Monday, June 11, 2012

Transcaspian Edging Closer to Beginning

The long-awaited Trans Capian Pipeline (TCP) continues to edge closer to a start date.  As recently as August 2011, Turkmenistan President Gurbanguly Berdymukhamedov remained cagey about his commitment to the project.  Told of European Union interest in building the pipeline, the President said that cooperation with the EU was a "strategic priority" for his country, and that any proposals would be studied.
Things changed on 12 September 2011, when the EU proposed a binding, union-wide treaty with Azerbaijan and Turkmenistan to support the pipeline. EU Energy Commissioner Gunther Oettinger issued a statement that "Europe is now speaking with one voice.  The trans-Caspian pipeline is a major project in the Southern Corridor to bring new sources of gas to Europe.  We have the intention of achieving this as soon as possible."  In reply, Italian Industry Minister Paolo Romani commented, "Now, with the mandate of 27 countries, Oettinger has sought to bring...clarity, calling (Gazprom-backed) South Stream an atempt by Russia to hamper the realization of the alternative Nabucco gas pipeline, actively supported by Europe."

Berdymukhamedov flew to Austria to discuss the project  "Today, we get down to work on the contractual and legal basis for supplying Turkmen energy to Europe," he said.  "We are inclined to hold a constructive energy dialogue with Europe."  Separately, EU Special Representative for Central Asia Pierre Morel said that the EU is willing to fund a good part of the TCP.

In February 2012, Azerbaijani Minister of Industry and Energy Natiq Aliyev confirmed the legal framework was being established to build the pipeline.  He said the three parites were preparing a political document to support the Southern Gas Corridor, and an inter-governmental agreement on the TCP.  Aliyev predicted the documents would be completed by the end of the year.  By March 2012, energy consultant Robert Cutler was reporting that he had heard from multiple sources that Azerbaijan and Turkmenistan had overcome bilateral diplomatic disputes, and had reached an agreement to build the TCP.  Cutler reported that Turkmenistan would rely on the EU to overcome Russian opposition to the project.

With the TCP moving closer to reality, other countries are expressing an interest in Turkmen gas.  Ukraine, which is involved in natural gas price disputes with Russia and being eclipsed as a transit route by Nord Stream and (possibly) South Stream, wants to join the TCP project.  Ukranian Prime Minster Mykola Azarov told Azerbaijan's President Ilham Aliyev that "Ukraine is interested in the implementation of the Trans-Caspian gas pipeline project." Turkmenistan had previously offered to sell Ukraine its gas for $5 per thousand square meters less than the price they charge China but, until now, there has not been any serious discussions on how the gas would be delivered.

To stop construction, the Russians have offered to renew their purchases of Turkmen gas.  Before 2009, Russia had been Turkmenistan's principle purchaser of natural gas.  When they cut back on purchases, pressure in the pipeline dropped which caused an explosion.  Previously, Russia had been buying 48 bcm of gas from Turkmenistan; in 2010 it was only 10.5.  According to the Russian newspaper Kommersant, Russian President Dmitry Medvedev and Berdymukhamedov met in December 2011 and Medvedev planned to offer to buy 80-90 bcm per year.  This would have effectively taken up all the spare Turkmen gas production, leaving it unable to support the TCP.

Russia continues to oppose the project, and this opposition makes Azerbaijan nervous.  According to Alexander Karavayev, deputy general director of Moscow State University's Information and Analytical Center, Moscow's attitude toward the TCP has been negative from the beginning.  "I find it hard to imagine the conditions under which Moscow would be happy to agree to alternative access for European consumers to Central Asian gas...Moscow will try to prevent the emergence of this pipeline.  The talks on commercial competition and transparency of access to resources are fair and important, but behind them lie the tough games and interests of the superpowers...Baku fears possible confrontation with Moscow over the Trans Caspian."  Alexander Ruhr, director of the Russian/Eurasia program, German Council, on Foreign relations, concurs.  He warns that the opposition to the pipeline from Russia and Iran is so intense, "If Turkmeistan were to lay out the pipeline a conflict might break out."

Russia and Iran have cited a number of reasons for their opposition:  the legal status of the Caspian has not been resolved, meaning all littoral states needed to approve any pipeline project; their is an environmental risk if the pipeline ruptures; there is a possibility that the pipeline could be destroyed by earthquake, etc.  All these arguments are negated by the two countries' own construction in the Caspian of offshore oil platforms and connecting pipelines.  As an example, in April 2012 a Lukoil susidiary gave a contract to build a 40 kilometer contract to build upderwater pipelines linking the Filanovskoye and Korchagin deposits.