Azeri Energy Minister Urges New Investment In Caspian Oil

BAKU (Combined Sources)–Azerbaijan’s energy minister Wednesday called for new, large-scale investments in exploring for oil and gas in the Caspian Sea, saying growth in oil output would slow down in the next decade.

Industry and Energy Minister Natik Aliyev said oil production would increase by roughly one third to 65 million metric tons by 2015-2020 but at a far slower rate than the threefold growth over the past decade.

“New investment projects in the Caspian region are necessary. Exploration in the Caspian region is very complex and therefore international corporations and investors should be united in this business,” he said. “The Caspian region needs about $200 billion in investment.”

Azerbaijan, wedged between Russia and Iran, is key to competing Russian and Western pipeline projects that aim to pump oil and gas from the Caspian Sea basin to end clients in Europe.

Baku has touted itself as a potential supplier for the European Union’s ambitious Nabucco pipeline to deliver Caspian natural gas through Turkey to Europe while bypassing Russia.

Support from Washington

Washington sent a strong signal of support to Azeri President Ilham Aliyev on Tuesday when the U.S. State Department’s special envoy for Eurasian energy delivered a letter from President Barack Obama expressing support for Azerbaijan in the regional energy market.

That letter was read out at the start of the Caspian Oil and Gas exhibition in Baku sponsored by the Azeri Energy Ministry and the State Oil Company (Socar).

“Your country has emerged as an important and reliable supplier of energy to world markets,” Obama said in the letter. “Azerbaijan is an example of how developing energy resources with the involvement of international companies can result in rapid progress and access to the best technology.”

Morningstar said the role of Azerbaijan in European energy security matters would establish a strong partnership with Washington and its allies, the Trend news agency reported

“We believe that Azerbaijan, as well as its neighbors, will maximize their oil and gas production, including through the development of new sources,” said Morningstar. “We are ready to assist Azerbaijan in the delivery of hydrocarbons to the markets.”

The Nabucco Project

The Western-backed Nabucco pipeline relies in part on gas supplies from Azerbaijan. Europe sees the $10.7 billion project as a means to move away from a dependent relationship on Russia in the energy sector.

“Azerbaijan is going to be very important, Morningstar told Reuters. “That’s why it’s critical that Azerbaijan and Turkey reach an agreement on pricing and on transit in the near future that will give confidence to the [Nabucco] project.”

But Baku wants to keep its options open. Speaking to visiting government officials and executives, Azerbaijan’s President said Baku would choose new routes for its energy exports based on a good price, not politics.

The project’s partners, which include Azeri state oil firm Socar, have yet to agree on the price of gas and the conditions for transit through Turkey and other countries to their destination markets.

Talks between Turkey and Azerbiajan have also been delayed by demands from Ankara for a 15 percent share of the gas that will pass through Turkish territory. Turkey has said the gas would be used to meet domestic demand or for re-export.

“The energy sector has become very politicized,” Aliyev said. “If we are negotiating sales and purchase contracts, the price should be reasonable. If the issue of transit is on the table, we should also get a reasonable price.”

Russia, concerned Nabucco would undermine its role as gas supplier, has opposed the project in favor of its own alternative. Russia’s South Stream project would transport gas from northern Siberia under the Black Sea and onward to southeast and central Europe. Russia’s gas export monopoly Gazprom is in talks to buy all new Azeri gas output from state energy firm Socar from as early as 2012.

Should Baku fail to agree with Turkey on new volumes or should Russia clinch a final deal to buy Azeri gas, the prospects of Nabucco would be seriously undermined as analysts say it is still lacking enough gas to ship to Europe.

Turkey’s claims on Nabucco gas have caused much rife among the consortium, which aims to build the 31 billion cubic meter gas pipeline by 2014 to help relieve Europe’s reliance on Russian natural gas supplies.

Its withdrawal of the 15 percent demand would give a much-needed boost to the Nabucco project, with which the rival Russian-backed South Stream pipeline is competing to feed growing energy needs.

The Nabucco consortium is also eyeing an Iraqi Kurdistan plan to export gas from the autonomous region through the pipeline earlier this month, although the central government rejected the scheme.

“Iraq needs to be subject to an agreement between the Kurds and the national government and we hope that that will happen and then Iraqi gas can ultimately be part of the Nabucco project,” Morningstar said at the conference in Baku.

Meanwhile, Georgia, which borders Azerbaijan and has coastline on the Black Sea, also offered support in developing energy supply routes that would bypass Russia, with which it fought a five-day war last August over the breakaway region of South Ossetia.

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