Azernews.Az

By Gulgiz Dadashova

The battle royal among the sources of blue energy to be the one who warms the freezing winters of Europe and lit up the light for secured energy future is one of the most discussed topics since last December.

Russia annulled its South Stream and initiated the Turkish Stream, which appeared to compete with the long-awaited Southern Gas Corridor project. Gas from the Shah Deniz field of Azerbaijan was to at last have given a secure primary supply to make the new route viable. The Southern Corridor is designed with a view to contribute to energy diversification by giving access to vast new gas supplies from the Caspian and the Middle East, whilst also bringing an end to Russian gas dominance in Central and South-Eastern Europe.

Azerbaijan, as President Ilham Aliyev said in Munich, is playing its role in providing energy security to its neighborhood, and with the Southern Gas corridor is becoming an important partner for Europe.

Saying that Azerbaijan is the only new gas source which European consumers will get in the nearest future, the president also noted the importance of not losing time for bureaucracy and need for “more coordination, more support and more mutual trust between all the members of the team”.

President Aliyev pointed to the fact that all the other projects, including projects of diversification of the routes, are just routes, not sources.

The EU is firmly committed to the success of the Southern Gas Corridor, said Maja Kocijancic, Spokeswomen to European Commission/Commissioner Hahn.

“The EU has a strategic energy relationship with Azerbaijan which it values as an element in its wider network of energy relationships in the Black Sea region,” she wrote in an e-mail to AzerNews.

Kocijancic noted that the EU is interested in deepening and widening its relations with Azerbaijan beyond the excellent strategic cooperation in energy. “The EU would like to maintain a dynamic and comprehensive dialogue on all aspects of bilateral relations, including in the field of human rights,” she wrote.

As to whether Europe's gas demand will coincide with the geopolitical realities of the supplier countries, especially in light of changing political conditions and declining energy prices, is yet to be seen.

More questions than answers

The rivalry between the sources appeared to be not only in interest in selling gas to Europe, but also interest in trying to control the value chain and Russia, which yet holds keys to European gas market, tries hard to be Europe’s number one option despite growing tension over its ties with Kiev.

Russia assures that the Turkish Stream construction can be completed by 2016. The gas would be sold to Turkey and then it is Ankara’s business in which direction the gas goes to. Europe will surely prefer Ankara as an interlocutor rather than Moscow in this case.

But it’s not so easy, says Bruce Pannier, expert and energy researcher at RFE/RL.

“The construction is simple enough but what will be the price of gas for Turkey. Presumably this is a “delivery at frontier” (DAF) deal, meaning Turkey buys the gas at its border and then can sell it to a third party as “Turkish gas.” These DAF agreements usually include a discounted price for the initial buyer, in this case Turkey, so the initial buyer can make a profit selling the gas to the third party,” he wrote in an e-mail to AzerNews.

However, Pannier added, the EU will certainly know the origin of this gas and might decide whether it is Ankara or Moscow selling it, the fact remains it is Russian gas.

The expert also expects hot discussions for gas through the new pipeline remembering Turkey’s expectations for reduction in the price of gas from Russia in April 2014 and Russia’s Gazprom rough treatment afterwards.

“Ankara is sure to remember this and when it comes time to negotiate a price I would imagine Turkish officials are going to drive a hard bargain, especially since the average price of gas on world markets is coming down. The price averaged some $365 per 1,000 cubic meters in 2014 but it will surely average out to less than $300 for 2015 and might even drop closer to $200 during some points of the year,” he said.

Pannier emphasized that construction of the new pipeline might proceed faster than an agreement on gas price and if that happens it will suddenly not be in Moscow’s interest to complete the pipeline until there is an agreement on the price. That could slow down pipeline construction for weeks, months, maybe even years.

Another issue that should be resolved is the financing of the Turkish stream, as it is going to be a challenge for Gazprom due to the bad economic and financial situation, devaluation of the ruble and the sanctions. Lending is now somewhere between difficult and impossible for all Russian companies.

Iran is out of game

Amid the recent developments in the political arena, European gas markets began to highlight the importance of Caspian and Middle East pipelines for European energy security. Meanwhile, Iran has renewed its rhetoric about possible deliveries of Iranian natural gas to Europe, as well as those of its neighbors.

But political and logistical constraints seem to put these plans distant.

Noting that Iran is the most interesting “if” in bringing Caspian Basin energy resources to Europe, Pannier said a pipeline across northern Iran would require massive investment and only Western companies have the finances and incentive to build it, and they cannot because of international sanctions.

“If those sanctions were eased sufficiently to allow for Western investment in such a pipeline it would immediately be the best route to transport Azerbaijani, Turkmen, Kazakh, and even Uzbek gas to Europe. A land route is cheaper and more reliable than an underwater pipeline,” he said.

However, Pannier stressed, in current circumstances the Iranian route is out.

Caspian gas vs. obstacles

Europe has long kept an eye on Central Asia’s huge natural gas reserves, but these supplies have remained out of reach for decades. Now the situation seems to move from the dead point with the Trans Anatolian Pipeline -- an Azerbaijani-Turkish gas pipeline project and one of key elements of the Southern Gas Corridor.

Pannier believes Turkmenistan and Kazakhstan’s reserves maybe available for Europeans when there is a Southern Gas Corridor established, as both countries have shown interest and sent representatives to EU conferences and meetings on the Southern Gas Corridor.

“But both countries have been reluctant to sign any deals for supplies. They want to see the pipelines being built first,” he said.

As available Caspian region exports rises, a Trans Caspian Pipeline could bring increasing volumes of oil and gas from Kazakhstan and Turkmenistan; however the picture is complicated at the moment.

Technically it is not difficult to build the Trans-Caspian Pipeline, and Azerbaijan and Turkmenistan agree on the desirability of having the pipeline. However, Russia, and Iran, are opposing of emergence of any new rivals on the gas markets.

“Russia does not want more competition for selling gas to Europe. Russia is of course the biggest exporter of gas to Europe and while it seems certain under the current political situation that the EU will be reducing the amount of Russian gas it buys, Moscow can count on the fact the EU will have to continue purchasing large amounts of Russian gas for at least the next decade and probably for a lot longer than that,” Pannier said.

As for Iran, Pannier went on to add, the country hampered in its actions due to international sanctions, would like to slow the process of opening up new energy exports to Europe for as long as possible, hoping once sanctions are eased Iranian gas and oil can be exported to Europe.

“Tehran would naturally prefer less competition if and when that day arrives,” he said.

Ashgabat and Baku also have said since the pipeline would only pass through their territorial waters, from Turkmenistan to Azerbaijan is not the business of any other Caspian state.

Still, Russia, with support from Iran, can be expected to raise objections to the Trans-Caspian pipeline every chance it gets and could even file a case in international court that would delay construction, the expert concluded.

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