Decision on Southern Gas Corridor and sides' arguments

Analysis Materials 30 October 2012 17:22 (UTC +04:00)
The issue of choosing the final route for the Southern Gas Corridor could ordinarily be resolved in a classical style unless the aggravating economic situation in Europe.
Decision on Southern Gas Corridor and sides' arguments

Azerbaijan, Baku, Oct. 30 /Trend /

Azer Ahmedbeyli, Trend analytical centre expert

The issue of choosing the final route for the Southern Gas Corridor could ordinarily be resolved in a classical style unless the aggravating economic situation in Europe.

There are two consortiums consisting of private companies. Each of them offered its technical and commercial conditions for the gas supply. EU, not burdened by the Eurozone debt crisis and the general stagnation in the economy, would see no need to have a special opinion on the issue and the project offering the most optimal conditions would win. Earlier, the EU expressed its political support for the Nabucco project, but would not be greatly annoyed, if any of other projects involved at that time in the competition would win. In the end, the main goal of opening a corridor would be achieved.

Today's situation is different. Economic crisis changes the EU general political and economic strategy forcing in this case, to put the interests of the state above the interests of business and support from this point of view only the right decision. Each of the two competing projects today - West Nabucco and Trans-Adriatic Pipeline (TAP) have the resources with the help of which such a decision can be made in its favor.

Regarding the Nabucco West project, a decisive argument for the EU is to provide the countries of South-Eastern Europe with gas. This region is most dependent on one supplier in the energy sector and therefore the most vulnerable. This is the main and indisputable trump card of the project.

Regarding the TAP project, a relatively recent critical factor is the EU support for the Greek economy and partially Italian economy having a great need of it now. Financial investments in the Greek economy and creating new jobs while constructing and further exploiting the pipeline are the lifebuoys, which the EU needs in an attempt to keep the Eurozone from collapse.

This is not a black and white perception of the issue. It is clear that the TAP investments will not be a panacea for the Greek economy in general. New jobs are needed not only there, but in the countries of South-Eastern Europe. The fact remains that the Greek debt problem is now apparent number one threat to the existence of the Eurozone and that this must be eliminated by all available means, is quite obvious.

In the near future the EU leadership will have to determine which of the two strategic objectives will be most appropriate to the EU interests and which European region is more profitable for supplying the Caspian gas in 2018 to stipulate its position for Shah Deniz consortium members and the Azerbaijani government. Most likely this opinion will be taken into account while making a final decision. Little time left before its announcement.

Meanwhile, BP head Robert Dudley denies the existence of any political factors that may influence the final decision. He has recently said that transport rates will be determinant while choosing the supply route to Europe. "The decision on the choice of the route will be based on which of the two variants - TAP or Nabucco West will be the most profitable," he said. "The basis of the decision will be economical."

So far, according to publicly available information on the relations between Shah Deniz consortium participants, there were no cases of any sharp differences, although the opinions on some issues differed. For example, BP said in summer that it intends to acquire a significant stake in the TAP project and that negotiations on its accession have been almost completed. This was followed by the reaction of the State Oil Company of the Azerbaijani Republic (SOCAR). Its management stated that if BP wants to join the TAP project, it will have to coordinate the decisions with other participants of the consortium to avoid the conflicts of interest.

The opinions on spot gas supplies slightly differed. BP Vice-President for Shah Deniz Development Alastair Cook has recently said that the consortium is ready to sell gas to some customers within the second stage of the project on the spot prices. "We are completely open to any proposals and we do not exclude 100 percent binding to spot prices for some buyers," Cook said. After some time, SOCAR head Rovnag Abdullayev told journalists said that SOCAR prefers the long-term contracts on gas supplies. "Gas supply must be long-term. Gas supply by pipelines has been stipulated by the long-term contracts. This gives the opportunity to make long-term forecasts," Abdullayev said.

A factor of the route profitability for the Shah Deniz consortium, ready to spend an amount of $20-25 billion only to develop the second phase of the project, must play a primary role, according to the business laws.

Robert Dudley, apparently, expressed a general opinion of all participants, rather than only his company.

Finally, the Azerbaijani government has a general view of the situation. It was expressed by Azerbaijani President Ilham Aliyev at the meeting with his Austrian counterpart last autumn, stressing that two components must be taken into account while choosing the route of exporting Azerbaijani gas to Europe. "Such a decision must be taken for us not to waste time and Azerbaijan to be able to maximally export its gas resources."

The decision will soon be found. This will happen when the interests of investors, Azerbaijan and the European countries will be taken into account. The only question is its extent.