It has set a goal to increase the share of natural gas in total energy consumption to 10 percent by 2020.

Another fact drawing attention is: the Chinese government plans to develop systems of decentralized electricity generation fueled by natural gas, exactly, by 2015 should build at least 1,000 such systems in addition to existing ones. The total capacity of electricity generation using natural gas-fueled systems by 2020 should reach 50 million kw under the current 5 million kilowatts.

Jiang Yin, a professor at the School of Business Administration at University of Petroleum in Beijing, believes that the demand for natural gas in the country will grow rapidly, and by 2015 the annual consumption will exceed 150 billion cubic meters, and in 2018 will amount to 200 billion despite high rates of growth in natural gas production, from about 2008 the demand began to outstrip supply, the deficit from which had to be covered by increasing imports.

Of course, the huge proven gas reserves in Central Asia, and geographical proximity make this region very attractive for Chinese economic interests as manifested in the construction of the Central Asia-China gas pipeline within a fairly short period of time. For China, it is much cheaper getting gas through this pipeline than importing it from the Middle East, or by tanker from Australia. By the way, now preparation is conducted to construct other stretch from Kazakhstan (the second phase of the Kazakhstan-China gas pipeline). In addition, in June 2010, CNPC signed with Uzbekistan a Memorandum of Understanding on the supply of 350 billion cubic feet of gas from Uzbekistan via an additional pipeline, which will be connected to the main pipeline.

Europe understands that losing the initiative now will continue to be extremely difficult to resist quietly, without the elements of "public relations", China's economic expansion, and natural gas imports by China could be the beginning of the economic gains of Central Asian markets. It is clear that who was the first to invest capital there gets undeniable advantages. If not to connect the east coast of the Caspian Sea to the west with the pipeline, most of the resources of the Central Asian countries, including the hydrocarbon, will flow to the East. Richard Morningstar and other representatives of the U.S. Administration (not to mention the Europeans) have paid many visits to Ashgabat over recent years to encourage the government of Turkmenistan to send its gas to the West. Why are the Americans so concerned? In this context, it would be appropriate to remember the TAPI pipeline, the intentions of the construction of which have been recently legally enshrined in Ashgabat.

Many are skeptical about its implementation, especially given the situation in Afghanistan. However, given the tendency to avoid concentration of the resources of the entire region in one hand, especially of China, which grows as a potential world leader, the United States can make TAPI a reality.

Of course, new markets are profitable for Turkmenistan, and Europe is alternative sources of hydrocarbons, of course, the European dependence on Russian gas will decrease if the Nabucco pipeline is built. However, all of these are tactical in nature. The main intrigue is still the confrontation between the U.S. and China, and if to consider the events through this lens, then many things become clear.