Rovshan Ibrahimov Editor of USAK Energy Review printable version send your friend

Sunday, 4 February 2007

This commentary is from USAK’s Energy Review Newsletter
http://www.turkishweekly.net/energyreview/TurkishWeekly-EnergyReview5.pdf
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On 7-8 November, President Ilham Aliyev made an official visit to Brussels, where he held a number of official meetings, in particular, with the Secretary-General of NATO, Jaap de Hoop Scheffer and the head of the European Commission Jose Manuel Barroso. During the conversations discussed the further development of relations between Azerbaijan and NATO and the European Union.

Following the expansion of NATO and the EU to the East, needed providing more clear mechanisms for developing of relationships with the new neighbors, those mostly existed after collapsing of the Soviet Union, and these both institutions have offered to their new neighbors new forms of cooperation: the North Atlantic alliance, Individual Partnership Action Plan, and the EU New Neighborhood Policy. The project represents a new mechanism of cooperation with third countries, but the full membership to the end of these programs is not foreseen.

Among the new partners NATO and the EU there are States which were not comfortable with the proposed format of cooperation. In particular, the regime established after the color revolutions in Georgia and Ukraine, has openly announced to the full integration into the European structures, and are not able to meet the passive observer in the Euro-Atlantic structures. For Armenia, which is politically and economically dependent on Russia, believes the best program, as the format allows it to expand relations with the West and do not spoil relations with Russia. Azerbaijan is a more cautious view on the possible integration into Western structures, preferring balanced foreign policy to expanding its relations with the West only if it was in the national interest of the country.

Nevertheless, in spite of the different positions of views on cooperation with the western structures, all three of the South Caucasus states were signed on 14 November Neighborhood and Cooperation Treaty which requires countries to a large-scale economic assistance, easier access to European markets, and cooperation in various fields. During the visit Ilham Aliyev in Brussels between the EU and Azerbaijan signed a Memorandum of Understanding, which deals mainly with the energy cooperation.

In accordance with the text of the Memorandum Azerbaijan receives access to the energy markets of the EU, which, in turn, in the form of oil and gas from the Caspian region hopes to strengthen its energy security. After the introduction of the Baku-Tbilisi-Ceyhan pipeline (it will be transported more than 50 million tons of oil per year) the EU have access to the Caspian oil region which is can be evaluated as alternative for the Middle East and transported through Russia energy recourses. In June 2006 Kazakhstan also joined to this project and planned to use this direction as alternative corridor to the Western markets for the own oil.

On December 13 Baku-Tbilisi-Erzurum natural gas pipeline was put into operation which will transit gas from the Azerbaijani Shah Deniz field. According to the Treaties which have been signed at previous time gas from this field will be transported to Georgia and Turkey. In the future it has been planned following transporting of the Azerbaijani gas to the European markets which can be nearly balanced of strong dependency from Russian supply.

Another step the EU to ensure its own energy security led to the signing in Brussels in June 2006 documents according to which the construction of a gas pipeline planned which is estimated at $ 5.8 billion (assuming that he will bring to Europe gas via Georgia and Turkey). In addition, in October 2006 in the capital of Kazakhstan, Astana during the meeting of the representatives of the European Union and Kazakhstan, it was stated that the EU will support the construction of a new pipeline through the Caspian Sea, to increase access of European consumers to Asian sources.

Today, the energy policy of the EU is based on the differentiation of energy to the markets of member countries. EU seeks to limit the flow of energy from one source, reducing it to 25% of the total imports. Brussels is actively involved in the search for alternative importers of oil and gas, alternative, mainly Russia, which is one of the main suppliers of energy in the EU. It is some evidence that about 27% of the world’s gas reserves and 6% of proven oil reserves, Russia, this EU dependence on outside energy to dominate in the field of energy supplies to Europe.

At the same time, Russia is the main and only transit point energy from Central Asia. Company Gasprom actively implementing a strategy to make Russia the main supplier of natural gas to the EU. In addition, a Gasprom distribution networks in the EU. As a shareholder of a German company Wingas, Gasprom plans to increase its equity in it to 50%. Through the company Gasprom owns pipelines in East Germany and the largest storage Reden. Gasprom also plans to buy up to 9% of the shares of Balgzand Bacton Line operator of a gas pipeline linking the Netherlands and the UK. In addition, Russia is carrying out a project Northern-Western Gas Pipeline, which would enable it to directly deliver gas to Europe and thus reduce its dependence on unwanted crisis situations happen mainly with Ukraine and Belarus.

Thus with a Northern-western pipeline, as well as Blue Stream gas pipeline, passing through the Black Sea to the Turkish town Samsun (provides up to 70% of the gas Turkey), Russia plans to increase its gas exports and higher per barrier proposed by the EU. All of these push EU to seek alternative sources of energy. The instability in the Middle East, a region traditionally one of the suppliers of energy in the EU, the problem is becoming more urgent for Europe.

One of those options for the EU was the supply of energy from the Caspian basin. This can not fail to Russia. That is why, immediately after the signing of the Memorandum with the EU, the President of Azerbaijan Ilham Aliev went on a visit to Moscow, where, in a meeting with President Putin assured the Russian side, that the signed document is not a way to build an alternative Russia’s energy policy in the EU.

The same statement Aliyev made during the signing of the Memorandum in Brussels (at the Azerbaijani side proposed to consider implementing its own energy strategy). Failure to maintain its long-term strategy Aliyev argued that Azerbaijan has no sufficient resources. A top priority in Azerbaijan’s foreign policy is the desire of the country’s leadership to maintain the balance of power actors that play an active role in the region.

With regard to Russia, Azerbaijan is interested in solving the Nagorny Karabakh problem and the promotion of Moscow on the matter. In addition, Azerbaijan can not but be concerned about the fate of compatriots living in Russia (the number of them, according to some sources, more than 1 million). For its part, Russia wants to change Azerbaijan price of the gas, to be exported by pipeline Baku to Georgia and Turkey. During the recent visit of the Prime Minister of Russia M. Fradkov in Baku was an attempt to stop the export by reducing the supply of gas from Russia to Azerbaijan and cost increases.

Such as previously Gasprom supplied to Azerbaijan about 4.5 billion cubic meters of gas per year at a price of $ 110 for 1000 cubic meters, and from 2007intended to reduced supply to 1.5 billion cubic meters and increase the price to $ 230 per 1,000 cubic meters. At the meeting the Azerbaijani side said that from the January 1, 2007, Azerbaijan will be able to meet its needs in gas alone using Shah Deniz field, which is being developed by BP. On 8 December in Tbilisi, Azerbaijan, Georgia and Turkey have agreed on quotas gas supplied from Shah Deniz field.

Thus, the 2.8 billion cubic meters of gas previously destined for Turkey, will be divided between Azerbaijan and Georgia. Turkey had offered solace to both states and the volume of gas that it will relinquish Azerbaijan and Georgia, will be reimbursed in the 2008-2009. In addition, Azerbaijan plans to transfer some electric stations power from gas to the fuel. For this reason, Baku plans to abandon the use of the Baku-Novorossisk pipeline controlled by the Russian Transneft company for pumping oil. Previosly Transneft proposed a new contract on the transit of oil from Azerbaijan in which penalties for the shortfall of oil transporting should be included with the formula as `oil or pay`.

According to the contract with Transneft, Azerbaijan should move up to 5 million tons of oil from Baku-Novorossisk pipeline per annum, but for the entire 2006 pipeline will be only about 3.5 million tons, and this is not the worst rate. Considering that the Azerbaijani power will be forced to switch to fuel oil, Azerbaijan may not be oil for transportation through Baku-Novorossisk pipeline Moreover, the current tariffs for the transportation of oil is high at about $ 15 per ton of oil, while for shipment in the Georgian port of Supsa transportation price is only $ 3.

Azerbaijan openly stated that he did not seek and will not maintain its own energy policy in the EU but will be put together projects with Russia. However, on the basis of national interests, Baku will try to keep the balance of power, therefore, any pressure from Russia could further aggravate the situation, which is now, and so is not entirely satisfied both sides. Azerbaijan has already proved that the potential for foreign policy, on the basis of its own national interests.

The history of relations between Russia and Azerbaijan after the collapse of the Soviet Union, pressure on Azerbaijan not only does not lead to changes in foreign policy Republic, but also encourages it to the path of the search for new partners in order to achieve its own security. Those actions, which today Azerbaijan has, in no way directed against Russia, but as a step towards forming its security system. Therefore, energy policy of Azerbaijan should be seen not as a counterweight to Russia, but as a policy, done in accordance with the capacity and capability for the moment.

rovsen@azerimail.net