Still in the pipeline – a route to central Asian gas

For Europe’s energy policymakers there are few things more exciting than the prospect of bringing central Asian gas to Europe. At one fell swoop the EU could loosen - although not free itself entirely from - Russia’s chokehold on European supplies and at the same time release Central Asia’s vast energy wealth.

But after a decade of trying, the EU has not been able to overcome the big political barriers hampering the delivery of central Asian gas to Europe: improving access to existing Russian pipelines, the main route for central Asian gas to reach Europe today, or building new pipelines that bypass Russia.

Despite high-level EU and US support, trans-Caspian pipelines - transporting Kazakh or Turkmen gas across the Caspian through Azerbaijan, Georgia and Turkey, then onward to European markets - have not seen the light of day.

But according to Elmar Mammadyarov, Azerbaijan’s foreign minister, that might soon change. The countries of the region are eager to help the EU in its attempt to gain access to new sources of energy.

"We very much support this type of co-operation," Mammadyarov said in an interview. "Our strategy is not to be an energy producing country, our strategy is to be an energy transit country."

On 6 December Commission President José Manuel Barroso will try to recruit Kazakhstan as one more supporter of the trans-Caspian project. Kazakhstan’s President Nursultan Nazarbayev will visit Brussels to sign an agreement on energy with the EU. This aims to harmonise legislation with the aim of integrating EU and Kazakh energy markets and boosting technical co-operation.

But Azerbaijan, like Kazakhstan, is treading a difficult path between the West and Russia.

Azeri diplomats have watched closely as Russia has blockaded Georgia for opposing Moscow’s influence and moving too close to NATO and the EU.

Azerbaijan is part of the EU’s neighbourhood policy, but it is the only one of the three countries of the southern Caucasus to avoid openly saying it wants to join both NATO and the EU.

In the energy field, the Azeri leaders are equally careful not to provoke their larger neighbour. The foreign minister is cautious about which projects could be developed.

"Trans-Caspian gas is not just a question of Azerbaijan, it is also a question of our partners on the other side of the Caspian," said Mammadyarov, referring to Kazakhstan and Russia.

Although Azerbaijan has agreements with Kazakhstan and Russia on the delineation of boundaries on the Caspian Sea, major questions remain.

Some experts suspect that Russia will try to make any project unattractive to investors by questioning its legality or its environmental impact.

Investors may have other reasons to be sceptical. According to Jonathan Stern, the director of gas research at the Oxford Institute of Energy Studies, political will is just part of the problem. The other part is the economic viability of the project.

"There is a surplus of gas in Europe," he said, "but you would not know that from reading the press."

The issue, according to Stern, is that many of Europe’s main energy consumers are tied into long-term contracts that overstated the demand for gas. That means they are unlikely to show a strong interest in Caspian gas while they still have surpluses under their current contracts.

"The Azeris are not able to sell their own gas. It is not really clear that these pipelines will go ahead," he said.

"The EU is gung-ho, but suppliers, buyers and contractors are not sure."

Mammadyarov acknowledged there were questions about just which projects will be economically viable. "Everything depends how the market will develop," he said.

He was also careful to emphasise that Russia will remain a leading supplier of gas to Europe, even if new pipelines linking central Asia and Europe were built. Together Azerbaijan and Kazakhstan account for around 3% of the world’s proven reserves. Russia accounts for a quarter of the world total.

Still the Commission is convinced of the need to bring trans-Caspian gas on stream. According to one senior official "from the technical, economic and environmental point of view [building the pipeline] is feasible, there are no problems. The volumes are proven and available".

He rejected the idea that gas is oversupplied: "I think the argument that the Europe has too much gas is too light. Bulgaria will have to close its nuclear power plant, Kozloduy, the only viable option is to switch to gas. I don’t even say anything about Romania or Ukraine."

But, he said, the first task must be to overcome political difficulties, then deal with suppliers.

That is likely to mean convincing Azerbaijan and others that Russia will not view the trans-Caspian project as being against its interests.

"We have to deal with our neighbours," said Mammadyarov.

For Europe’s energy policymakers there are few things more exciting than the prospect of bringing central Asian gas to Europe. At one fell swoop the EU could loosen - although not free itself entirely from - Russia’s chokehold on European supplies and at the same time release Central Asia’s vast energy wealth.

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