28 January 2011

New initiative started in Baku on September 4, 2010 during the meeting between the presidents of Azerbaijan, Georgia and Romania and with the presence of the Prime Minister of Hungary. The leaders signed a memorandum with the aim of creating a joint company to determine the possibility of exporting natural gas from Azerbaijan and Georgia via the Black Sea up to the Romanian port.


The parties decided that they would determine how cost-effective to export natural gas via Azerbaijan-Georgia-Black Sea-Romania route. It is assumed that natural gas produced in Azerbaijan, will be delivered by pipeline to the Georgian port of Kulevi, which is leased from the Azerbaijani side, after which the gas terminal in Kulevi must be processed in a compressed or liquefied state (CNG, LNG), and with the help of tankers transported in the Romanian port of Costanzia. According to initial estimates the approximate cost of the project could range from 4 to 6 billion Euros.


It is worth noting that the discussion of the project of transporting natural gas in Central and Eastern Europe in itself is not new. At various times, considered the project, which even managed to call the "White Stream", by laying a gas pipeline under the Black Sea to the shores of Ukraine or Romania.


On a possible gas pipeline up to the Ukrainian ports, urged former Prime Minister Yulia Tymoshenko. However, even if there would be any likelihood of this project, it is unlikely the other parties would risk the project to export gas to Ukraine. It is the fact that 80% of exports gas from Russia is transported through Ukrainian territory. Taking advantage of this, last year Ukraine was trying to make pressure on Russia in order to obtain additional economic dividends. It is not excluded that a similar fate could be expected and the pipeline "White Stream".


However, even if the parties agreed to the possible construction of this pipeline, it could face obstacles that could mend Russia and Turkey. It is the fact that a potential pipeline would have to pass through the territorial waters or exclusive economic zone of one of the two countries. Both countries hope that they will be able to implement its own pipeline project (accordingly Russia the South Stream, Turkey- Nabucco), which will become the main southern transport corridor.
These projects are also competitive with each other, because the plan to convey the same natural gas produced in Central Asia and Azerbaijan to markets in Central and Eastern Europe. At that time, as both projects are trying to prevent the realization of a competitor, appearance of a third alternative project, and even passing on the marine territory of these countries, it would be altogether undesirable.


This project would have remained as theoretical, if Romania did not offer Azerbaijan to transport compressed or liquefied gas by tankers. It is worth noting that such a proposal earlier made by Bulgaria, which is awaiting the implementation of the Nabucco project, was to calculate a possible alternative ways to import gas. Despite the fact that Bulgaria consumes a modest amount of natural gas: approximately 2 billion cubic meters per year, all this gas come from one source - Russia. That is why this country is also considering the possibility of diversification of gas supply, bearing in mind before last winter, when supplies from Russia were suspended because of Russian-Ukrainian "gas" of disagreements.


Determination and commitment which the partners for the project AGRI have undertaken deserves attention. Georgias role as a transit country will be intensified. For Romania, the project is an opportunity to increase its strategic importance on the eastern flank of the European Union, where a leadership competition in the region is also going on between Poland and Hungary. In addition, for Romania it is also an opportunity to have some alternatives for gas supplies.


For Azerbaijan deciding on policy of creating alternative transportation corridors for its energy resources has been one of the main issues since its independence. Alternative to Russia transport corridors through Georgia and Turkey will enable Azerbaijan to achieve its political and economic interests and pursue a more independent foreign policy.


However, since 2008, the inconsistency regarding the price of gas and its transit volume of deliveries between Azerbaijan and Turkey caused problems. The latter has to review its energy policy, planning to become a regional energy terminal. Turkey is hoping to acquire from Azerbaijan’s gas at a discounted price and is wants to resell it at world prices on European markets. The difference in price could reach significant size, which Azerbaijan could not agree.


Negotiations between the parties lasted for about two years, as a result of which the parties signed a memorandum with the hope that by the end of March 2010, the parties agree on all points of disagreement. Even though disagreement between Azerbaijan and Turkey has already been solved, due to disagreements the late implementation of the second phase of Shah Deniz field, brought to Azerbaijan financial losses.


In this case, the project AGRI can also be viewed as an opportunity to create a new alternative transportation corridor through which Azerbaijan would be able to insure itself in the future from this kind of loss and dependency.


In this context, recall the words of British Prime Minister Winston Churchill, who in his speech before the British Parliament in three words expressed his country’s energy strategy: "Diversification, diversification, diversification!".


As is evident, and today these words have not lost their relevance and the best panacea for any undesirable consequences is still searching for alternative routes.
Perhaps the project AGRI is this alternative and the key to solve problems.


Dr. Rovshan Ibrahimov