SOCAR Strives to Dominate the Southern Corridor

Azerbaijan’s state energy company SOCAR is increasingly stepping onto the world stage, with deals – upstream and downstream – in Israel, Georgia, Saudi Arabia, the UAE, Romania and Switzerland. Over the past few months and weeks it has become increasingly clear that the company, and the government it represents, is seeking the greatest prize of all: decisive influence in every stage of the Southern Corridor.

Azerbaijan’s role in the race to bring gas from its Shah Deniz field (and elsewhere in the Caspian) to Europe has become increasingly muscular. The Nabucco consortium, for instance, has acknowledged that it was “surprised” by the agreements on the Trans-Anatolian Pipeline last December between Azerbaijan and Turkey. This created a new situation, in which the Turkish leg of the original Nabucco concept was replaced by TANAP and reduced to a pipeline from the Bulgarian border to Baumgarten in Austria.

The TANAP agreements were a clear demonstration of how Baku, using SOCAR as its agent, is taking each stage of the Southern Corridor into its own hands, from gas extraction to delivery into Europe. As well as being the main political interface between the government and the private sector, SOCAR has serious financial clout: it has enormous resources of its own and can draw on plenty more from government agencies including the overflowing State Oil Fund.

It is of course one of the key players in the Shah Deniz consortium as it debates whether to choose Nabucco West or the competing Trans-Adriatic Pipeline. The nature of the negotiating process within the consortium is secret but given SOCAR’s influence, and its fraternal and longstanding relationship with consortium operator BP, it is likely to exercise significant sway.

Further west, in the TANAP consortium, SOCAR currently holds an 80% stake and has fought repeated attempts by Turkey’s BOTAS to water that down. “SOCAR intends to be the leader in the TANAP project”, deputy Vice-President Vitaliy Baylarbayov told Dow Jones in July. Although other companies involved, notably BP, are likely to seek a stake, expect SOCAR to stay in control of TANAP.

The reason is quite clear: maintaining a dominant position in TANAP will allow SOCAR – and by extension the government in Baku - to avoid being reliant on Turkey or on private companies for the safe and uninterrupted export of its gas. Commercial and regulatory disputes will not shut TANAP down.

SOCAR has also made it clear that it will take a commanding stake in whichever pipeline is chosen to take Shah Deniz gas to Europe. “We have told both Nabucco West and Trans-Adriatic Pipeline partners that we will buy a large stake from the pipeline project we choose,” SOCAR boss Rovnag Abdullayev said in early July. “It will be so large a stake that it will enable us to make decisions.” Note the tone: giving a stake to SOCAR is clearly not up for discussion. Again, by taking a stake in the pipeline from the Turkish border to Europe SOCAR can ensure a degree of coordination between the projects.

This will be difficult, certainly. Other shareholders will not be willing to concede control over their projects without a fight. But SOCAR does appear to be serious about asserting itself. Also in July Abdullayev warned that BP, which had mused about buying a stake in TAP, would have to coordinate with other members of Shah Deniz – i.e. SOCAR – before making any such moves.

SOCAR’s assertiveness is, in one respect, the logical result of its increasing commercial influence and its growing portfolio of operations in Europe. Acquiring stakes in pipelines is an opportunity for SOCAR to turn itself into an international energy company, on a par with Western firms which have been investing in Azerbaijan since independence.

In another regard the attempt to develop integrated control over the whole Southern Corridor is firmly about politics, not just SOCAR’s portfolio. For years Azerbaijan has grown steadily more frustrated with the inability of its partners further to develop a coherent approach to the Southern Corridor.

The days of cohesive US leadership over the BTC and BTE pipelines are gone and the past few years have, instead, seen a multitude of different actors with different priorities and policies. Disagreements and disputes have been rife, from the price dispute between Ankara and Baku which almost derailed the project in 2009 to public infighting in the Nabucco consortium earlier this year.

The Azerbaijani government has been repeatedly frustrated by these rows. Its desire to assert control and ensure that its own strategic goals are achieved was visible most recently in a statement by Energy Minister Natig Aliyev that Nabucco West was the preferred option for Azerbaijani gas. This was an unusual foray into what is nominally a private business matter, and Aliyev subsequently retracted the comments, but his intervention speaks volumes about Baku’s urge to control all the individual strands of the Southern Corridor.

SOCAR is at the forefront of this effort, and the next few months will see it fighting to secure and maintain a commanding degree of influence in the Southern Corridor. Doing what nobody else has, getting all the players in the game reading from the same page, will be a tall order.


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