Energy security specialist: Nabucco project should be priority for Azerbaijan

In your opinion, what chances does the "White Stream" project have to become real?

White Stream should routinely be considered as a follow-up to Nabucco. In other words, it should only be developed once Nabucco is up and running. From an Azerbaijani role, the immediate goal is to ensure a connection between the South Caucasus Pipeline and a major European distribution point. Nabucco provides this by providing a system with delivery to Baumgarten, from where it can be accessed by a variety of consumers. Because every aspect of planning and development is more advanced for Nabucco than for White Stream, this should be the priority for Azerbaijan.

If all goes well with the last major outstanding Nabucco issue, the negotiations between Turkey and Azerbaijan on transit terms, then the role for White Stream is to provide a major expansion of overall Caspian gas deliveries to Europe. On the assumption that Nabucco begins carrying Azerbaijani gas to Europe in or around 2015-16, then White Stream would be a project for the 2020s. In this context, it would be seen as a way of carrying not just Azerbaijani but, primarily, as a system for transporting Turkmen gas to Europe, and possibly some Kazakhstani gas as well. It’s worth noting that by 2020, Ukraine will have had a decade of paying for gas imports at fully commercial prices, so by then Ukraine will be free to choose from whom it purchases its gas. It may well opt to but at least some of its gas from the Caspian, with delivery via White Stream.

There is another possible way in which White Stream might be achieved earlier. However, this would require a set of circumstances that Azerbaijan would not favour and would specifically require a set of governmental financial commitments that I think Azerbaijan would be reluctant to undertake. White Stream could be developed under emergency conditions if the transit talks between Azerbaijan and Turkey were to break down and Baku were to lose trust in Ankara. I do not consider this likely, because I believe that while the issues are very complex and have certainly strained relations between Azerbaijan and Turkey, In the end, I expect both sides to reach an agreement.

But if, for some reason, they could not do so, then this would raise the issue of whether White Stream could be built, from an Azerbaijani perspective, as an alternative to Nabucco. The answer is that it could be, but that there would be so many commercial uncertainties that it would be a project requiring very substantial government financing.

I suspect that White Stream would provide a more commercial option for carrying gas across the Black Sea than either Liquefied Natural Gas (LNG) or Compressed Natural Gas (CNG), but I would need to see the results of some outstanding studies before coming to any firm conclusion.  The bottom line in this case is that White Stream would have to be built as an emergency response to problems with transit across Turkey, and this would mean regarding it  as a piece of Azerbaijani national infrastructure that was required outside the actual area of Azerbaijan, namely, in the Black Sea.

How stable  is Azerbaijan as a dependable gas supplier for Europe?

Azerbaijan has been a reliable oil supplier for many years, there is every reason to believe it would be a reliable gas supplier as well. Indeed, the most important issue here may be not Azerbaijan’s role as a gas producer of gas for export, but as a transit state for handling gas exports to Europe from Turkmenistan and perhaps Kazakhstan. Azerbaijan has stressed its determination to be a reliable transit state and there is no reason to doubt these commitments.

Is there any alternative to Russia as the main supplier of gas to Europe?

Russia’s supply of gas to Europe should be seen in perspective. Russia is the biggest single source but it is one source among five: the others are Norway, the UK & Dutch in the North Sea, North Africa and LNG.  Nabucco constitutes a way of bringing a sixth supply source -- the Caspian and the Middle East – into the European market, thus increasing all-round competition. Such gas would not constitute an alternative to Russia although it might replace some Russian supply as a result of sharply reduced estimates for European gas demand over the next 5-10 years. But then, it would not need to replace Russian gas

In your view, what should be the primary factor in the gas price talks between Azerbaijan and Turkey?

Turkey should not seek to emulate Russia in seeking to claim a privileged position – and thus higher transit revenues -- because of its geographical position. The basic principle of Nabucco is to ensure that all parties using the line would pay a standard price for each kilometer of line that the gas molecules would transit.  

There is a key strategic issue to be borne in mind, which is gas transiting through Turkey has to be accompanied by commitments for gas supplies to Turkey. But the price of gas deliveries to and through Turkey should essentially be the same, the only variation being the transit cost involved.

From Baku’s perspective, there is a need to bring the agreement for supply of Shakh Deniz Phase One gas into line with whatever is agreed for Shakh Deniz Phase Two gas.  This includes the end of Turkey’s right to purchase gas at one price for onsale to other customers at whatever price it can then secure. In this context, potential Turkish membership of the European Energy Community should help.

In effect, once Azerbaijani gas reached Turkey, it would be entering into a single energy community extending all the way to the Atlantic. Azerbaijan would lose control of the gas at that point (apart from the long-term sales element of supplies delivered through Nabucco ) but it would do so in the knowledge that any gas purchased by any customer in the EU or European Energy Community would be paying a commercial price in the first place, with resale also based on commercial prices. Under such circumstances, sometimes the re-seller would make a profit (thus causing unhappiness in Baku); sometimes it would be selling as at a loss (perhaps bringing a smile to Baku’s face). That’s business.

Recently, Azerbaijan and Iran have agreed to establish a cooperation in gas sphere. In your opinion, can this agreement be considered long-term? Wouldn't this transport of Azerbaijani gas be negative for the Nabucco project?

The volumes of gas are likely to be small, and should mainly be considered as a  balancing element in Iranian gas supplies to Nakhchivan.

T. Teymur