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    Azerbaijan: Keeping its Energy Export Options Open

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Summary

    With the Nabucco pipeline project still stuck on the drawing board, Azerbaijan is busy trying to broaden its energy export...

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News By Country, Azerbaijan

Azerbaijan: Keeping its Energy Export Options Open

 



 

With the Nabucco pipeline project still stuck on the drawing board, Azerbaijan is busy trying to broaden its energy export options.

Over the past three months, Azerbaijan has made a number of deals to position itself to prosper in a wide variety of scenarios. First, in August, Azerbaijan announced that Turkmenistan had agreed to ship a small volume of oil via the Baku-Tbilisi-Ceyhan pipeline. Officials in Baku did not provide specifics, but did say that Turkmen exports would account for up to 5 percent of BTC’s overall volume, which amounts to 800,000 barrels per day.

Later, in early September, President Ilham Aliyev signed an agreement with his Russian counterpart, Dmitry Medvedev, that has the potential to vastly expand Baku’s export volume of natural gas bound for Russia in 2011 and beyond. The Russian deal was followed by an announcement that Hungary had joined the lineup to participate in the Azerbaijan-Georgia-Romania Interconnector (AGRI) pipeline project.

Movement on the AGRI front is perhaps the key development. For Azerbaijan, AGRI provides both insurance and leverage for/against Nabucco. The Nabucco route has long been stalled over questions about its economic viability. As currently envisioned, it would have an export capacity of 31 billion cubic meters (bcm) of natural gas per year. AGRI would have a much smaller capacity, about 7 bcm, and cost between $ 2 billion and $4 billion. With the AGRI and Russian export deals in place, Azerbaijan is broadly hinting to Europe that it now has export options other than Nabucco. The European Union, then, should make a decision soon on Nabucco, otherwise Azerbaijan could move in another direction.

Analysts are divided on AGRI’s implications for Nabucco. While some commentators suggest AGRI is an alternative route that could sound a death knell for Nabucco, others see it as a complimentary project, not a competitor. In mid-October, Romanian Foreign Minister Bogdan Auresku insisted that Nabucco and AGRI were both needed to reduce Europe’s dependence on Russian energy exports. “They supplement each other,” Auresku said in comments published in Neft Rossii.

AGRI represents the first deal that would bring liquefied natural gas (LNG) from the Caspian Basin to Europe. One-third of the gas carried by AGRI would go to Romania, and the remainder would be distributed throughout Europe. With Hungary joining AGRI, natural gas exports could easily be shipped to Austria and points westward.

AGRI’s emergence is potentially a more ominous development for the Russia-backed South Stream pipeline. Nabucco’s difficulties concerning financing and suppliers are relatively well known.

Although not as highly publicized, South Stream is possibly facing more daunting obstacles to completion. South Stream, as currently envisioned, would move 63 bcm per year across a deep portion of the Black Sea, a stretch of over 550 miles. Moscow lacks the complex construction technology needed to build it or the money to pay for such an undersea project. Therefore it is demanding that the European partners pay for the project, even as it insists on having majority ownership, and despite the fact that undersea pipelines cost over four times as much to build as do overland routes.

Absent a comprehensive feasibility study, nobody can conclusively verify the parameters given by Moscow for the pipeline, or give a reliable estimate of construction costs. Russia puts South Stream’s tab at $15 billion, while Western analysts say the cost could run as high as $45 billion. It may well be that South Stream is beyond Russia’s means to finance, especially given that it is not even Moscow’s top development priority. And the Kremlin’s top two priorities – the development of the Yamal and Shtokman fields – promise to be vastly more expensive than South Stream’s construction.

No matter what happens with South Stream or Nabucco, Azerbaijan appears to have a backup plan. AGRI potentially has twin benefits for Baku: it could act as a catalyst for Nabucco construction; and positions Azerbaijan as a Caspian Basin leader in LNG exports. Given that Russia is currently poorly situated for LNG exports from a competitive standpoint, the EU could find, via AGRI, that LNG is the direction to move in, if the Brussels is intent on reducing its dependence on Russian energy.



Stephen Blank is a professor at the US Army War College. The views expressed this article do not in any way represent the views of the US Army, Defense Department or the US Government.

 

Originally published by EurasiaNet.org