Tuesday, 8 February 2011

Getting the Southern Corridor built

The visit of EU Commission President Jose Manuel Barroso to Azerbaijan and Turkmenistan last week has been met by a largely positive response in Brussels.  Yet the incessant focus on Nabucco’s role (and by extension, Turkmenistan’s) in getting the wheels in motion on the Southern Corridor project is carried out at the expense of a more realistic short term target: such as the Trans-Adriatic Pipeline (TAP).  Of course, EU policy makers need not desert the pursuit of Turkmen sources outright, but they would be better advised to take an incremental approach to Central Asian gas, securing Azerbaijan’s more attainable resources first before seeking to integrate Turkmen gas into the Southern Corridor project later.

The headline event from Barroso’s visit to Azerbaijan was the signing of a Joint Declaration on the Establishment of the Southern Corridor by the EU Commission President himself and Azerbaijani President Aliyev.   The Declaration, Azerbaijan’s first written commitment to supplying European markets, is set to ensure that “the EU will directly receive Azerbaijani gas,” said Barroso who also claimed that "this new supply route will enhance the energy security of European consumers and businesses."  Yet, it is not really news as such.  That is, the concept of Baku fulfilling the role of gas supplier to European markets is no real breakthrough.  In fact, this scenario has been on the cards throughout the past decade as Azerbaijan has consistently looked at means of diversification away from Russia and the post-Soviet space and toward the West, specifically the EU.

Barroso’s visit therefore, while positive in hammering out a written commitment, really ought to have focused on achieving greater clarity in regard to the path ahead. With three major projects on the table, robustness and commitment must be built into consensus on a concrete option in order to push the overall Southern Corridor project forward.

The Italy-Turkey-Greece Interconnector (ITGI) is one option, with the smallest proposed capacity of the three, at less than 10bcm.  At the opposite end of the scale, the Nabucco pipeline has the biggest proposed capacity (31bcm), is the most widely touted and also enjoys the most backing from the European Union.  Somewhere in between in terms of capacity lies TAP.

With capacity ranking below that of Nabucco (up to 20bcm) and backed by a consortium consisting largely of non EU elements from Norway and  Switzerland,
TAP is less widely supported in Brussels than its larger competitor.  Some even go as far as to say that TAP is ‘astrategic’ from an EU point of view.  However, to draw such a conclusion would be to ignore the numerous risk-reducing facets tied into the TAP project; facets which EU policy makers must consider seriously.

For example, TAP has been designed to accommodate for reverse flow of gas thereby protecting the EU market from future gas cut offs.  This feature can be viewed as something of a geopolitical insurance policy for the EU which has had its fingers burnt by cut offs associated with the Russian-Ukrainian and Russian-Belarusian disputes in 2008/9 and 2011 respectively. TAP also has a realistic schedule in comparison to the competing pipelines, including ITGI.  Nabucco’s colossal length will of course incur logistical headaches and will prove expensive and time consuming to construct (2015 would be an optimistic estimate for when construction might commence).  But even ITGI, which is shorter and smaller in terms of capacity, will require an additional 800 km of new construction compared to TAP’s relatively modest 520km.

Most significantly, however, TAP does not initially require gas from anywhere other than Azerbaijan meaning that construction on the Southern Corridor can begin, without further delay, on a dual track alongside further negotiations with Turkmenistan. 

The issue at hand here is really a question of volumes.  The viability of Nabucco’s proposed 31bcm capacity necessarily requires gas from sources other than Azerbaijan, principally Turkmenistan or Iraq.  However, the political landscape in the former two is volatile to say the least.  For example, in order to reach consensus on supplies for Nabucco, it is imperative that the Serdar/Kyapaz gas field dispute between Azerbaijan and Turkmenistan be resolved.  Despite Ashgabat seeking an international arbitrator to resolve the issue, it seems that there is no resolution in sight.  Thus, while the Turkmens are currently interested in the Southern Corridor project, there remains a web of complexity inhibiting the EU’s ability to bring them in immediately.  With China looming as an alternative market for Turkmen gas (a relationship which is already well established due to the ongoing construction of the Central Asia – China pipeline,) sentiments could quickly change in favour of the East at the expense of Nabucco.  On the contrary, construction on TAP can begin without significant delay.

Having garnered a reputation for being better at discussing policy initiatives than actually implementing them, the EU must react quickly to the opportunities in Central Asia so as to demonstrate its credentials as a serious energy trading partner.  In this instance, time is of the essence as China offers a genuine alternative market to Azerbaijani gas as well as to the Turkmen’s.  The pace of negotiations on the Southern Corridor to date have left Baku feeling rather snubbed and frustrated to the extent where officials at the State Oil Company of the Azerbaijan Republic (SOCAR) have been compelled to consider the option of exporting hydrocarbons eastward to China and other East Asian markets instead.  Several Chinese oil companies have been awarded permits by
SOCAR to work in Azerbaijan such as Shengi Oil which received permission in June 2004 to operate the Garachukhur oil field. 

If the EU wishes to keep Baku looking west, then it needs to make a significant move in the relative short term. These factors need to be recognised by European policy makers who should be pushing for consensus on the most realistic proposal as soon as possible.  As alluded to above, beginning construction on TAP need not be at the expense of access to Turkmenistan’s resources.  On the contrary, it will consolidate Europe’s status as a reliable trading partner and open the Southern Corridor with a view to future integration with Turkmen gas.
by Dane Vallejo

This article was originally published by New Europe, 06/02/11, accessed at http://www.neurope.eu/articles/Getting-the-Southern-Corridor-built/104600.php

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