RENEWED INTEREST IN TRANSCASPIAN GAS PIPELINE PROJECT.

Publication: Monitor Volume: 7 Issue: 194

Renewed American and Azerbaijani interest in building a westbound Trans-Caspian Gas Pipeline (TCGP) gives Turkmen President Saparmurat Niazov a chance to reactivate that project, which he has capriciously sidelined. The PSG consortium–made up of the Bechtel, General Electric and Shell companies–remains interested in the project to develop Turkmen gas fields and pump the gas to Turkey via the Caspian Sea, Azerbaijan and Georgia. Negotiations, however, ground to a halt earlier this year because Niazov made excessive demands for advance payments and his deferred cautiously to Iranian objections to the project. That apparent deference may have been a bargaining maneuver on Niazov’s part in his negotiations with the PSG consortium. His tactics froze the project.

On October 19 in Ashgabat, the American embassy issued a statement quoting the new ambassador, Laura Kennedy, as asserting Washington’s willingness to continue negotiations on TCGP and other energy projects with Turkmenistan. On October 18, also in Ashgabat, the U.S. government’s top official on Caspian oil and gas issues, Steven Mann, announced at a news conference that the United States remains committed to working with Turkmenistan in order to implement the Trans-Caspian pipeline project. Mann, recently appointed as the State Department’s special adviser for Caspian Basin Energy Diplomacy, is the immediate predecessor to Kennedy as ambassador to Turkmenistan.

Mann’s remarks in Ashgabat underscored the importance of Azerbaijan, Georgia and indeed Turkey as transit countries for Turkmen gas exports to points west. The TCGP project, and Turkmenistan with it, stand to gain a new lease on life by casting Turkey in the mutually beneficial role of a transit country, rather than a consumer country for Turkmen gas. The project’s failure would condemn Turkmenistan to dependency on Russia and Iran, its competitors in international gas markets and would-be regional hegemons. Russia is already buying Turkmen gas below international market prices and re-exporting it at a profit.

As initially envisaged, the Trans-Caspian pipeline was to supply Turkey–the world’s fastest-growing market for gas–during the first stage of the project’s lifetime. The second stage was to double the pipeline’s throughput capacity in order to export the additional volumes of Turkmen gas, via Azerbaijan-Georgia-Turkey, to the Balkans and Danubian Europe. Meanwhile, Niazov’s procrastination allowed Russia to conclude a supply contract with Turkey for natural gas, covering a large part of Turkey’s requirements, and leaving little or no absorption capacity in Turkey for Turkmen gas. A Russian-Italian consortium has begun laying the Blue Stream pipeline from Russia to Turkey on the seabed of the Black Sea, with a substantial head start on the Trans-Caspian project. Iran, too, is soon due to begin massive exports of gas to Turkey under an earlier, “take or pay” contract, through a pipeline which is virtually completed by now. Blue Stream and the pipeline from Iran have preempted not only the Turkish market niches for Turkmen gas, but also international financial markets for the TCGP project. TCGP stands, however, a strong chance to become commercially attractive by redefining Turkey as a transit route.

Earlier this year, Azerbaijan also signed a supply contract with Turkey for gas from the Shah-Deniz offshore field, operated by British Petroleum, in partnership with Norway’s Statoil, through a pipeline to be laid via Tbilisi, Georgia to Erzurum, Turkey. Last month, Presidents Haidar Aliev of Azerbaijan and Eduard Shevardnadze of Georgia signed agreements on fees and other terms of the transit of gas. Last week, Ilham Aliev–the president’s son and first vice chairman of Azerbaijan’s State Oil Company–announced Azerbaijan’s willingness to hold talks on the conditions for the transit of Turkmen gas to Turkey. Ilham Aliev confirmed Baku’s “readiness to build this pipeline [for Turkmen gas] now, thus helping Turkmenistan to lessen its dependence on Russia…. The more oil and gas pipelines go through Azerbaijan, the better for us because we get the revenue.”

Significantly, in the new situation, Turkmenistan is no longer a potential competitor to Azerbaijan for the Turkish gas market, inasmuch as Turkey would function as a transit route for westbound Turkmen gas. Ashgabat and Baku have two common options: either to share the throughput capacity of the Baku-Tbilisi-Erzurum pipeline during its first stage, then to lay an expanded version of the pipeline’s second stage; or to proceed immediately with an enlarged version of the pipeline, so as to accommodate additional volumes of gas from both countries, in which case Turkey could function as a transit corridor not only for Turkmen but also for Azerbaijani gas to Europe (The Oil Daily, Dow Jones Newswires, ANS, Trend (Baku), October 19; Asia Pulse (Islamabad), October 15; Business Week, October 15-21; Interfax, October 18; see the Monitor, October 2).

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