Nabucco: What's in it for Azerbaijan?
The Nabucco Pipeline: What Are the Main Questions in Its Realization? How Does It Serve Azerbaijan's Energy Interests?
by Nurtaç Abdullayeva
Since one of the long-term aims of Azerbaijan is to consolidate its integration into Europe, the state is more interested in selling its natural gas resources to the European market, which has over 500 million consumers. As long as the requirements of Azerbaijan are met, Nabucco is considered one of the best options for Azerbaijan to deliver natural gas resources from the second stage of the Shah Deniz natural gas field, due to the fact that the project will allow Azerbaijan to be a transit country which is one of the aims of its energy strategy.
As one of Southern Corridor pipelines, Nabucco has lately become very popular since the signing of the cooperation agreement on the pipeline in 2002. The importance of the pipeline grew as Russia increased its monopolistic influence over Europe. The project came into existence due to the search by European countries for alternative energy resources and to reduce the monopolistic influence of Russia on the European market. The pipeline is supposed to bring Central Asian natural gas to the European market without Russian involvement.
The total capacity of the pipeline will be 31 billion cubic meters (bcm) of gas and it is estimated that approximately 8 billion Euros is needed for the construction of the pipeline. The construction of the Nabucco pipeline is expected to start in 2013 and the initial flow of natural gas to the pipe is predicted to begin in 2017.
Since the emergence of the project, it has gained popularity and raised hopes that it will be built in near future. Since the initiators of the project considered the realization of the pipeline to be a commercial rather than political goal, there will not be any political threats to the establishment of the pipeline.
Despite the ambitious beginnings and dreams, it was soon understood that there are substantial amount of questions needed to be answered for the realization of the project, as the very suggestion of the project clashed with the interests of other key actors.
The key question of how to deliver Central Asian natural gas to the projected Nabucco pipeline emerged. The most reasonable option is the construction of the Trans-Caspian pipeline. However, it was understood that that the construction of the Trans-Caspian pipeline was impossible due to several reasons. Most importantly, the key regional actors, Iran and Russia, opposed any such kind of pipeline, stating environmental concerns while ignoring their own contamination of the Caspian Sea, to give the impression that they are more interested in environmental protection. Both states claim that in the case of the unresolved status of the Caspian Sea, the consent of all littoral states is needed for the construction of that kind of pipeline, regardless of its route (whether that pipeline goes between two, more, or fewer littoral states). It is not coincidental that both Russia and Iran buy natural gas from Turkmenistan, and that the former is against to the delivery of Turkmen gas without its control while the latter does not want the persistence of any Western initiative in its neighbor.
As Turkmenistan’s interest in Western markets increased, the state began sending some positive signals for the construction of the Trans-Caspian pipeline, since it faced challenges in selling natural gas to Russia following the Russian-engineered explosion at the Turkmen-Russian gas pipeline. However, this alone is not sufficient for the construction of the pipeline. Without the concrete support of the West, neither state is willing to take strong steps in that direction after the Georgian-Russian war, when two regions of Georgia were occupied by Russia. Despite diplomatic support, the West did not send any material support to Georgia, which awakened Azerbaijan and Turkmenistan to what they can expect if they follow an anti-Russian policy.
Consequently, the focus shifted to Iranian territory as a transit country for the delivery of Central Asian natural gas to the Nabucco pipeline. Since Iran is under sanctions, this option was opposed by the United States for political reasons. At the same time, Iran was also rejected to be a supplier country to the Nabucco pipeline for the same reasons. Apart from this issue, Iran does not produce enough natural gas annually to make its resources available for the Nabucco Pipeline. Iran’s annual production of natural gas resources is 116.3 bcm, despite her consumption which is 117.6 bcm. Although Iran possesses the second largest natural gas reserves after Russia, it is not able to fully exploit them due to the lack of sufficient investment and technology. Thus, all of the facts show that it is currently impossible to deliver the natural gas resources of Central Asia to the Nabucco pipeline.
Accordingly, new research has been conducted regarding how to provide the Nabucco pipeline with sufficient resources. The suggestions include the delivery of northern Iraqi and Egyptian natural gas to Nabucco, since the Kurdish Regional Government signed a cooperation agreement with Germany's RWE in 2010 for the delivery of up to 20 billion cubic meters of gas a year to Turkey and Europe. Unfortunately, persistence of political instability in Middle East puts the security and sustainability of the pipe under threat.
All of these challenges increase the strategic importance of the Shah Deniz natural gas field, which is one of the natural gas resource alternatives to Russia and the politically complex Middle East nearest to the European market. Actually, Azerbaijan is interested in feeding natural gas to the Nabucco pipeline, but demands better commercial terms. In addition, after the Georgian-Russian war, Azerbaijan is demanding diplomatic guarantees of security from the West, since it does not want an encounter with Russia.
Furthermore, there are some kinds of disagreements between Turkey and Azerbaijan on transit tariffs, since Turkey is on the way toward membership in the EU and tries to fulfill several of the requirements for membership by utilizing its energy policy. During a meeting in Kayseri with EU Energy Commissioner Guenther H. Oettinger and the US Secretary of State’s Special Envoy for Eurasian Energy Richard Morningstar, Taner Yildiz mentioned that “Turkey did its best for a solution to EU countries’ problems without expecting anything in return. And we expect the same treatment from the EU. It is evident that Turkey needs the EU and the EU needs Turkey. I want to say it again that it is not fair to delay Turkey’s EU talks for political reasons.”
Thus, Azerbaijan, in reality, is interested in supplying natural gas to the European market via the Nabucco pipeline, but demands several better conditions. The main question is how much and under what conditions will Azerbaijan sell natural gas to Europe. Mainly, Baku does not see Nabucco as a pipe to supply its natural gas from Baku to only Baumgarten, but rather also demands access to the nearby markets of Slovenia, Croatia, the Czech Republic, Macedonia, Albania, Hungary, and Austria as stated by SOCAR Vice President Elshad Nasirov. At the same time, the Vice President mentioned that Azerbaijan will not pay for however much of Nabucco’s capacity remains empty.
Azerbaijan will sell 10 bcm of natural gas to Nabucco if it will be realized, but the state will not take risks as expressed by Elshad Nasirov. When interviewed, he stated that “somebody has to take that risk [empty capacity of the pipeline] and it definitely will not be us.”
In summary, Azerbaijan is considering exporting natural gas to Europe, but the transit problem with Turkey upsets Azerbaijan. In addition, other obstacles are clearly being considered by the state. In this case, Baku is more skeptical about the conditions, demands solutions to several problems, and especially expects more concrete steps from Europe. Recently, SOCAR President Rovnag Abdullayev stated that Azerbaijan is seriously thinking of supplying natural gas to China. He also stated that Azerbaijan might not participate in the Nabucco pipeline. This is a clear message addressing the West to make sure more concrete steps are taken and to affect Turkey in how it determines the transit prices.