MONTREAL - In a 1955 essay in The Economist, British historian C Northcote
Parkinson formulated the now well-known "law" forever after eponymously
associated with him, that work expands so as to fill the time available for its
completion. Another of his aphorisms, less well known but still more cogent,
states that delay is the deadliest form of denial. While the European Union was
for years up until a May summit in Prague threatened with this latter lesson,
it may now be Turkey that needs to remember it.
Nearly two months ago, Turkey and the EU finally overcame two outstanding
problems regarding the transit of Azerbaijan's natural gas to Europe across
Turkey: that is, the price to Ankara of the Nabucco pipeline and the legal
framework for domestic Turkish regulation of the venture (see
Nabucco starts to shape up, Asia Times Online, May 15, 2009). That gas
would come from the second stage of development of Azerbaijan's large offshore
Shah-Deniz deposit. Overcoming these problems set the stage for a signing
ceremony in Ankara for the Nabucco project, to be held
on June 25. That date has come and gone, without the ceremony and without the
signatures.
An agreement was, however, signed this week between Baku and Moscow for the
sale of offshore Azerbaijani gas to Russia's Gazprom. Appearances to the
contrary, this was not a dagger at the heart of Nabucco.
It is true that Russia signaled last year to Azerbaijan its readiness to
purchase the country's entire natural gas production into the indefinite
future, an offer that would have killed Nabucco (see
Euro-Caspian energy plans inch forward, Asia Times Online, November 27,
2008). However, Baku declined this "commercial" offer (that is, it took the
world market as a basis for setting prices) explicitly for geopolitical
reasons.
Nevertheless, due to the then diminishing hopes for overcoming the Turkey-EU
disagreements over Nabucco terms, the State Oil Company of the Azerbaijani
Republic (SOCAR) in March this year signed a memorandum of understanding (MoU)
concerning the supply of gas to Russia at market prices. At the time, the MoU
only set the opening of negotiations over the conditions of delivery and price
(see Azerbaijan
can look the other way, Asia Times Online, May 8, 2009). It is those
negotiations that have now eventuated in the most recent bilateral agreement.
The terms of that agreement provide for sale of 500 million cubic meters of gas
per year as from January 1, 2010, with the gas coming from Shah Deniz One, the
first stage of development of the offshore Shah Deniz deposit, gas that
Azerbaijan had been looking to sell to Turkey but which it could not justify
doing so at the present contractual price of US$180 per thousand cubic meters
(tcm).
The price of the identical gas going to Russia under the new agreement will be
nearly twice that at $350/tcm. That this agreement is not a killer, however, is
evident from the projection that Shah Deniz One will produce no less than 9
billion cubic meters per year (bcm/y) as from 2010.
Some concern in Europe should be raised over remarks by Gazprom's chief Alexei
Miller to the effect that Gazprom has been assured priority in the purchase of
gas from Shah Deniz Two. This is the deposit's next development stage, on which
Europe is counting to fill the Nabucco pipeline. Shah Deniz Two is projected to
come on line in 2014, the year that Nabucco will begin pumping if construction
begins as now planned in 2011, with annual volume of between 10 bcm and 15 bcm.
Azerbaijan is unlikely, however, to commit so much to Russia that it cannot
transit important supplies to Europe. This "assured priority" seems to be
something less than "first refusal".
Yet the confirmation this week that Germany's former foreign minister Joschka
Fischer has been co-opted into the Nabucco project as a consultant charged with
accelerating the negotiations with the Turkish government does not inspire the
greatest confidence in the transit itself. To say this is not to denigrate
Fischer's diplomatic abilities but rather to raise the question why they are
required.
When Fischer was in office, he was an articulate advocate of Turkish membership
of the EU; and Turkish Prime Minister Recep Tayyip Erdogan succeeded earlier
this year, against the preferences of the present German government, which
favors the alternative North Stream pipeline, in linking progress on the
Nabucco project with progress in unfreezing the accession negotiations. The
question then asks itself: Why would Fischer's intervention be necessary if
there were no fundamental political problems underlying the details of the
immediate Nabucco negotiations themselves?
Nabucco's gas is designed to reach Germany following transit through the
Balkans and other lands of the former Austro-Hungarian Empire. Despite
disclaimers on all sides, it is a direct competitor with the Russian-Italian
Black Sea-routed South Stream project and an indirect competitor with the
Russian-German sub-Baltic Sea North Stream project (in which project former
Germany chancellor Gerhard Schroeder plays a key political role in the
international energy diplomacy).
Last month, press reports claimed that Russia's Prime Minister Vladimir Putin
had offered to Erdogan to reconvert the South Stream pipeline project back into
the Blue Stream Two project.
The South Stream is a Gazprom-Eni (that is, Russian-Italian) project, still on
the drawing boards, to pipe gas from Russia under the Black Sea to the Balkans
and Europe. The Blue Stream Two project refers to the extension of the existing
Blue Stream, a Gazprom-Eni project that takes gas from Russia, then also under
the Black Sea, to Turkey and making landfall at Samsun. This latter project
would extend the Blue Stream pipeline from Samsun, on the one hand to Bulgaria
and through southeast Europe to western Hungary, and on the other hand to
Ceyhan on the Turkish Mediterranean coast, whence to Ashkelon in Israel and
perhaps beyond.
Turkish circles now refer to the second of these two extensions of Blue Stream
Two as the Medstream (for "Mediterranean") project and distinguish it from the
first extension that would go towards the Balkans. In fact, the projected line
of the South Stream project, which was once planned as an undersea branch off
from Blue Stream One, now would go under the Black Sea from Russia directly to
Bulgaria.
When press reports mentioned that Putin and Erdogan were discussing the
reconversion of South Stream into Blue Stream Two in Sochi in mid-May, it is
therefore possible that this was an observer's misunderstanding, moreover since
taking South Stream and Medstream together obviates any further reference to
the former Blue Stream Two project properly speaking.
This notwithstanding, the Turkish newspaper Hurriyet has recently reported that
the Erdogan government raised again lately the 15% "netback" demand, meaning it
wishes to purchase 15% of the gas at a low price for domestic consumption and
re-export the rest to Europe (see
Azerbaijan can look the other way, Asia Times Online, May 8, 2009). The
newspaper quoted William Ramsay, formerly at the International Energy Agency
and now at the French Institute of International Relations, as explaining that
"Turkey needs to set more transparent rules for its transit regime" and that
"once [this] is done, the gas would flow".
The difference in approaches may come down to a question of organizational
culture: how private companies construct their business plans differs from how
governments construct theirs. Reports suggest that not all members of the
Turkish leadership have fully understood how increasing transparency with its
eventual partners promotes the predictability necessary for the private sector
to have confidence in the business environment.
Even with the resolution of these questions in principle at the Prague summit
in early May, problems may still arise from the degree to which Turkey
perceives such transparency as an imposition of the EU's acquis communautaire
(body of law) in the energy sector (for example, details concerning national
energy strategy and plans to increase energy efficiency).
Thus, the Turkish leadership may not fully appreciate the need to regard such
agreements as a manifestation of a strategic alliance rather than a mere
project partnership. Strategic alliances in industry must shares goals, risk,
control and decision-making, through clearly defined processes. They are more
open-ended than partnerships, which are of limited duration with specific
objectives.
To be sure, the present difficulties in EU-Turkish negotiation exhibit the four
difficulties typical of attempts to establish strategic alliances: instability
due to changing strengths and weaknesses of partners over time; difficulty of
arriving at an objectively agreed evaluation as a basis for negotiation;
identifying unambiguously the common interests to be pursued; and reaching
ultimate solutions.
Turkish sources maintain that the delay in the planned June 25 Nabucco signing
ceremony is due to the time required by participating states to obtain
parliamentary authority to make the necessary commitments. Despite the ruling
Justice and Development Party's majority in the Grand National Assembly in
Ankara, Turkey could be one such state. Whether this represents a genuine lack
of party discipline, the difficulty of drafting the legislative language, or a
further negotiating ploy on the part of the leadership, remains to be seen.
One consolation is that Azerbaijan has no such problems. Its national company,
SOCAR, pioneered the formation and implementation of strategic alliances in the
Caspian Sea region energy development 15 years ago through its participation in
the Azerbaijan International Operating Company that successfully developed the
Azeri-Chirag-Guneshli ("Contract of the Century") oilfield and was a driving
force behind construction of the Baku-Tbilisi-Ceyhan (BTC) main export
pipeline.
This experience and the organizational learning from it by all participants is
a key yet often unremarked element behind the further successes of developing
the Shah Deniz offshore gas deposit and constructing the South Caucasus
Pipeline (SCP) that takes that gas through Georgia into Turkey.
Significantly, no Turkish company has had important participation in either of
these ventures, despite the cooperation of Turkey's state-owned BOTAS with AIOC
in constructing the BTC pipeline and the formal membership of the Turkish
Petroleum Corporation, a state enterprise, in the AIOC proper.
It could be most constructive for Turkish negotiators and decision-makers to
approach the current issues around the Nabucco negotiations by sharing wisdom
with their Azerbaijani colleagues and taking into account the aforementioned
"strategic [industrial] alliance" experience of the latter, with whom they have
deep fraternal relations and no reason to suspect any ulterior motives.
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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