GAS BONANZA IN AZERBAIJAN.

British Petroleum-Amoco has announced a “world-class gas discovery” at Shah-Deniz, the Azerbaijani offshore deposit which had until recently been deemed to contain mostly oil. Analysis of the first test well has led to the conclusion that Shah-Deniz contains–in addition to oil–between 400 and 700 billion cubic meters of gas, BP-Amoco Azerbaijan operations chief Andy Hopwood announced at a news conference in Baku. The company expects the two follow-up test wells to come up with similar results. Once on stream, Shah-Deniz should alone enable Azerbaijan to export between 16 and 20 billion cubic meters of gas annually.

Situated in the southern portion of Azerbaijan’s Caspian sector, Shah-Deniz is being developed under a 1996 contract with an estimated investment value of US$4 billion. That estimate stands to be revised in light of the gas wealth just revealed. The consortium includes BP-Amoco as project operator with a 25.5 percent stake, Norway’s Statoil with 25.5 percent, Elf Aquitaine of France with 10 percent, the Russian-Italian partnership LUKoil-Agip with 10 percent, and the state oil companies of Azerbaijan, Iran and Turkey with stakes of 10 percent, 10 percent and 9 percent, respectively. Several other southern Azerbaijani offshore fields are now believed to contain greater gas and gas condensate reserves than previously estimated (AP, Reuters, Turan, Assa-Irada, Anatolia News Agency, Financial Times, July 10-12).

The implications of the Shah-Deniz discovery are manifold. First, it should reactivate international interest in Azerbaijan’s offshore mineral deposits in the wake of disappointing tests at two offshore oilfields in the northern part of its sector. Second, the gas discovery should boost the prospects of the planned Baku-Ceyhan (Turkey) oil pipeline, which becomes more profitable if paired with a gas pipeline along the same route. Third, Shah-Deniz’ export potential should squash the Gazprom-ENI “Blue Stream” project to pipe Russian gas via the Black Sea to Turkey. And, fourth, the discovery in Azerbaijan confronts Ashgabat, Ankara and Washington with the problem of rescuing Turkmenistan.

Turkmenistan recently concluded a set of agreements to export gas to Turkey–and potentially to Balkan countries via Turkey–through a trans-Caspian-South Caucasus pipeline, to be built by Gas Power Services, a consortium of the United States companies Bechtel and General Electric (see The Fortnight in Review, February 26). Azerbaijan is now, however, targeting the same Turkish gas market, and, by dint of geographic proximity, it can easily outcompete Turkmenistan. While Turkmenistan has a head start on Azerbaijan in that competition, the Shah-Deniz discovery will inhibit investor interest in the Turkmen export pipeline project and may condemn Turkmenistan to more years of isolation and poverty–the very situation that the United States and Turkish governments have sought to change. Should the trans-Caspian pipeline be aborted, Turkmenistan would be reduced to two unpalatable export options: bowing to Gazprom’s extortionate terms for limited use of Russian transit pipelines, and/or transiting some gas via Iran against Washington’s objections and against Ashgabat’s own best interests. The solution to these dilemmas would seem to lie in expanding the market for both Turkmen and Azerbaijani gas exports beyond Turkey into the Balkans, southern and Danubian Europe, even if it means encroaching on some of Gazprom’s market preserves and deflating Gazprom Board Chairman Viktor Chernomyrdin’s inordinate expectations of Western rewards for his doubtful services in Kosovo.

ALIEV, BACK AT THE HELM, EXPLORES ACCOMMODATION WITH OPPOSITION CIRCLES.