Azerbaijan Hosts Energy Summit

Publication: Eurasia Daily Monitor Volume: 5 Issue: 220

Presidents and other senior officials from 14 countries in the Caspian, Black Sea, Central European and Baltic regions, as well as U.S. and EU delegations, attended an energy summit on November 14 in Baku. The event signaled political support for connecting Caspian basin oil and gas producer countries directly with consumer countries in the European Union via the South Caucasus-Black Sea transit corridor.

The summit highlighted the host country Azerbaijan’s indispensable role as both a producer and transit country, now emerging as one of the possible guarantors of European energy security. The country’s economic and political stability and its independent foreign and economic policies enabled Azerbaijan to perform this role for the long term, President Ilham Aliyev noted in his introductory address to the forum (APA, November 14).

Lithuanian President Valdas Adamkus recounted to journalists his conversation with Aliyev during the forum about Russia’s offer to buy up all the available gas from Azerbaijan at European market prices, a move that would have killed the Western-favored Nabucco gas transport project. Adamkus quoted Aliyev’s comment: “From a business point of view, the [Russian-proposed] agreement should be signed and everything given to Russia. But there are other values and goals that override a good business proposal” (BNS, November 14).

In his address to the forum, Adamkus called for “immediate action to ensure that gas prices are set by market forces rather than monopoly power, and [to] decrease our dependency on one external supplier by diversifying gas supplies.” He also urged that the EU Commission appoint a special representative for the Odessa-Brody-Plock-Gdansk oil transport project and proposed a special meeting, to be held during the EU’s upcoming Czech presidency, for introducing this project to EU member governments (BNS, November 14).

Appointing a special representative of the EU for this oil project could indeed lend it political impetus; unless that representative is yet another retired diplomat from a country uninterested in the project and who treats it as secondary occupation, preferring to be a city mayor in his country.

Participants in the summit reviewed the ongoing technical and economic feasibility study for this oil project, designed to supply Kazakh and Azerbaijani oil via Georgia and the Black Sea to Odessa and onward through Ukrainian territory to Poland. Opposed by Russia, the project entails a delivery route for Caspian oil bypassing Russia to Odessa, then using Ukraine’s Odessa-Brody pipeline in the originally intended, northward direction, prolonging it to Plock, refining some of the oil volume in Ukraine and/or Poland, and exporting some of the products through the Lithuanian port of Klaipeda. The project consortium, Sarmatia, was reconstituted during the Vilnius energy summit in October 2007. It includes Azerbaijan’s State Oil Company, the Georgian Oil and Gas Company, the Ukrainian pipeline operator UkrTransNafta, Poland’s oil pipeline operator PERN, and Lithuania’s Klaipedos Nafta maritime export terminal for oil products.

Kazakhstan has long evidenced interest in joining this project and held consultations with Ukraine on this issue in the framework of a bilateral intergovernmental commission shortly before the Baku summit. Thus far, however, Russia has blocked the transport of Kazakh oil to Ukraine through Russian territory. Ukrainian President Viktor Yushchenko called for high-level political support for the Odessa-Brody project, since it is “impossible to implement this project on a purely commercial level” (Interfax-Ukraine, November 14). Yushchenko, however, did not improve overall confidence in the project when he told journalists that his political rival, Prime Minister Yulia Tymoshenko, would not support the northward use of the Odessa-Brody pipeline (UNIAN, November 14).

Turkish President Abdullah Gul displayed his country’s ambitions to become a transit corridor and “hub” for staggering volumes of oil and gas. In his speech to the Baku forum, Gul listed the existing and projected oil and gas pipelines through Turkish territory: Baku-Ceyhan, Kirkuk-Ceyhan, Samsun-Ceyhan, Blue Stream, Baku-Erzurum, Turkey-Greece-Italy Interconnector, Nabucco, a pipeline from Iran, and the hoped-for trans-Caspian line (Anatolia news agency, November 14). The lion’s share of those volumes originates in Azerbaijan at present and will continue to do so in the medium term. Meanwhile, however, elements in the Turkish government pose onerous conditions for Azerbaijani gas exports through Turkey, which is one of several factors delaying the Nabucco project.

During the forum, Azerbaijan’s State Oil Company signed a five-year contract for gas supplies to Georgia. As initially reported, the contract involves 892 million cubic meters per year, two thirds of it from the Shah-Deniz offshore field, at an average cost of $ 527 per one thousand cubic meters during the five-year period. President Mikheil Saakashvili noted that this agreement frees Georgia from dependence on Gazprom; and Prime Minister Grigol Mgaloblishvili remarked that Georgia had for the first time signed a long-term agreement that would guarantee energy security and stability in the country in the years ahead (Turan,, Rustavi-2 TV, November 15).

Azerbaijan had practically rescued Georgia in 2006 through emergency deliveries of low-priced gas during Russia’s blockade. The five-year agreement just signed demonstrates that Azerbaijan is not succumbing to the Kremlin’s proposals to buy up Azerbaijan’s gas exports.