Azerbaijan-Gazprom Agreement Puts Nabucco in Peril

BAKU (Today’s Zaman)–Russian gas company Gazprom signed a deal with State Oil Company of the Azerbaijan Republic (SOCAR) in Baku last week to transfer 500 million cubic meters of gas from the first phase of the Shah Deniz gas field to Europe via Gazprom.

Seen as a potential supplier for the Nabucco gas pipeline, Baku’s step raised some questions regarding Nabucco’s gas supply problem.

Russian President Demetri Medvedev’s visit to the Azerbaijani capital of Baku last week, this time accompanied by Russian businessman Alexei Miller, the CEO of Gazprom, Russia’s largest company and the biggest gas company in the world, was in part an effort to secure Baku’s gas.

The gas is also coveted by the EU-backed $11 billion Nabucco project, a gas pipeline project that is envisioned to transport primarily Caspian Sea gas to Europe through Turkey, bypassing Russia. Gazprom’s CEO Miller and Rovnaq Abdullayev, the head of SOCAR, signed an agreement to transfer 500 million cubic meters of gas from the rich Shah Deniz gas field starting in January of next year.

Russian President Medvedev and Azerbaijani President Ilham Aliyev labeled the agreement a huge step forward in energy policy and bilateral relations.

There is speculation that the deal is part of Russia’s effort to control all of Europe’s energy routes and make the Nabucco project superfluous when considering the gas oversupply of South Stream, a Russian-orchestrated gas pipeline aiming to transfer Caspian gas via the Black Sea to Eastern Europe.

However, President Medvedev said their motives are solely based on economic, not political, interest. Miller said they are looking forward to getting special privileges in the second phase of the Shah Deniz gas field, which will be inevitable unless other companies offer more attractive deals to Azerbaijan. Although the current deal only allows 500 million cubic meters of gas to be sold to Gazprom, the company foresees annual increases in supplies to Russia in the future.

Although the Nabucco pipeline’s sources of gas are still to be decided, the project has been seen as one of the primary actions to counter the difficulties raised by Russia’s harsh and strict energy policies. The EU is not a partner in the Nabucco project, but it has great interest in keeping it safe and out of Russia’s control. In the meantime, Russia is planning to establish the rival South Stream gas pipeline.

Commenting on the rivalry between Nabucco and South Stream, Shirvani Abdullayev, Russia’s Alfa Bank’s top oil and gas analyst, told The Associated Press that giving Gazprom priority for the Shah Deniz gas field would spell the end for Europe’s Nabucco project. “Nabucco was designed to use Shah Deniz gas,” he said. “Now it is left without the source of gas.” Abdullayev said it was “unrealistic to think” that South Stream and Nabucco could coexist. “The market does not need so much gas,” he said.

Ferruh Demirmen, an independent energy analyst based in Texas, told Today’s Zaman that “Azerbaijan sent a message to Turkey and to the West by signing a contract with Russia.” He continued, saying, “The first gas supply for Nabucco will be from Shah Deniz. Nabucco’s future is in question as Shah Deniz’s gas went to Russia.”

Demirmen also stated that this agreement would “force” the other partners in the Shah Deniz Consortium to act the same way as SOCAR. “Although as a partner country, SOCAR has only a 10 percent share of the gas consortium, according to the Production Sharing Agreement,” Demirmen said, “SOCAR will get the rights for a significant portion of the gas and sell it to Russia. This situation will also push other partners to sell their shares of gas to Russia.”

Azerbaijan also plans to use the agreement as a foreign policy tool. The long protracted conflict over the disputed territory of Nagorno-Karabakh has been Azerbaijan’s primary foreign policy challenge for nearly two decades.

In his interview with Today’s Zaman, Demirmen said: “Azerbaijan plans to use its gas reserves in its foreign policy with this agreement, too. Russia, throughout the history of gas trade with Europe, has also used its gas policy as a geopolitical tool. This agreement shows that Azerbaijan has allied itself with Russia.

Azerbaijan’s primary message to the West is about its Nagorno-Karabakh problem.”

Sami Sevinç, a member of the Turkish Industrialists and Businessmen’s Association’s (TUSIAD) Energy Working Group, told Today’s Zaman that “Turkey still produces 60 percent of its electricity from gas. If Turkey gets gas through Gazprom and not directly from Azerbaijan, it will be a losing situation for Turkey.”

At a Strategic Cooperation Conference in Baku in September of last year there was great support for the Nabucco project. “Azerbaijan is not giving up on the Nabucco project,” Azerbaijani Industry and Energy Minister Natiq Aliyev had said. “This is a project that has a future.”

Sohbet Karbuz, the head of the oil and natural gas department at the Union of Mediterranean Energy Companies (OME), told Today’s Zaman that “the details of Azerbaijan’s agreement with Gazprom are not yet clear. An annual 500 million cubic meters of gas does not really have importance. What’s important is Shah Deniz’s second phase.

There was a short ‘gas crisis’ between Russia and Turkmenistan, and thus Russia’s agreement with Azerbaijan also sends a warning alarm to Turkmenistan. However, Russia cannot give up Turkmenistan. For the South Stream [pipeline] Russia needs Turkmen gas.” Speaking optimistically about Azerbaijan’s intention not to cooperate with Nabucco, Karbuz said: “Right now, the most reasonable deal is to send gas to Russia as there is a real gas pipeline. However, as the fate of Nabucco is not clear, Azerbaijan, I believe, will not become involved in large-scale agreements with Russia”.

Mert Bilgin, a professor at Bahçesehir University, said: “Azerbaijan’s political goal is about Nagorno-Karabakh and the limits of compromise in Turkey-Armenia talks. If Russia supports Azerbaijan’s cause to keep the Nagorno-Karabakh region within Azerbaijan’s territory with a largely autonomous nature, then Azerbaijan may increase the gas supply to Russia. If Turkey makes solving this problem a priority, the normalization of relations with Armenia, for whatever goals and real intentions, will not be welcomed in Azerbaijan, and Russia’s regional influence will increase.”

To end the discussions on the issue, Azerbaijani President Ilham Aliyev, in a Monday speech at Chatham House in London, said they have enough oil to sell to various parties.

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