Azerbaijan: Gas Pipeline Under Fire

Critics are circling around Azerbaijan's prestigious new gas pipeline to Turkey, due to begin construction next year. Experts doubt that Ankara can afford to pay for the gas and Iranian and Russian officials are saying in public that it would be better to transport it through their countries.

The topic was hotly debated at Baku's recent annual Oil and Gas Exhibition. Russia's envoy for the Caspian Sea Viktor Kalyuzhny raised the stakes when he questioned whether there was a need for the South Caucasus Gas Pipeline. He said that Turkey was not in a position to cope with the quantities of gas it will supply, as early estimates of what its domestic consumption of gas would be had been much too high.

The pipeline project is due to transport gas from Azerbaijan's vast Shah Deniz field in the Caspian Sea from Baku to the eastern Turkish city of Erzerum. Shah Deniz contains an estimated 625 billion cubic metres of gas.

Kalyuzhny proposed that Azerbaijan should instead send its gas through Russia's Blue Stream pipeline, which was inaugurated last year but is currently standing idle.

"Blue Stream is a not a plan, it's a reality," Kalyuzhny said on June 4. "Azerbaijan has an outlet to this pipe. This is also a route to Turkey and onwards to Europe. And it will save Azerbaijan more than 300 million dollars of budgetary money."

Asked whether the new gas pipeline was needed, Kalyuzhny said, "I believe that economic considerations should predominate."

The statement provoked a strong reaction from Natik Aliev, head of Azerbaijan's state oil company SOCAR, who said "it is important for Azerbaijan to create its own gas transport system". Aliev called the Blue Stream project "very expensive" and the Russian proposal was "unrealistic".

David Woodward, the head of British Petroleum, BP, in Azerbaijan also batted away the Russian idea. "We have already begun to build the South Caucasus Gas Pipeline and we are not going to walk away from this project," he said in response to Kalyuzhny. "But in later stages of the full development of Shah Deniz we may consider options of transporting gas from the field to world markets. Russia may be one of them."

BP, along with the Norwegian company Statoil, are the major partners in the pipeline project. Both have a 25.5 per cent stake.

Stage one of the project will cost an estimated 3.2 billion dollars. It is supposed to run in parallel to the Baku-Ceyhan oil pipeline, construction of which has already started. And although building work on Baku-Erzerum is not slated to begin until next year, land is already being cleared in preparation for it.

The problems have arisen because of doubts that Turkey can keep to the promises it made two years ago when it first signed a contract for the gas pipeline.

In the contract signed in March 2001, Turkey undertook to buy two billion cubic metres of gas a year from 2006 and more than three times that in the years following.

But earlier this year the Russian company Gazprom and Italy's Eni both reduced gas supplies through Russia's Blue Stream pipeline. Iran also cut deliveries along its Tabriz-Erzerum route.

Turkey still maintains it will keep its commitments and there is no need to rewrite the contract for Baku-Erzerum.

As with the Baku-Tbilisi-Ceyhan project, there is a strong political background to the gas pipeline. The West together with the pro-Western government in Baku prefer to see their gas run through Georgia to Turkey than through Russia or Iran.

Like Kalyuzhny, Kaveh Afrasiabi, an Iranian energy expert with the government in Iran, makes the economic argument that it is pointless to build a new pipeline, when one already exists - across Iranian territory.

"The Azerbaijan-Georgia-Turkey route has more of a political than an economic meaning," Afrasiabi told IWPR. "Azerbaijan chose it under pressure from the US, but it would be more economically viable to transport Azerbaijani gas via Iran."

Georg Gundersen, president of Statoil-Azerbaijan, insisted that the problems can be overcome by signing new contracts with companies both in Turkey and beyond to sell an additional eight to ten billion cubic metres of gas a year. "We believe in Turkey," Gundersen told journalists at the Oil and Gas Exhibition.

An anticipated deal with Greece has not materialised so far, however. Azerbaijan had hoped that a contract would be signed during the Baku exhibition.

Questions are also being asked about Georgia's commitment to the new pipeline.

Gia Chanturia, head of the Georgian international oil cooperation, told journalists "the gas pipeline has greater strategic significance than the Baku-Tbilisi-Ceyhan pipeline.

"With the arrival of Azerbaijani gas in Georgia as an alternative source, the country can achieve energy security and independence."

Georgia is currently heavily reliant on Georgian gas. Recently, that relationship looked stronger after the head of Russian gas giant Alexei Miller visited Georgia at the end of May and he and President Eduard Shevardnadze declared the two sides had a new "strategic partnership" to upgrade Russian gas pipelines in Georgia.

Steven Mann, the top US official for Caspian issues and a strong supporter of Baku-Erzerum, then visited Georgia last week and warned Shevardnadze that the Gazprom deal could "significantly weaken Georgia's position along East-West energy transportation routes".

The consensus amongst analyst in Baku is that, despite everything, the gas pipeline will be built.

Pasha Kesamansky, an energy expert with Trend information agency, said that the partners in the deal were "not so stupid as not get guarantees to buy gas and begin building the pipeline".

Kesamansky said Azerbaijan might encounter the same problems in Turkey, as both Iran and Russia have, "but economically Azerbaijan will lose nothing, as Turkey will have to pay for the gas in any case. And I think that there won't be as many problems with exporting Azerbaijani gas as with Iranian and Russian gas because the volumes of our exports are small compared to theirs and Turkey is able to pay for them".

He argued that Turkey was more reliable than Iran or Russia, "Every year we import gas from Russia and every year we have problems. And as for Iran we have no experience in that sphere."

Nurlana Gulieva is a journalist with Ekho newspaper and Rufat Abbasov is a journalist with Olaylar newspaper in Baku.