Baku oil price deal moves Nabucco forward
Robert M Cutler
MONTREAL - An anonymous but highly placed representative of the Azerbaijan
state oil company, SOCAR, confided to Trend News Agency in Baku last week that
agreement has been reached with Turkey concerning the price of Azerbaijani gas
and its transit through Turkish territory.
The fact of an earlier "agreement in principle" had been informally leaked to
the press two months ago, but the SOCAR representative now specifies, according
to the Trend News Agency, that the agreement concerns not only "principles [but
also] concrete numbers" that he did not specify but qualified as "commercial",
that is market prices. (For background, see
Locks turn in Nabucco door, Asia Times Online, March 12, 2010.)
Moreover, he affirmed that this agreement (which still has to be
translated into memoranda, contracts, and transit agreements) concerns not only
the price for gas delivered since the expiry of the first bilateral contract in
2008, but also a new bilateral contract for additional gas for Turkish domestic
consumption as well as for further gas from the Shah Deniz Two deposit to be
developed as a source for the Nabucco project.
Nabucco is planned to take gas from the Caspian Sea basin through Georgia and
Turkey to the Baumgarten hub in Austria for distribution throughout the
European Union, via Bulgaria, Romania, and Hungary. It was undoubtedly on this
basis of the Azerbaijani-Turkish agreement that Nabucco chief Reinhard Mitschek
declared last week that the project was on course for entry into service in
2014, for which date construction would begin next year.
There also appears to be progress on the sourcing of Nabucco's gas. Azerbaijan
recently announced that it would be able to supply not just the 8 billion cubic
meters per year (bcm/y) foreseen for the first phase but indeed as much as 12
bcm/y. Added to the 8 bcm/y agreed by Turkey with Iraq for Nabucco, this would
fill two-thirds of Nabucco's planned 31 bcm/y capacity. Although there are
several putative sources for the remainder, all that is really necessary now to
make up the difference is to arrange for the 10 bcm/y Turkmenistan government
has promised to the EU, and which can be set up through interconnection of
offshore gas rigs in the Turkemenistani sector of the Caspian Sea to offshore
gas rigs in the Azerbaijani sector.
At almost the same time as the announcement of the Azerbaijan-Turkey agreement,
Austria, which already receives 60% of its gas from Russia, joined the
Russian-sponsored South Stream gas pipeline project. This is projected to run
under the Black Sea to Bulgaria, and then bifurcate with one branch going to
Italy via Greece and the other to Austria via Romania, Serbia, Hungary (or
Croatia), and Slovenia.
Last year, Russia announced that it would more than double South Stream's
capacity to 63 bcm/y from 31 bcm/y. Paradoxically, Moscow has already expressed
interest to Kiev to participate in upgrading the Ukrainian pipeline system. If
it followed through on this, then the South Stream project would become
superfluous due to increased throughput to Europe via Ukraine. (See
Ukraine seeks pipeline threesome, Asia Times Online, April 9, 2010.)
Yet the very day that Austrian Chancellor Werner Faymann arrived in Moscow to
sign that agreement with Russian Prime Minister Vladimir Putin, the Nabucco
consortium launched the (pre-qualification) tendering process for procurement
to identify companies for supply of pipes, valves, and other capital-intensive
construction items that require long lead times for production. This is a mark
of seriousness on the part of everyone concerned.
Although there has been much ink spilt over the competition between the
EU-endorsed Nabucco pipeline and Russian-sponsored South Stream project,
Nabucco is also in competition with two smaller European projects that require
remarks in this context. One of these is the Trans-Adriatic Pipeline, first
projected to reach Italy following a northern route through Bulgaria,
Macedonia, and Albania but was in the end to transit via Greece and Albania. It
ambitiously projects carrying 10 bcm/y in its first phase, a quantity
subsequently to be doubled.
This is not to be confused with the ITGI (Interconnector Turkey-Greece-Italy)
project, which comprises two subprojects, ITG (Interconnector Turkey-Greece)
and IGI (Interconnector Greece-Italy). The IGI would not transit Albania to
Italy but rather go under the Ionian Sea from Greece directly to the tip of the
"heel" of the Italian boot. It would also include an onshore pipeline in Greece
connected to the ITG, which has been operational for some time.
The ITGI project depends upon Turkey's definition of the modalities for its
participation in the project and agreement for defined upgrades of the Turkish
pipeline system, including additional compressor stations. This is the project
that its Italian sponsor, Edison, has suggested as "Nabucco light" or,
alternatively, a first stage for Nabucco.
Edison's representatives maintain that Azerbaijan could by itself supply the
ITGI's 8 bcm/y projected capacity; this is the quantity that Azerbaijan had
declared ready to provide Nabucco before recently declaring the above-mentioned
12 bcm/y figure. ITGI representatives have lately been mentioning 10-12 bcm/y
as the possible capacity for their project. Thus there are numerous rapidly
developing subplots to the principal Nabucco-South Stream drama.
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.