EurasiaNet Business & Economics - Energy Summit in Baku Advances Regional Energy Cooperation

BUSINESS & ECONOMICS

ENERGY SUMMIT IN BAKU ADVANCES REGIONAL ENERGY COOPERATION
11/24/08
A EurasiaNet Commentary by Shahin Abbasov

Agreements signed at Baku’s recent Energy Summit mark a significant show of Azerbaijani support for projects that could break Moscow’s regional stranglehold over export routes. The documents are the first such affirmations since the August war between Georgia and Russia. Local experts caution, however, that implementation of Baku’s pledges is contingent on world energy prices and the global financial crisis, as well as on the South Caucasus’ changing geopolitical climate.

The November 13-14 summit’s final declaration, signed by 15 countries and the European Commission, expressed the intention to "support [the] further policy of diversification of oil and gas supplies from the Caspian region to . . . European markets."

The event attracted officials from more that 20 countries, including six presidents (Azerbaijan, Turkey, Poland, Georgia, Ukraine, and Lithuania), three prime ministers (Hungary, Bulgaria, and Estonia), five energy ministers (US, Kazakhstan, Romania, Greece, Latvia), and the European Union Commission. Russian government and energy industry representatives did not attend the event.

Two intergovernmental agreements signed by Azerbaijan during the summit -- with Georgia for a five-year supply of Azerbaijani gas and with Kazakhstan for the annual export of 25 million tons of oil via Azerbaijan -- promise to have a more immediate and practical application, however.

Azerbaijan’s contract with Georgia affirms that it will supply gas to Georgia at "mutually acceptable prices," but without specifying figures. In exchange for providing "stable" gas supplies and unchanged prices until 2013, the State Oil Company of Azerbaijan (SOCAR) will gain access to Georgia’s regional gas distribution market beginning in January 2009.

An agreement on the transfer of 30 regional distribution operations to SOCAR should be signed in December, according to one SOCAR official.

Azerbaijan’s role as an energy transportation hub for the Caspian region was also advanced. Under the terms of Baku’s agreement with Kazakhstan, the Trans-Caspian Transport System (TCTS) will ship 500,000 barrels (25 million tons annually) of Kazakh oil daily via the Caspian Sea to Azerbaijan by 2012, the same year Kazakhstan’s Kashagan field comes online. The line’s capacity will eventually increase to 750,000 barrels per day. Oil will be shipped to European markets via the Baku-Tbilisi-Ceyhan pipeline and via the Georgian Black Sea ports of Batumi, Poti and Kulevi.

Despite its agreement with Azerbaijan, Kazakhstan and fellow regional gas powerhouse Turkmenistan did not endorse the summit’s final document. Even so, Azerbaijani analysts largely consider the summit to be a success for emphasizing participants’ commitment to diversifying energy supplies away from Russia.

"The political part of the issue, that is, the expression of political will, is solved," political analyst Hikmet Hajizade commented.

"The signing of two agreements in Baku with Georgia and Kazakhstan is an important sign of will by regional countries to diversify their energy policy," noted Rauf Mirkadirov, a political columnist for the Baku-based Zekralo daily.

But the show of unity belied differences over the role of the proposed Nabucco gas pipeline project. One Azerbaijani government source told EurasiaNet that the summit’s draft statement included no mention of Nabucco, instead focusing on the already existing Baku-Tbilisi-Ceyhan oil pipeline and the Baku-Tbilisi-Erzurum gas pipeline.

Representatives of the United States, Georgia, Estonia, Romania and Bulgaria spoke out against the draft text, and urged delegates to make explicit their support for Nabucco, according to the source, who asked not to be named. Kazakhstani Energy Minister Sauat Mynbayev also supported this position, the source said. The disagreements reportedly caused the cancellation of the energy ministers’ November 13 press conference.

The differences were resolved the next day. The summit’s final Declaration includes all those controversial issues that could provoke Moscow’s anger -- aside from Nabucco, support for the Interconnector (Turkey-Greece-Italy) and Odessa-Brody-Plots-Gdansk pipeline projects.

According to analyst Hajizade, though, the fate of projects such as Nabucco increasingly depends less on Russian opposition and more on world energy prices and the global financial crisis. If the crisis drags on and "oil prices will stay low, the implementation of many . . . [energy] projects would come under question," he said.

The lingering confrontation over the South Caucasus between Russia and the United States will still play a role, Mirkadirov, the newspaper columnist, noted. "[T]his confrontation affected the Baku Summit -- disagreements on the Declaration text and the fact that Turkmenistan and Kazakhstan did not join it," Mirkadirov said.

For now, though, the US government asserts that it is up to the challenge. Commented US Energy Secretary Samuel Bodman to summit participants: "The war in Georgia showed how important the diversification [of energy supplies] is."

Editor's Note: Shahin Abbasov is a freelance correspondent based in Baku. He is also a board member of the Open Society Institute-Azerbaijan.

The Central Eurasia Project aims, through its website, meetings, papers, and grants, to foster a more informed debate about the social, political and economic developments of the Caucasus and Central Asia. It is a program of the Open Society Institute-New York. The Open Society Institute-New York is a private operating and grantmaking foundation that promotes the development of open societies around the world by supporting educational, social, and legal reform, and by encouraging alternative approaches to complex and controversial issues.

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