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Another trans-Caspian pipe dream

Recent weeks have seen increasing United States activity in favor of constructing the Trans-Caspian Gas Pipeline (TCGP) from Turkmenistan to Azerbaijan. But what are the chances of anything really happening? From the technical standpoint, there is no obstacle.

An undersea ridge spanning the Caspian from the Azerbaijan's Apsheron peninsula to the port of Turkmenbashi, dividing the Caspian into deeper southern and shallower northern halves, is the only feasible route for such a trans-Caspian pipeline.

This was determined in the 1990s, when PSG, a joint venture between Bechtel and the GE Capital unit of General Electric (later joined by Royal Dutch Shell), first sketched out the project that would see gas ultimately reaching world markets via a Georgian-Turkish gas route.

Now, as then, technical specifications can minimize the risk of ecological damage from pipeline construction and operation. The only complicating factor is some minor seismic activity, and design features of the pipeline can easily take them into account. (The 1990s project foresaw the pipe diameter varying from 28 to 52 inches.)

Such objections were raised by Brussels Eurocrats in the late 1990s, but the real origin of their opposition was a wish to exclude US influence from the region. Now that Russia has turned out not to be the friend that they expected, the Europeans are hungry for Turkmenistani gas to feed the Nabucco pipeline that has been on the drawing boards for some years.

No agreement will be possible, however, until Ashgabat and Baku resolve their disagreement over the oilfield that that former called Serdar and the latter calls Kyapaz. Establishing a joint economic zone can resolve the problem. This is a standard procedure of the "modified median line" principle for demarcating maritime rights to subsoil resources; Kazakhstan and Russia have used it to common advantage in the north Caspian. However, it can be implemented even without a bilateral agreement over subsoil rights.

In other words, Azerbaijan and Turkmenistan do not have to agree on every detail of their Caspian offshore sectors if they wish just to declare Kyapaz/Serdar to be such a joint economic zone; resolving the Kyapaz/Serdar issue is the sine qua non for international energy companies and consortia to begin to treat the TCGP as a project that has the true potential to spring from the drawing-boards into reality. Indeed, it could even be the "sweetener" that clinches the deal.

Just this past summer, Azerbaijani Deputy Foreign Minister Natik Aliev suggested that it was a real possibility, following a meeting between President Ilham Aliev of Azerbaijan and President Gurbanguly Berdymukhamedov of Turkmenistan. This is one important fact underlying the insistence of Russia's President Vladimir Putin to hold the five-sided summit of Caspian littoral states in Teheran this month.

He wishes to use the resulting declaration to require all five states to approve any pipeline construction even if it does not run through their Caspian sectors. It is unlikely, however, that Azerbaijan will accept this interpretation, and as Turkmenistan shows increasing willingness to explore non-Russian routes for gas export to world markets.

The case has been made in the past that the commercially most attractive route for such a pipeline is through Iran to Turkey. Such a pipeline could still, in principle, fill the planned Nabucco line stretching from Turkey to Central Europe (or, for that matter, the "South Stream" or "Blue Stream Two" pipeline for which Russia has been heavily lobbying). However, American pressure is not the main factor that prevents such a pipeline from being constructed.

The experience of Turkey in its bilateral gas trade with Iran suggests that Iran has difficulty respecting agreements that it has made regarding prices and quantities (as well as the quality of the product). These terms have been unilaterally and repeatedly altered by Iran in the case of Turkey, and that is why their pipeline connection has seldom operated at full capacity. Agreed terms simply become the basis for further bargaining.

India's experience in attempting to negotiate a three-way Iran-Pakistan-India pipeline deal is analogous. For example, Iran insisted on receiving payment at liquefied natural gas rates for gas regularly delivered through a regular overland pipe. The repetition of such experiences strongly suggests that, despite attempts to decentralize oil and gas decision-making since the late 1990s, Iran has still not succeeded in raising economic rationality and technical competence above factional infighting and political cronyism.

Indeed, the political and economic ascendance of the Iranian Revolutionary Guards Corps, closely linked to President Mahmud Ahmadinejad, as an energy-industrial complex in the past few years only indicates that this problem has worsened. These experiences, together with the fact that Iran's constitution expressly denies the jurisdiction of international tribunals, including arbitration tribunals, in any instance whatsoever, leave both Iran and its real and potential economic partners with no recourse other than domestic Iranian courts.

Moreover, even despite recent experiences in gas transit through Ukraine and Belarus, it is far from clear to Brussels that it would be an improvement for Tehran rather than Moscow to control the spigots to the gas pipes. The struggle for a "Third Way" in Europe has come to mean something very different from a mixed-economy alternative to the Hobson's choice between unfettered capitalism and state socialism.

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URL:  http://www.robertcutler.org/blog/2007/10/another_transcaspian_pipe_drea.html
First published in Asia Times Online, 24 October 2007.

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