Azerbaijan, Turkey talks clear Nabucco path Robert M Cutler
MONTREAL - Long negotiations between Azerbaijan and Turkey that have
contributed to preventing the Nabucco pipeline for natural gas to Europe from
being implemented are nearing a conclusion.
State Oil Company of the Azerbaijani Republic (SOCAR) head Rovnag Abdullaev on
Monday revealed that talks had resumed between his company and its Turkish
counterpart Botas at the
beginning of August, three weeks earlier than the official August 26 date set
for their formal resumption.
Turkey's ambassador to Azerbaijan, Hulusi Kilic, said last week that a gas
export agreement between the two countries would finally be signed in
A bilateral Azerbaijan-Turkey agreement is not by itself sufficient for the
Nabucco pipeline to become a reality, but it is a necessary step that would
mark significant progress along the laborious path to that goal. Nabucco's two
competitors for transiting gas to Europe are the Trans-Adriatic Pipeline (TAP)
and the Interconnector Turkey-Greece-Italy (ITGI). The ITGI's Turkey-Greece
section is operational but the Greece-Italy section is not even under
Instructions to push the talks to a conclusion were agreed between Turkish
Prime Minister Recep Tayyip Erdogan and Azerbaijani President Ilham Aliev, who
met in Baku in late July, and "in September the issue will be solved", Kilic
The talks had been on hiatus due to the June 12 general elections in Turkey,
while in July they foundered over what were called jurisdictional and legal
matters that required a resolution at the political level. Those are the issues
that were apparently resolved during Erdogan's working visit to Azerbaijan.
The early-August business meetings confirmed the reciprocal understandings on
Nabucco reached by the Turkish and Azerbaijani political leaders. The rest of
the month is being devoted to drafting and verifying the implementation
language in the various translations of the 130-page draft agreement. These
will be reviewed at the executive level before final adjustments to the text
clear the way for the accords to be signed.
The agreement covers transmission and sale of gas to be produced by the Phase
Two development of Azerbaijan's offshore Shah Deniz deposit. The Shah Deniz
structure holds an estimated 1.2 trillion cubic meters of gas, and annual
production of 16 billion cubic meters per year (bcm/y) is only the bottom of
the range expected from its second phase, with a top range of 25-30 bcm/y.
Turkey already receives 6.6 bcm/y of natural gas from Shah Deniz One: to this,
6 bcm/y from Shah Deniz Two will be added. It is expected that the remaining 10
bcm/y will transit Turkey to Europe. The Shah Deniz consortium is operated by
BP, which holds a 25.5% share. Other participants include Norway's Statoil
(with a 25.5% share), Russia's Lukoil (10%), Iran's NICO (10%), Azerbaijan's
SOCAR (10%), France's Total (10%), and Turkey's TPAO (9%).
The snag in the current Azerbaijan-Turkey negotiations was over the choice of
the set of rules that would govern the agreement. Before the summit meetings in
Baku, SOCAR's general manager of investments Vagif Aliev had said that the two
sides had already agreed the "main substantive issues" (including transit
payments, gas volumes and possible routes) and that all that remained was "to
convert all these details into a legally binding contract".
An earlier agreement between the two states for gas from Shah Deniz One had
defined British legal jurisdiction as governing the accord. SOCAR had offered
Swiss rules as an alternative for Shah Deniz Two, but Turkey insisted on having
jurisdiction itself. The final resolution of the matter has not been publicly
The Nabucco consortium has for some time pursued negotiations separately with
Turkmenistan and with Iraq to fill the full pipeline up to design capacity of
31 bcm/y. Although there has been significant progress on both accounts, no
authoritative agreement has been reached with either potential partner.
Earlier this year, the European Commission was pushing the Nabucco and ITGI
consortia to cooperate (for example, by constructing an Interconnector
Bulgaria-Greece). This would permit gas imports into Italy in a first stage,
followed later by a possibly reduced second stage following the original
Nabucco route through Bulgaria, Romania and Hungary into Austria. It might mean
beginning Nabucco with gas imports to Europe below the 31 bcm/y projected for
the whole project, since ITGI's design capacity is 10 bcm/y.
The transit section of the three-way agreement among the ITGI states, however,
allows Turkey a 15% lift-off provision, which the Nabucco consortium
consistently (and in the end successfully) refused to concede in its own
negotiations with Ankara. Other than questions about the demand for this gas in
Italy, this variant is not out of the question if it is possible to accommodate
Azerbaijan's concern that it won't be held responsible for costs associated
with any proportion of the pipeline's throughput that it does not use.
Nabucco and ITGI have reached an understanding that would allow such a variant
to go forward through a short interconnector either in Greece or Bulgaria.
However, Azerbaijan wishes to remain owner of the gas that transits Turkey and
also to sell it sooner or later in countries in central and southeast Europe.
Its targets for sale of the gas could including countries not along the Nabucco
design route (Croatia, Macedonia, Serbia, and Slovakia, for example) that could
be integrated into the distribution network with a series of relatively
inexpensive connectors, even creating a gas pipeline ring with independently
If the 16 bcm/y total planned from Shah Deniz Two is later increased to 25
bcm/y - the high end of estimates for production - then it is not out of the
question for gas to transit Turkey to Syria, Jordan, and even Israel: at least
that was the thinking in Ankara before the unrest of the "Arab Spring" and also
the worsening of relations between Ankara and Damascus.
SOCAR official Vagif Aliev was cited in the media in late July as saying, "We
will start selling natural gas to all customers in the Middle East once Syria
is stabilized." While in April this year, Baku and Amman signed a joint
economic cooperation protocol for discussions about oil and gas exports, it is
fair to say that current events have led to this variant's postponement.
Dr Robert M Cutler (http://www.robertcutler.org), educated at
the Massachusetts Institute of Technology and The University of Michigan, has
researched and taught at universities in the United States, Canada, France,
Switzerland, and Russia. Now senior research fellow in the Institute of
European, Russian and Eurasian Studies, Carleton University, Canada, he also
consults privately in a variety of fields.
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