by Rovshan Ibrahimov

26-03-07

Energy security has became the main theme of today's world. The internal requirements, necessary quantity and quality of energy and, where possible, from alternative sources has become an urgent issue, particularly for those countries that do not possess sufficient own resources.
The European Union also isn’t an exception. Outlining its ultimate objective as political union in the form of a federal state, this organization -- the number of countries which have already reached 27 -- is in dire need of energy imports, and this dependence -- over the years -- will grow.

The import of gas will increase because consumption of EU countries is increasing year by year. Some EU members only began to develop their own gas infrastructure, and that only increases the need for accusatory new sources of gas. The alternative is further complicated by the fact that the core of the EU gas comes from Russia through Gazprom and dependence on the supply increases.
One of the main alternative sources of gas from the Caspian basin countries come from Turkmenistan, Kazakhstan and Azerbaijan. Already Azeri gas from the Shah Deniz deposit has become available to the markets of Turkey, after the opening of the Baku-Tbilisi-Erzurum or Southern Caucasian pipeline. It's also planned that gas from Azerbaijan will be pumped to Greece, and from there to Italy.

One of the pipeline projects planned by EU countries for the transit of gas from the coastal countries of the Caspian Sea to Europe is the Nabucco pipeline. The gas pipeline about 3,300 km for the purpose of supplying natural gas to Europe, will be laid across the territory of Azerbaijan, Georgia, Turkey, Bulgaria, and then to Hungary, Romania to the final destination in Austria.
The cost of the project is estimated at approximately EUR 5 mm, and this amount may increase. The construction of the pipeline is scheduled for the year 2008, the date of the commissioning pipeline is the year 2011. Originally scheduled to ship 16 bn cm of gas per year, this pipeline then will be increasing the capacity up to 30 bn by the year 2020. The development of the project will be the responsibilities of such companies such as Austrian OMV, Hungarian MOL, Turkish BOTAS, Bulgarian Bulgargaz and Romania's Transgaz.

Nabucco will be linked on the Turkish territory with such lines as Tabriz (Iran) --Erzurum (Turkey), and Baku-Tbilisi-Erzurum. Turkmen and Kazakh gas will be transited to Azerbaijan by another planned Ttans-Caspian pipeline. Gas from this pipeline will feed into the Southern Caucasian pipeline, of which the capacity is planned to be increased by 80 %.
What is and what is the likelihood of the Nabucco project? This project has a similar title with the name of the Babylonian king Nabucco, more known as Nebuchadnezzar, who expelled the Jews from Babylon. Subsequently, the Italian composer Verdi wrote an opera according to the explanation of this Biblical tale, which the first time appeared on the scene in the famous theatre in Milan alla Scala on March 9, 1842.

Upon the strange name, in a region which had nothing to do with this historic event or with the great composer, the major task of this pipeline is to decrease Gazprom’s influence in the southern part of the EU. If conditions will be good, the project will be realized as it was planned. But there are many things that may hinder this proposed project.
In the first instance, the most realistic is that the pipeline can be filled only with gas coming from Azerbaijani fields, and then on the condition that the capacity of the Southern Caucasus pipeline would be increased. There is little hope for the gas coming from the Tebriz-Erzurum branch, since Iran is not a sufficiently reliable partner for the supply of gas to Europe, because of political reasons. In addition, Iran also needs additional supply of gas, which it imports from Turkmenistan.

Iran has no capital to invest in developing its own fields. And despite the fact that the country has the second largest reserves after Russia, this year it has been forced to reduce the supply of gas to Turkey in order to meet its own needs.
Not all goes smoothly with the transit of Turkmen and Kazakh gas through the trans-Caspian pipeline to Baku. The project has several negative aspects. The pipeline -- estimated at 30 bn cm of gas per year at a cost of $ 5 bn -- has been proposed by the United States in 1996. In 1999, the USA allocated $ 750,000 for the government of Turkmenistan to enter into a contract with the General Electric Company and Bechtel Group for feasibility study of the project. Then, the project was delayed for several reasons.

Firstly, Russia and Iran, two countries that transport Turkmen gas, expressed their protest of the construction of a pipeline under the Caspian Sea on the grounds of unresolved issues on the status of the Caspian Sea and environmental concerns.
Another reason is that the relations between Azerbaijan and Turkmenistan were strained because of the disputed oil field, located on the maritime boundary between the two countries.
Finally, after the exploration of the Shah Deniz field in the Azerbaijani sector of the Caspian Sea, Turkmenistan refused Azerbaijan’s request for 5 of 30 bn cm capacity for the transit of its own gas from Shah Deniz via the trans-Caspian pipeline.

The Status of the Caspian Sea is not resolved until this day and disputes between Azerbaijan and Turkmenistan still exist. However, as both countries revealed and thaw, President Berdimukhamedov had a telephone conversation with President Aliyev. In addition, the Deputy Foreign Minister of Azerbaijan Araz Azimov called on the EU to lift the sanctions imposed on Turkmenistan and requested to buy Turkmen gas directly rather than through Russian companies.
Thus, with such initiatives the EC countries may reach a security issue and alternative supply of gas to their own markets.

Despite the encouraging improvement of relationship between countries, much more development and understanding remains to be done. In addition,the construction of the trans-Caspian pipeline is planned approximately between the period of 2012-2016, in other words after the imposition of Nabucco, which may bring an additional risk in the financing of the project.
In the case of problems with the construction of the trans-Caspian pipeline, Western countries will have to hope largely on the supply of gas from Shah Deniz, otherwise the invested EUR 5 bn can be put away.

But even the implementation of the pipeline still is a risk, because the real explorated gas reserves in Turkmenistan are unknown. Moreover, Turkmenistan had responsibility for long-term contracts with Russia and China on the delivery of large quantities of gas in these countries.
And in this case, the question is whether Turkmenistan has additional quantity of gas for transportation through the Caspian pipeline?

In all of these situations only Azerbaijan could feel more relaxed, which will be a transit country in these projects. It achieved new routes for the export of its own gas to Europe. However, even in this case, Azerbaijan will provide only political support, without any investment of own capitals in project implementation.
Therefore, the determination of the EU to convert these projects was surprising and delightful, because their implementation would require an immediate solution to the raised issues. If the EU knows how and what to do and has a clear plan of action, one thing will be true: some powers will be strongly irritated.

Rovshan Ibrahimov is Editor of USAK Energy Review.