Energy conferences in the Caspian Sea region have come so fast and furious in recent years that some industry and government figures consider them a dime a dozen. In fact, the organizers are sometimes the ones who draw most advantage from them, in view of steep fees for participation. Nevertheless, the current International Oil and Gas Conference and Exhibition looks to be an exception. It is the seventeenth in the series hosted in Baku.
It is no surprise that all eyes are on the intended signing, a few days hence, of Azerbaijan-Turkey natural gas agreements (see Nabucco, and Baku, filling up on gas, 14 May 2010), setting the stage for construction of the Nabucco pipeline, which is projected to bring gas to the Baumgarten gas hub in Austria from the Caspian Sea basin via Turkey, Bulgaria, Romania, and Hungary.
Long considered as a longshot project in view of the absence of contracted volumes of gas for transit, Nabucco has in recent months and especially weeks come to be regarded as an odds-on favorite. Critics never appreciated that the initial absence of such contracts reflected new European Union administrative norms prescribing open access for such energy transit; norms that are incorporated in the Nabucco Intergovernmental Agreement as signed and ratified by the states through whose territory the pipeline is set to be laid.
According to Azerbaijani sources, the signature of these agreements, due last month, was postponed because another energy conference will take place in Ankara in a few days, and Turkish Prime Minister Recep Tayyip Erdogan wants to make the signing a centerpiece of that event. There have been some indications, however, that some details of a special formula for the price of Azerbaijani gas for Turkey required further working out, in a document separate from the general agreement, during a recent visit to Baku by representatives of the Turkish company BOTAS.
The price is now set to be indexed to the world market price on the one hand and, on the other, the growth of throughput through the pipeline itself. The deal being readied for signing in Ankara is a general framework agreement, the implementation of which will take several months as contracts among participating companies from the two sides are drawn up, vetted, and signed. One should expect some press commentary that tries to spin that fact as a shortcoming and further threat to realization of the agreed terms, but it is simply normal business practice in the industry and the region.
This is the context in which Wolfgang Sporrer, the Caspian regional manager for OMV, the Austrian energy company that is one of the leaders of the Nabucco project, has pointed out that Azerbaijani gas can transit Turkey through Nabucco even without a bilateral agreement because the Nabucco Intergovernmental Agreement, which Turkey's parliament has ratified, already regulates that transit. Erdogan has recently affirmed in public that Iraqi gas will feed Nabucco, and he seems to have diminished his insistence on Iranian participation.
Sporrer also underlines that gas can begin to flow in 2014 even if the Shah Deniz Phase Two deposit, in Azerbaijan's Caspian Sea offshore sector, does not come online until 2016 or 2017, as Azerbaijani officials have recently suggested may be the case. That is because Nabucco's 31 billion cubic meters per year (bcm/y) design volume will not be reached immediately, such that other sources such as Iraq may furnish the initial flow. OMV, for instance, is exploring gas production in the territory of the Kurdistan Regional Government in northern Iraq.
Sporrer adds: "We are talking to Turkmenistan and believe that actually Turkmenistan is ready and open to supply gas to the EU through Nabucco." Turkmenistan's recent decision to use its own resources to rebuild and renovate the East-West Pipeline, which runs across the south of the country, has been widely interpreted as such a signal.
One of the conditions that Russian companies wished to impose on their own participation in this project was the prerogative of "first refusal" over the purchase of the gas flowing through it. (See Tectonic shift under way in Turkmen gas, 17 May 2010.)
Later this month, an interministerial delegation from Baku will visit Brussels to discuss with EU officials the legal, technical, and commercial aspects of trans-Caspian projects, including an eventual Trans-Caspian Gas Pipeline from Turkmenistan. These projects also include, however, the Kazakhstan-Caspian Transportation System, which will run along the eastern coast of the Caspian Sea to take oil from the massive Kashagan offshore deposit from Eskene to Kuryk (near Aqtau) for transit to Azerbaijan and insertion into the Baku-Tbilisi-Ceyhan (BTC) oil pipeline that goes through Georgia to Turkey's Mediterranean Sea coast.
In that connection, Azerbaijan is expected to announce soon an increase in the proven reserves in the offshore deposit that feeds the BTC, which was originally built to carry 1 million barrels per day (bpd) but now, thanks to engineering improvements, carries 1.2 million and likely will carry more in the future as further improvements are added.
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First published by Asia Times Online, 4 June 2010.