Russia gives green light for Turkmen gas to go to EU. Why?

Russia gives green light for Turkmen gas to go to EU. Why?

Baku, Azerbaijan, July 17

By Azer Ahmadbayli – Trend:

Last December Azerbaijani Deputy FM Khalaf Khalafov made it public for the first time that the draft Convention on the legal status of the Caspian Sea includes, among other things, a relevant provision under which coastal states are entitled to build pipelines along the Caspian seabed with the agreement between only those countries through the sectors of which a pipeline will be laid.

This means the green light for the export of Turkmen gas to Europe through the construction of the Trans-Caspian gas pipeline (TCP) from Turkmenistan to Azerbaijan.

In late June, Russian President Vladimir Putin signed an order approving the draft Convention, which is planned to be signed by all littoral states in early August.

However, there is no definite answer to a question why Russia, which has been strongly objecting to the construction of TCP for about fifteen years, now has changed its stance – after all, Turkmenistan supposedly remains Russia’s potential rival in regard with the European gas market.

Compromise with EU

The European Union adopted a mandate in 2011 to negotiate a legally binding treaty between the EU, Azerbaijan and Turkmenistan to build TCP system. This was the first time that EU proposed a treaty in support of an infrastructure project.

This reflects the strong interest of the EU in connecting Turkmen gas to the Southern Gas Corridor. The long-welcomed Turkmen gas is valuable for EU not so much due to its quantities (at the initial stage) as because it’s a new source of supply.

None of the elements of the Southern Gas Corridor caused any disagreements between Russia and the EU, except for the project of construction of TCP. The issue has been continuously on the agenda during EU-Russia negotiations on the prospects of energy cooperation.

Back in December 2011, when Russia and the EU discussed the application of the provisions of the Third energy package for Gazprom, then Russian energy Minister Sergei Shmatko in an interview after the talks promised that the parties would find a solution on all controversial issues including the project of the Southern Gas Corridor.

It seems that after years the parties have finally managed to reach a compromise in energy dispute by each side making concessions.

In late March, the representative of the European Commission Anna-Kaisa Itkonen said that there are no legal grounds for countering the Nord Stream-2, as the EU regulations do not apply to the offshore part of the pipeline. This means that the European Union is abandoning its efforts to prevent the completion of the Nord Stream 2 pipeline, the Wall Street Journal reported.

Currently, Gazprom is settling the last formalities with the countries through which the pipeline will be laid. Pipe-laying is expected to begin in the summer, Der Tagesspiegel reported.

The construction of the Nord Stream-2 fully meets the commercial interests of Gazprom and the energy interests of Russia. The EU, in turn, receives a new long-term and stable source of Turkmen gas supplies via an alternative route bypassing Russia, which will increase competitiveness and reduce gas prices for European consumers, and generally strengthen the EU's energy security.

Perhaps this is not the case at all. Maybe there were other bets at stake. But one thing is clearly seen – long-discussed key energy projects are being pushed forward.

Concomitantly, Russia achieves several goals related to its economic interests.

Iranian factor

Iran, with its first gas reserves in the world, is perhaps the main rival of Moscow, which could have a real impact on reducing European energy dependence on Russia.

Who knows how the international situation will shape up tomorrow and how will Iran's relations with the West (USA) and with Russia develop in future? Could Iranian gas, with support of the West, appear in Europe over time? Then it would get better to take proactive measures.

Any dialogue with Iran, including commercial, has always been not easy. In this sense, Turkmenistan is more comfortable negotiator for Russia.

It would be more sensible for Russia to let a limited (pre-negotiated and agreed with Moscow) quantity of Turkmen gas exports to Europe rather than to watch the emergence of Iranian gas there in future.

Chinese factor

According to the recent report of the Chinese Academy of Social Sciences on China's energy prospects, to establish a sound economic system with green and low-carbon recycling and to strengthen environmental protection and clean energy industries, a major shift in China's fuel and energy balance is expected in the next decade – a significant reduction of coal share with a simultaneous increase in natural gas consumption.

The report says that in the next 30 years natural gas will be the fastest-growing energy product in China, with demand reaching some 520 billion cubic meters (bcm) annually by 2030, while in 2017 volume of gas consumption in China made 237.3 bcm a year surging by 15.3 percent.

By having built three branches of the Central Asia-China gas pipeline and the Line D under construction, China, nevertheless, requires more gas from Turkmenistan. For the time being, China is a single customer of Turkmen gas.

It’s not in Russia’s interests that after the Line D lines E and F etc. would appear as it intends to export its own gas from Siberia to China.

Russia has found that the transformation of Turkmenistan – the world's 4th natural gas reserves holder – into China's raw material base could negatively affect the volume and price of future Russian gas supplies to China via the ‘Power of Siberia’ pipeline.

The signing of the Convention on the legal status of the Caspian in August does not mean that the construction of TCP will begin very soon. There still remain many questions requiring thorough examination.

For instance, Ashgabat can count on engagement of major oil companies in the project only if the production sharing principle is adopted and the Majors get stakes in projects of development of giant onshore gas fields, such as Galkynysh.

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