BTC and the Southern Corridor
BTC and Beyond: Can the BTC Experience be Replicated in the Southern Corridor?
This was the main question asked in a conference organized by the European Center for Energy and Resource Security (EUCERS) in collaboration with the European Azerbaijan Society (TEAS) and the German Institute for International and Security Affairs (SWP) at the King’s College, London, on the 24th of October.
The Southern Corridor is mainly about the natural gas of Azerbaijan, at least in its initial stage. And Azerbaijan’s energy resources have been developing in two phases. The first phase has been about oil. The dynamism in the region in the early 1990s started with oil. Today, the oil policy of Azerbaijan is already and successfully set. At the downstream the main discovery has been made at ACG, the main pipeline, BTC (Baku-Tbilisi-Ceyhan), together with a number of alternative options has been established, and there are no issues in terms of finding buyers for the sweet and light Azeri crude. Even the recent dissatisfaction of the Azerbaijani government with BP seems to be resolvable within the established and functioning framework.
The same is not the case with the natural gas. The country produces more than 20 bcm, exporting close to 10 bcm of that to Turkey, Georgia and Russia. The development of the natural has not come close to realizing the country’s true potential, which could easily increase threefold. Hence the question asked at the conference, with an implicit observation that the development of natural gas resources, exemplified with the delay in building the transport capacity to European markets, has not been moving as efficiently as its oil counterpart, BTC.
Comparing the future gas pipeline to the old BTC reveals interesting insights, which could shed light on the perceived delay of the former. First, exporting natural gas by its very nature is more difficult than that of oil. Unless multiyear buyers and reliable routes are secured one does not start investing to produce. Second, the planned gas export into European markets involves more actors that what was needed for Azeri oil and the first stage of its natural gas. Instead of the three countries (Azerbaijan, Georgia and Turkey), the second stage needs the involvement of at least three more countries. One of the axioms in social sciences states that as the number of the actors goes up cooperation becomes more difficult.
The third factor is about the amount and cost of gas compared to the price uncertainties in the European markets several years from now. Fourth and fifth, there have also been issues of inter-bureaucratic hostility and the lack of leadership chemistry. But I would claim that the sixth reason is also the most important one: the lack of an international leader commensurate to the immense scale of the project. The United States, the only country with political, economic, bureaucratic and soft power capacity to shoulder the project has been conspicuously absent from the start. The half-hearted and occasional support by the EU has never been a match to the required leadership. In fact, the very lack of international leadership has amplified, if not created, the problems stemming from the nature of the product, the large number of actors, the volume and price uncertainties, regional leadership chemistry and bureaucratic miscommunication.
This said, the perceived delay in natural gas compared to oil is a little bit exaggerated. Only in the late 2007 did one see optimistic calculations indicating that Azerbaijan could further increase the volume of the produced and exported gas. Even if we take this date as the time of the agreement, only five years passed since then. It took eight years to start the BTC pipeline after the contract of the century was signed in 1994. The gas pipeline is not lagging behind that badly.
More importantly in terms of addressing the question posed by the conference, there have been significant developments in terms of Azerbaijani natural gas. Nobody talks about the classic Nabucco pipeline anymore. ITGI has left the scene as well. Another option, proposed by BP, the South East Europe Pipeline, has also disappeared into the thin air. And then, Azerbaijan and Turkey came up with a proposal to build TANAP to carry the gas to the western borders of Turkey. All of these have made the picture much clearer compared to only a year ago. The options are narrowed down significantly.
The fateful decision pushing things from the dead point came from Azerbaijan/SOCAR, with the announcement of the TANAP pipeline in November of 2011. This is the single most important move since the idea of further development of Azeri gas resources emerged in 2007. The Gordian knot has been untied with a simple and brilliant strike. The proposal effectively cut the pipeline project into three stages; Azerbaijan-Georgia, Azerbaijan-Turkey, and the EU leg. This means lowering the number of actors and increasing the chances of effective cooperation. The announcement of TANAP has also been the strongest signal putting an end to gossips about misunderstandings between Baku and Ankara. The simplicity and boldness of this move by Azerbaijan is indicative of the leadership that the overall project has needed from the start.
Azerbaijan is no United States, and there will be huge challenges for it in this gargantuan undertaking. But Azerbaijan and SOCAR are not what they were in the early 1990s. Mainly because of the successful development of the Azeri oil, they have more financial, human and managerial resources. The most valuable asset they have accumulated in the process is apparently the confidence in leadership and initiative-taking. During the BTC years, the leadership and financial-technical resources were coming from elsewhere. 18 years after, Azerbaijan is coming up with the initiative, the leadership, the financial reserves, and a significant portion of technical-human resources in a project of a global scale, where no one else satisfactorily stepped up. Azerbaijan has been the one to solve the puzzle. And despite all the limitations and challenges lying ahead, this kind of a bold move needs to be appreciated by everyone who will benefit, specifically the Shah Deniz Consortium. The psychological stereotypes viewing Azerbaijan and SOCAR in the 1990s need to change. This, in fact, could be the biggest obstacle for the realization of the Southern Corridor.
Dr. Elnur Soltanov is Chair of the Caspian Center for Energy and Environment (CCEE) and Assistant Professor at Azerbaijan. Diplomatic Academy, Baku.