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Daniel J. Graeber

Daniel J. Graeber

Daniel Graeber is a writer and political analyst based in Michigan. His work on matters related to the geopolitical aspects of the global energy sector,…

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Let the Azeri Gas Race Begin

The consortium behind the Shah Deniz natural gas field in Azerbaijan announced this week it was ready to move ahead with Front End Engineering and Design. That means the consortium is getting ready to pick a transit network to carry natural gas from Azerbaijan through Turkey and onto European markets. European energy officials, at least since 2009, have been waiting for saviors in Baku to come to their rescue to ease the Russian grip on the energy sector. While the race is officially on for the so-called Southern Corridor, there's still a full marathon ahead.

Bob Dudley himself, BP's chief executive officer who was chased out of Moscow in 2008, met in Baku with Azeri President Ilham Aliyev to discuss prospects in the giant Shah Deniz natural gas field in the Caspian Sea. Shah Deniz 2 is expected to produce as much as 16 billion cubic meters of natural gas per year, which represents a sizable chunk of what European consumers get from Russia. The bulk of Russia's natural gas was more or less cut off when Gazprom said it had about enough with Kiev, which hosts the bulk of European supplies, and cut off the gas.

Europe now wants to move on. Brussels, with some help from the United States, has been driving for the so-called Southern Corridor, a network of gas transit networks meant to break the Russian grip on the regional energy sector. While Russia busied itself building Nord Stream and planning South Stream, their options get around Ukraine, Europe was working hard to implement the Southern Corridor.

The BP-led consortium last year signed a deal with the Turkish government for the Trans Anatolia Pipeline to carry gas from Azerbaijan across Turkey. Stepping back to 2009, potential host countries met in Turkey to sign an intergovernmental agreement on the Nabucco natural gas pipeline, the most ambitious of the projects included in the Southern Corridor. Since then, however, Nabucco's $10.5 billion price tag has raised eyebrows in the age of austerity. Nabucco West, a shorter interim option for the project could, however, eventually link up to the BP-BOTAS pipeline outlined last year. Other options include the Trans Adriatic Pipeline, the shortest of the Southern Corridor projects, and the South East Europe Pipeline, which is considered the least expensive.

Dudley and Alliyev said they'd make their decision by next year. Reading the tea leaves is difficult. Washington seems at times to support Nabucco, which makes sense if the smaller Nabucco West links up to the Trans Adriatic Pipeline. The Shah Deniz group has warmed to TAP, though it would have to cross the Adriatic Sea. SEEP, meanwhile, is cheaper, which the folks in Azerbaijan seem to like as well. Any major investment would likely depend on what becomes of the European debt crisis. Meanwhile, if Syria goes the way of Libya, which at this point seems likely, the entire regional map might look different in a couple of years. That suggests any major program in Turkey could be tricky. Placing a hesitant chip on Nabucco West seems reasonable given the BOTAS option in Turkey, but that's just a guess. In any event, the race is on to see who gets the most gas from Azerbaijan, but at this stage, it's anyone's to win.

By. Daniel J. Graeber of Oilprice.com

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