Russian factor in Baku’s pipeline decision

“I wish Turkey bought not only 6 billion, but all of the 16 billion cubic meter (bcm) gas that is expected to be exported from the Shah Deniz 2 field in Azerbaijan,” said a former civil servant familiar with energy issues.
 
The answer to the question why Baku is not selling all its gas, which would seriously reduce Turkey’s dependence on Russia, lies in Azerbaijan’s energy strategy, which was summed up for me by an energy expert as follows: “Oil is a bread-and-butter issue for Azerbaijan; that is, it uses for its own survival. Gas however is a strategic commodity for Baku; it uses it to place Azerbaijan on the world’s map.”

One of the most important pieces of news came in the last days of June, but has been a little bit overshadowed by the continuous dust of developments in Turkey as well as in the region.

The consortium developing the Shah Deniz II gas reserves offshore Azerbaijan made its decision public on June 28, saying it had chosen the Trans Adriatic Pipeline (TAP) as the supply route to Europe over Nabucco West.

TAP, backed by Norwegian gas and oil firm Statoil, German utility E.ON and Swiss energy group Axpo, is to carry gas from the Turkish border to Italy via Greece and Albania. Nabucco West’s route was Bulgaria, Romania and Hungary, the final destination being Austria.

At first sight it is not that difficult to understand why the consortium has chosen TAP; over Nabucco which had already suffered a serious blow when Baku decided to build the pipeline crossing Anatolia by introducing the Trans Anatolian pipeline project, known as TANAP. TAP is shorter, cheaper and I am sure the consortium can provide a long list of technical details that make it more advantageous than Nabucco West.

But the main difference between the two, which has political implications and therefore might have had a role in the decision-making process, is their final destination. TAP goes south and ends on Italy’s Adriatic coast, in southern Europe; whereas Nabucco West goes north and ends in Austria, the heart of Europe, which constitutes Gazprom’s clients.

In other words, had the consortium opted for Nabucco West, it would have meant that Azerbaijan, Russia’s competitor in the energy market was trying to penetrate Gazprom’s long-monopolized consumer market.

“TAP was a strategic decision on the part of Azerbaijan’s strategy of avoiding antagonizing Gazprom. Even the Russians are happy with this choice,” a Turkish official familiar with the issue told me.

An additional 10 bcm to the European market wouldn’t have shaken Gazprom’s huge presence in Europe, one might think. But this is only the beginning; more gas is expected to reach Europe not only from Azerbaijan, but from the region, which includes Turkmenistan, Iraq and in the longer term Iran. The unavoidable commercial confrontation between Russia and the other suppliers has only been postponed for another decade or so.

In the meantime, while the decision on TAP came as good news to boost Greece’s economy, it might have created disappointment in Bulgaria and Romania as well as Hungary, which were planning to reduce their dependence on Gazprom had Nabucco West won the bid.

In view of SOCAR’s purchase of Greece’s gas grid operator DESFA, I will not be surprised to see Turkey to push behind the scenes for a pipeline connection between Greece and Bulgaria so that the latter can have access to Azerbaijani gas.