Euro-Caspian energy plans inch forward
By Robert M Cutler
MONTREAL - Azerbaijan's state oil company SOCAR and Kazakhstan's state monopoly
KazMunaiGaz this month signed an agreement setting out the main principles for
a transport system to convey Kazakhstani oil across the Caspian Sea for entry
into the Baku-Tbilisi-Ceyhan (BTC) pipeline and subsequent re-export to world
This represents a step forward in the realization of the Kazakhstan-Caspian
Transportation System (KCTS) that, while long discussed, has become
Kazakhstan's response to Russia's unwillingness and/or inability to implement
doubling of the capacity of the Caspian Pipeline Consortium (CPC) line.
The CPC line takes oil from the Tengiz deposit in northwest Kazakhstan across
southern Russia to the port of Novorossiisk on the Black Sea, to be loaded onto
tankers for transit through the Turkish Straits. But it is also entirely
possible that the oil could come from the offshore Kashagan deposit now under
development, or even from both. (For details of the KCTS, see
Caspian pipelines ease Russia's grip, Asia Times Online, July 8, 2008).
The new document is said to specify quantities of 500,000 barrels per day (bpd)
by 2012, rising to 750,000 bpd later.
This bilateral agreement was signed on the side of a larger meeting in the
Azerbaijan capital, Baku, this month, which saw another significant pact in
which it was agreed to supply Georgia's natural gas consumption requirements
for five years. This agreement represents Azerbaijan's declination of Russia's
recent commercial offer for purchase of all of Azerbaijan's gas production.
While the commercial basis of the offer was excellent, Azerbaijan President
Ilham Aliev averred non-commercial interests that must be considered.
The recent Baku meeting marked the second anniversary and fourth
ministerial-level follow-up to the November 2006 Baku Initiative, itself a
follow-up to a 2004 conference that, in the words of the European Commission
(EC), "set the stage for a new cooperation" among the EC, Armenia, Azerbaijan,
Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkey, Ukraine
and Uzbekistan. Russia was present in 2004 and 2006 as an observer but did not
respond to an invitation to send a representative to the most recent meetings.
It is noteworthy that the original initiative in 2004 preceded Russia's
ostentatious and highly publicized severance of gas supplies to Ukraine at the
start of 2006, a move affecting to varying degrees member states of the
European Union and which drew mass and elite attention in Europe to the
precariousness arising from dependence on Russian energy supplies. In 2006,
Russia supplied 40% of the EU's natural gas consumption and 30% of its oil
These proportions are at present projected only to rise, particularly as the EU
implements its policy decision of a few years ago to increase for environmental
and ecological reasons the proportion of natural gas in its energy consumption
As a result, the EC also adopted, prior to the most recent Baku meeting, a
project for a "supergrid" that would permit member states to share electric
power generated from different sources, including wind farms in the North Sea,
solar energy in Spain and the projected Nabucco pipeline from Central Asia
through Turkey to Central Europe.
The difference between this "supergrid" policy initiative and certain other EU
policy initiatives in the past is that although the framework is a collection
of proposals, these do not appear to be exclusively nationally driven and
therefore unrelated. The inchoate European response to president Ronald
Reagan's Strategic Defense Initiative in the early 1980s, when the
French-inspired Eureka program had little to do with Germany's preferred
European Defense Initiative, is one of the more egregious examples of this sort
of failure to coordinate.
At the same time, the fact that a grand, seemingly integrated design is set out
by Eurocrats in Brussels does not guarantee its realization. Proposals to
construct Trans-European Networks (TENs) in transport, energy and
communications have been around since the policy idea first took hold in the
1980s. Since their implementation depends on autonomous policy decisions by the
EU member states, some of these proposals are implemented and others are not.
Over the past two years, Russia has moved swiftly to set up obstacles to the
realization of the Nabucco project (see:
Another trans-Caspian pipe dream, Asia Times Online, October 24, 2007).
It has proposed its own "South Stream" pipeline, to branch westwards from the
Russia-Turkey Blue Stream pipeline under the Black Sea. It has played the
national interests of EU members off against one another and sought to entice
European energy companies into special relationships that would prevent the
all-European cooperation necessary to realize Nabucco from solidifying into
At present, Turkey appears to be a stumbling block, independent of Russian
moves. According to press reports, Turkey as a transit country for Nabucco gas
is insisting on purchasing, at prices below market, a portion of all gas
transiting via Nabucco, for domestic consumption. Former Azerbaijani president
Heydar Aliev, the current president's father, was able magnanimously to forego
transit fees in order to seal the deal with former Georgian president Eduard
Shevardnadze for construction of the BTC back in the late 1990s. However, it is
doubtful that his son is either willing or able to accord such a privilege to
A key question is where to find the capital for investment in the construction.
This is a matter now affecting energy investment worldwide, and it has yet to
be resolved in the case to hand. This will depend, among other things, on the
future evolution of world energy market prices.
Robert M Cutler (http://www.robertcutler.org) is a Canadian
international affairs specialist.