Caspian boost for US policy

Dec 13, 2006 01:00 AM

by Isabel Gorst

A BP-led consortium will begin production at the Shah Deniz field in the Caspian Sea feeding the new South Caucasus pipeline carrying natural gas to Azerbaijan, Georgia and Turkey and, it is hoped, eventually Europe.
The corridor is a key plank of US policy in the Caspian to end Russia’s dominance over export pipelines and discourage investment in routes across Iran. The 690 km gas pipeline from Baku to Erzurum in east Turkey runs parallel to the recently completed Baku-Tbilisi-Ceyhan oil pipeline from Azerbaijan to the Turkish Mediterranean, forming a new corridor for Caspian and central Asian energy supplies to the west.

Julia Nanay, a senior director at PFC Energy, said: “The start up of the gas pipeline, which will eventually carry gas to western markets, coming so soon after commissioning of the oil pipeline is a milestone in US-backed plans to diversify energy export routes out of the Caspian.”
The opening of the pipeline comes at a crucial time for Azerbaijan and Georgia, which are braced for sharp gas price increases and reduced deliveries next year from Gazprom, the Russian gas company and, until now, the monopoly gas supplier to the Caucasus.

Industry sources said energy ministers from Azerbaijan, Georgia and Turkey would meet to negotiate a temporary reallocation of gas supplies delivered through the South Caucasus pipeline. A sales deal with Georgia would ease US concern that the republic might turn to Iran for gas supplies this winter. Gas deliveries through the South Caucasus pipeline will increase to 8.6 bn cm a year in 2008 as new wells begin producing at Shah Deniz.
BP and its partners have invested $ 4 bn (EUR 3 bn, £ 2.04 bn) in the Shah Deniz project and are seeking customers in Europe to justify expansion of the field and extension of the pipeline west beyond Turkey.

The EU is eager to import Caspian gas amid concern about the security of supplies from Russia, the source of most of Europe’s gas imports. However, Gazprom has moved to block Caspian competition with a plan to increase gas deliveries across the Black Sea to Turkey, its fastest growing export market, for onward transport to Europe.
The US and the EU have urged Kazakhstan to build a pipeline across the Caspian Sea to bring central Asian gas into Europe via the Caucasus. Gazprom controls all existing gas export pipelines out of central Asia and refuses to share access to lucrative European markets with outsiders. Kazakhstan has expressed interest in the trans-Caspian project, but also has plans to build gas export pipelines east to China.

Source: The Financial Times Limited
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