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EurasiaNet.org provides information and analysis about political, economic, environmental and social developments in the countries of Central Asia and the Caucasus, as well as in…

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Azerbaijan: Baku's Natural Gas Discoveries Reviving Interest in Caspian Pipelines

Azerbaijan: Baku's Natural Gas Discoveries Reviving Interest in Caspian Pipelines

The recent discovery of a sizable, new natural gas field in the Caspian Sea is giving officials in Azerbaijan additional reason to cheer. But the discovery also is highlighting a dilemma for Baku – one in which the abundance of gas is currently offset by a dearth of export capacity.

It’s a problem that Azerbaijani officials are happy to have. The new gas field, discovered off the Absheron Peninsula, contains an estimated 350 billion cubic meters of gas and 45 million tons of condensate. An ebullient President Ilham Aliyev predicted on September 9 that the discovery will help turn Azerbaijan into “a large-scale gas exporter” within “several decades.” Some analysts agree, saying that Azerbaijan eventually could export more gas than oil.

The net effect of Azerbaijan’s gas dilemma is that some long-discussed, but as yet unfulfilled export routes will get a second, or even third look. Azerbaijan’s current proven gas reserves stand at 2.55 trillion cubic meters, a far cry from Russia’s 47.57 trillion cubic meters, and less than half of Turkmenistan’s 7.5 trillion cubic meters.

It may be a while before Baku starts enjoying a financial windfall from its recent discoveries. Commercial gas production in the Absheron field is not expected to begin before 2021-2022, State Oil Company of the Azerbaijani Republic (SOCAR) Senior Vice-President Khoshbakht Yusifzade told reporters in September. The first step will be the construction of a deep-water rig to reach the deposit site, some 500 meters below the surface.

SOCAR and the French oil company Total, the project operator, hold equal, 40-percent stakes in the project. Gaz de France SUEZ has a 20-percent stake.

The presence of two European companies in the project is seen as a sign that the European Union has a strong incentive for expanding access to Absheron’s gas. Indeed, shortly after the find was announced, the European Commission gave the go-ahead for talks to begin with Azerbaijan and Turkmenistan on the construction of a Trans-Caspian (TCP) gas pipeline. It is envisioned that the TCP route would breathe new life into the long-delayed Nabucco pipeline, as preliminary plans call for the two to be linked. That would create an export network to the European Union that circumvents Russian territory.

For now, grand export plans remain on the drawing board. At a September 23 press briefing, SOCAR Vice-President Elshad Nasirov claimed that “a lack of infrastructure and demand” means that Azerbaijan can only export gas to neighboring countries -- Turkey (about 6 billion cubic meters [bcm] annually), Georgia (about 2 bcm) and Russia (about 1.5 bcm).

Nasirov’s remark appears to be a subtle reminder to Nabucco participants that Baku has the gas to share, if not the pipeline with which to do it. “If we have the infrastructure to supply gas beyond Turkey [to the European Union], we will, of course, do it,” he continued.

The key word, of course, is “if.”

Despite effusive optimism by both sides, Baku and Ankara still have failed to reach a final agreement on terms for conveying Azerbaijani gas to Europe via Turkey. An agreement was expected by late September, but, for reasons unknown, it was not completed.

The Absheron find could prompt EU states to put greater pressure on Turkey to reach a deal with Baku and “get an easy way to import gas from Azerbaijan,” said independent MP Rasim Musabekov, a member of parliament’s Foreign Affairs Committee. Such pressure alone may not be enough. [Musabebkov is a former member of the Open Society Assistance Foundation-Azerbaijan’s board, a member of the Soros Foundations network.
EurasiaNet.org operates under the auspices of the Open Society Foundations, a separate part of the network].

It appears that money is not the main holdup to a transit agreement. In 2010 a SOCAR source told EurasiaNet.org that Azerbaijan was prepared to pay $250 per tcm of gas to Turkey for transit rights. Greater volumes of gas would mean greater volumes of money, but one Azerbaijani energy analyst cautions that that change alone is not enough to prompt Turkey to sign a transit agreement.

“The disagreements between Baku and Ankara are not about gas volumes. Thus, the additional gas is not going to change their positions,” said Baku-based independent energy expert Ilham Shaban. Current differences center on dispute resolution venues; Ankara favors Turkey; Baku prefers the United Kingdom or Switzerland.

In addition to the Turkish option, Baku will also may explore “developing some alternative routes” to Europe such as the Azerbaijan-Georgia-Romania- Interconnector (AGRI) project of liquefied natural gas via Black Sea tankers or, even, “selling larger volumes” to Russia for onward sales to Europe.

Both those potential choices have their limitations. Little progress has been made on the AGRI project; and Azerbaijan’s current pipeline to Russia does not allow exports over 2 bcm of gas per year.

Meanwhile, the gas just keeps on coming.

Last November, SOCAR announced the discovery of up to 200 bcm of gas reserves at another offshore field (Umid), which is being developed by SOCAR (80 percent) and the Azerbaijani company, Nobel Oil (20 percent). SOCAR is also optimistic about the offshore Babek field which, SOCAR Senior Vice-President Yusifzade claims, contains an estimated 400 bcm of gas. The company, which wholly owns the site, plans to start exploratory drilling soon.

That leaves Azerbaijan with a case of great expectations. No change in the short term for the country’s ranking as a gas exporter, said Shaban, but growing hope for a transformation in the future.

By. Shahin Abbasov

Shahin Abbasov is a freelance reporter in Baku and a board member of the Open Society Assistance Foundation-Azerbaijan.

Originally published by EurasiaNet.org

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