Watch out, the Azeri energy giant is coming, silently but surely

At the risk of repetition, I cannot refrain from saying one more time that Turkey is a land of contradictions. The day you would witness a development that will dash your hopes about the brightness of the future, could be the same day you can see another development unfolding that will have a contrary effect.

The second half of December 2013 will be remembered with the eruption of the corruption scandals, dashing our hopes for a consolidation of Turkish democracy, based on the rule of law, transparency, accountability and independent justice.

Yet the same period will also be remembered as a major turning point in the process that will make Turkey a transit hub for energy resources, doubling its strategic value both regionally and internationally. For, the same day Turkey was shaken by the corruption probe; an important ceremony took place in Baku about a project that some hail as the project of the century.

Backers of Azerbaijan’s Shah Deniz II gas project signed a final investment decision last week that will bring closer the realization of the southern corridor that will transport Caucasian, Central Asian and even Middle Eastern gas to Europe via Turkey. 

It’s been nearly a decade since there is talk about a gas corridor that will decrease Europe’s dependence to Russia by securing diversification of resources as well as supply routes. It takes years for such projects to take place and numerous documents are signed in the course of those years and the accumulated number of signed documents does not guarantee the realization of a project.

Unless something totally extraordinary happens, the signatures last week have taken the project to an irreversible course since the backers of the project mainly BP and Azerbaijan’s Socar has basically pledged their money to extract more gas. From around 2019, Shah Deniz II is expected to supply 6 billion cubic meters (bcm) per year to Turkey and 10 to Europe. This final investment decision will open the way for the new supply routes, the Trans Anatolian Pipeline project (TANAP) and Trans Adriatic Pipeline project (TAP), which will carry Azerbaijani gas to Turkey and from there to Greece, Albania and Italy. 

The 16 bcm natural gas is only an appetizer (to use BP’s Al Cook’s metaphor) and some believe the main course will follow. 

The U.S. hailed the Baku signatures, while the European Commission said the decision to go ahead with the enlargement of the scheme could see it supplying 20 percent of the EU’s needs in the long term.

The same European Commission issued a statement only a few days before the ceremony in Baku, that came as bad news to the Russia-backed South Stream project.

The bilateral agreements for the construction of the pipeline – concluded between Russia, Bulgaria, Serbia, Hungary, Greece, Slovenia, Croatia and Austria – are all in breach of EU law and need to be renegotiated from scratch, the European Commission said Dec 4. 

It seems Russia has no intention of halting the project. At any rate, although they are rival projects, experts believe there is room for both of them, since Europe’s energy demand will be on the rise in the near future. Still the rivalry is there; with Russia on the one side, Azerbaijan – Turkey on the other side.

On Dec 21, Socar has inked an agreement to purchase two thirds of Greek gas distributor DESFA. This is another setback for Gazprom which was also interested in DESFA. U.S. and the EU are believed to play a role in the final choice between Russia and Azerbaijan.

With this latest move, Baku is making it clear that it is not content to merely sell gas at its own border but will participate in pipeline transportation, marketing, and the eventual sales of gas to European customers. 

Azerbaijan has been emerging as a key energy player and so far it managed to go a long way without directly antagonizing Russia. 

The cost for Baku is obviously the freeze of the Nagorno-Karabakh problem; since without Russia’s good will, no solution will be possible to reach.