Azerbaijan's Position in Europe's Energy Diversification Plans
The European Union is pushing for a merger of the Nabucco and Interconnector Turkey-Greece-Italy (ITGI) natural gas projects to secure supplies from Azerbaijan to Europe, Reuters reported Feb. 17. Media citing unnamed EU industry and political sources reported — and a Nabucco spokesman confirmed — that the European Commission is urging representatives and stakeholders of both of these projects to merge their operations to keep costs down and make the project technically and commercially viable. This is not the first time such an idea has been proposed, but this push comes as Azerbaijan is expected, within the next few months, to announce which supplier and project will get the rights to its Shah Deniz II natural gas field.
These interrelated developments shed light on the technical and financial impediments to these future energy projects, though the central player — Azerbaijan — will continue its strategy of supporting all projects in order to gain political and economic leverage over the West, Russia, Turkey and Iran.
Azerbaijan’s Strategic Position
Azerbaijan plays a key role in any European plans to diversify energy supplies away from Russia
Several such southern-corridor projects have been proposed or discussed among the Europeans. Of these, the most ambitious project is Nabucco
Impediments to Southern Corridor Projects
Many of these projects, particularly Nabucco, have been met with countless summits and much fanfare as the answer to Russia’s firm energy grip on Europe, which Moscow has used to gain substantial political leverage. However, all of these projects face significant impediments. From a technical perspective, it is very difficult and costly to build pipelines across the mountainous terrain of eastern Turkey or under bodies of water like the Adriatic Sea, and all of these projects would need to traverse one or the other. Also, the slated completion date — around 2015 for most projects, which just happens to be the completion date for South Stream, another Russian rival project — is all conjecture at this point. Finally, and most importantly, none of these projects is actionable without a reliable source of natural gas. This is where Azerbaijan comes in. However, all of Azerbaijan’s natural gas is currently contracted out to its immediate neighbors: Turkey, Russia, Iran and Georgia. This is why Azerbaijan’s Shah Deniz II gas field on the Caspian Sea is crucial to the European’s energy plans: It is projected to increase Azerbaijan’s output considerably, from roughly 10 bcm currently to 25 bcm once the field comes online, with most of the natural gas from Shah Deniz II available for export.
However, the natural gas produced by this field is not expected to come online for years — in fact, it was recently pushed back to 2017-2018 due to price rows between Azerbaijan and Turkey. Therefore, all the projects are effectively competing with each other for limited supplies. This is why Azerbaijani state energy firm SOCAR’s announcement of which supplier gets rights to the field, expected in June, is so important. According to Italian energy firm Edinger, approximately 20 international energy companies are competing for Shah Deniz II gas.
This puts into context the recent reports of a merger between Nabucco and ITGI, showing that stakeholders of both projects could believe that combining the two plans may be the only way for either project to be realized. This merger would see the projects combined and built in two phases — first the “Southern Corridor Phase I” to Greece and Italy, and then a “Southern Corridor Phase II” that would spur north to Austria. But this is not the first time such a plan has been proposed with little subsequent movement, and there are substantial reasons for this. Even if the two pipelines merge, it is unclear what exactly the route of the new pipeline will be to Europe. And if the southern phase is built first to countries like Greece and Italy, this will leave precious little supplies for Central European countries like Poland, who have been most active in pushing for diversification away from Russia
The Politics of Energy Projects
Despite all these impediments, Azerbaijan has done everything in its power to hype these projects, as can be seen in Azerbaijani President Ilham Aliyev’s recent statement that “Azerbaijan supports all southern gas corridors.” Azerbaijan uses such projects — no matter how unrealistic — as a geopolitical strategy to get political and economic leverage with all players, including the West, Russia, Turkey and Iran. This exploitation could be seen when Russia offered to pay Azerbaijan
This is not to say that Azerbaijan has free rein; Baku has constraints of its own. Azerbaijan is under pressure from Russia, which has significant levers in Baku
It is within this environment that Azerbaijan will continue to maneuver to play its strategic position to its geopolitical benefit.
Latest from Azerbaijan
We would like to hear your opinion about the new site. Tell us what you like, and what you don't like in an email and send it to: firstname.lastname@example.org