So Who Really Holds the Key to the Puzzle?!
The media is abound with forecasts on the long awaited export routes that the operating consortium will chose for transport of gas from the second phase of the development of the giant Shah-Deniz field. Major voiced criterion is said to be "the most commercial" and "technically feasible" route. That is to say, the destination where the gas prices are the highest and demand is expected to be just enough to absorb new volumes will determine the route from the Turkish border into EU gas hubs. However, less attention has been paid to the downstream interests of the producer and the Shah Deniz consortium as a whole.
Being an energy exporter, whose single biggest revenue is derived from hydrocarbon exports, Azerbaijan (along with the consortium partners) is strategically interested in maximising the profits from gas sales. In this regard, it is of national interests for Baku not only to access the EU markets but also to secure its ability to choose among the consumers who offer the best - competitive - prices. Given that the EU “gas market" is polarised along the regional and national sub-markets, ability to access different consumers - i.e. downstream access - will be the key for ensuring the most commercial marketisation of the exported gas. Such a necessity also, by definition, requires the ability of the exporter to control the flow of gas all the way down to the end consumers - via acquiring (preferably controlling) stakes in midstream trunk-lines. The recent media releases hinted that SOCAR can be the newcomer to fill in the gap after/if RWE pulls out of Nabucco West.[1] With this in mind, it takes a small leap to see the link between Nabucco’s TPA exemption and SOCAR’s strategic interests. The European Commission has granted Nabucco stakeholders exclusive rights to use 50 percent of the pipeline's capacity for their own needs. Therefore, SOCAR's acquisition of the stake will ensure its ability to channel its share to the end consumers it sees as being commercially most attractive. In this vein, the strategic interests of the government lies in its ability to control its (at least half if not all of) gas along the whole value chain down to the end consumers, which will determine the outcome of the pipeline race in the Southern Gas Corridor.
In the context thereof, TANAP wasn't simply a solution for the Gordian Knot in reaching out to the European markets and compensating for the EU's inability to foster a project of European interest. The West end of the pipeline will stop at the EU's doorstep - a fore-post - from which SOCAR and its partners will be able to make up their mind on not only which pipeline to choose (TAP or Nabucco West), but also to cooperate with Gazprom if strategic interests so dictates. Ambassador Roland Kobia, Head of the Delegation of the EU to Azerbaijan recently admitted the possibility of Azerbaijan selling gas to South Stream if it wants to reach the EU before 2018, the imaginary date for the Shah Deniz II coming on stream. Given the diminishing rents of the government from declining oil exports, such a possibility seems quite plausible, even if not via TANAP. Quite ironic though: the antidote can be the EU's nemesis.
The mentioned article also argues that the Russians won the battle, although the outcome of the war is yet to be determined, which is not in the hands of RWE (a leaving Nabucco shareholder) but in the hands of Azerbaijan.[2] It seems rather that the key to the “victory” is in the hands of the EU and its political will to grant the alternative producer reasonable downstream access to the European markets. Baku cannot afford to sign up for a project that will tie its hands and leave the gas in the hands of consumers - so called middlemen - and stain its reputation if it decides to later abandon it.
SOCAR goes global?!
TANAP also gives SOCAR a backdoor in the long-term perspective if the hopes attached to the European markets do not bear the expected fruit. The possibility of building an LNG (liquefaction) plant in Georgia has long been discussed in the media circles, although such a plan would undermine Turkish national interest. However, if a liquefaction plant is built in Turkey, this will be compatible with Ankara's interests of making the country the main transit route for the Caspian gas, as well as entail additional investment into the country’s economy. With an LNG plant SOCAR will be able to not only directly supply polarised markets in and around Europe but also evacuate gas into the Asian markets in situations when European demand slumps while Asian energy thirst increases due to the economic boom or accident-triggered necessity, similar to the one experienced after the Fukushima Daiichi disaster in 2011. The rules of the game are yet to be finalised on the yet to be formalised EU natural gas market, and while Gazprom is making its way into the South Eastern Europe, Shah-Deniz consortium will wait until the necessary conditions are ripe for its long term interests.
It is still a "long" way until 2018 though and therefore any projections about the outcomes of the pipeline race can only be guessed, but never predicted with precision. As Jack Hayward artfully captures this deficiency of the science of the political – “political scientists have the capacity to offer some hindsight, a little insight and almost no foresight".
Faig Galib Abbasov is a PhD researcher focusing on the energy politics surrounding the EU and the Caspian basin at the University of Sheffield, United Kingdom. He can be contacted at: f.abbasov@sheffield.ac.uk