The governments of Azerbaijan, Kazakhstan, Russia, Iran and Turkmenistan gathered in the Kazakhstani port city of Aktau, on August 12, and signed the Convention on the Caspian Sea’s Legal Status. Among other important points, Article 14 of the Convention recognizes the parties’ right to lay underwater pipelines or cables in the Caspian, subject only to the agreement of the countries through whose maritime sector the pipeline or cable traverses (Kremlin.ru, August 12). This key provision affects the prospects of constructing the Trans-Caspian natural gas pipeline (TCP), which had been stalled for years, mainly due to the Caspian’s undefined status (see EDM, February 6).
The Convention also essentially mandates that coastal states all coordinate their views regarding the compatibility of any such proposed pipeline with environmental standards. That means each of the five Caspian littoral states will be able to weigh in on questions of the environmental impact of transboundary pipeline projects (Mid.ru, August 17), which could become a new instrument some regional players might use to try to delay the construction of the TCP (Kommersant, August 12). Indeed, Moscow and Tehran had for years insisted that the TCP’s construction be subject to preliminary consent of all the littoral states based on environmental concerns (see EDM, June 27).
Prior to the August 12 Caspian summit, a number of important developments appeared to improve the likelihood of the TCP finally being built. One year earlier, while in Baku to sign an energy-sector memorandum of understanding (MoU) with Azerbaijan, Turkmenistan’s President Gurbanguly Berdimuhamedov called for expanding cooperation on new joint energy projects (President.az, Trend, August 8, 2017). And last February, a delegation from Turkmenistan for the first time participated in an advisory council meeting of the Southern Gas Corridor (SGC), held in Baku (Caspiannews.com, March 5). There, Turkmenistani and European Union officials discussed the TCP and prospects of Turkmenistan exporting its gas westward, via the SGC (Haqqin.az, February 17). Particularly following the serious Russian-Ukrainian gas crisis of early 2009, the EU has been an active broker between Azerbaijan and Turkmenistan on the TCP. Brussels has registered the TCP among its “Projects of Common Interest”; allocated financing for the project’s commercial engineering, feasibility and environmental studies; as well as mandated that the European Commission negotiate a legally binding treaty with Baku and Ashgabat (Eur-lex.europa.eu, November 23, 2017; Ec.europa.eu, May 1, 2015, May 2018; Europa.eu, September 12, 2011; Oilgas.gov.tm, June 11, 2018). However, all these efforts stalled due to the Caspian’s status, China’s increasing share in Turkmenistan’s gas export; as well as Ashgabat’s unwillingness to finance the project and grant the participating companies Production Sharing Contracts (see EDM, February 6).
Along with Azerbaijani gas, Turkmenistan’s vast reserves could significantly boost the economic viability of the SGC. During her recent visit to Baku, German Chancellor Angela Merkel highlighted the importance of the SGC for the EU’s diversification needs (President.az, August 25), while the Financial Times notably reported that Germany is interested in developing this supply route to ensure the EU has sufficient alternatives (including Turkmenistan) to imports from Russia (Financial Times, August 21). That comes amidst United States President Donald Trump’s criticism over Berlin’s embrace of the Russia-to-Germany Nord Stream Two (NS2) pipeline (see EDM, May 10). Nonetheless, while in Georgia, Merkel was more cautious, stating, “we can obtain gas” from Azerbaijan, but not as cheaply as “we receive” from Russia, [therefore] Germany cannot say “no” to Russia’s gas supply (TASS, August 24). Earlier this year, Pravda suggested that the EU and Russia had made a mutual tradeoff: i.e., the EU dropped its overt opposition to NS2 and, in response, Moscow withdrew its objections to the TCP (Pravda.ru, February 21).
During his joint press conference with Merkel, Azerbaijan’s President Ilham Aliyev mentioned that the TCP “should be of more interest to the owner of the gas; transit countries should not have to show initiative here.” To illustrate his point, Aliyev noted that Azerbaijan, as an owner of gas, initiated the construction and financing of the SGC project. Therefore, he added, “if there is a decision in the eastern part of the Caspian Sea [alluding to Turkmenistan] to supply gas to the world market via the territory of Azerbaijan, we would certainly consider this with great interest” (President.az, August 25).
Azerbaijani Energy Minister Parviz Shahbazov has noted that, “The volume of gas transported” via the SGC “may be increased [with] gas from Turkmenistan” (Trend, May 8). This will require boosting the throughput capacities of the Trans-Anatolian and Trans-Adriatic pipelines (TANAP and TAP, respectively—both key links in the overall SGC) to handle additional gas from third suppliers; but Baku will then be able to benefit from gas transit fees (Sputnik.az, May 22, 2015). Until the TCP becomes a reality, however, gas from Azerbaijan’s Shah Deniz Two (SD2) field stands first in the queue, under long-term contracts, to reach Europe via the SGC; and Baku is contemplating bringing additional volumes to market from its newest gas fields (Vocaleurope.eu, March 29).
Turkmenistan’s gas might be exported in the western direction under several scenarios:
1) A swap deal. Iran can receive small volumes of Turkmenistani gas at the border and deliver its gas to Azerbaijan for the SGC or consumption inside Azerbaijan (Sputnik.az, October 25, 2017);
2) Linking the undersea platforms of Azerbaijan and Turkmenistan. Azerbaijan could receive perhaps 3–5 billion cubic meters (bcm) of associated gas from Malaysia’s Petronas (which has a 15.5 percent stake in SD2) that it is extracting from Turkmenistan’s offshore fields (EurasiaNet, July 25, 2016; Caspianbarrel.org, May 23, 2016);
3) Delivering Turkmenistani gas to Azerbaijan as Compressed/Liquefied Natural Gas (LNG). Given the shipment distance, this would likely be economically unprofitable and technically problematic (Azernews.az, June 23, 2016).
If the TCP is not realized, Turkmenistan may seek to deliver its gas to Europe via Russian pipelines again, particularly since Ashgabat needs new sources of revenue quickly. Already last year, the head of Turkmengaz, Myrat Archaev, noted that Turkmenistan was considering the possibility of shipping gas across Russia to the Commonwealth of Independent States (CIS) and Europe’s East (Reuters, November 2, 2017). And this past summer, Russia’s Deputy Energy Minister Anatoly Yanovski confirmed that Gazprom might resume purchases of Turkmenistani gas, which were canceled in 2016 (TASS, July 27).
The injection of Turkmenistani natural gas into the SGC is subject to the TCP’s commercial viability (investment, price, production/transport costs; purchase point of gas). The lack of solid political or financial support for the TCP long demotivated Turkmenistan and reoriented its exports toward China. And considering the important changes across European gas markets since the 1990s—new domestic interconnectors, LNG imports, lower global prices—the TCP might be less attractive today for certain European consumers. Thus, for now, Azerbaijani gas will remain the most reliable near-term source for the SGC.