How Shah-Deniz is changing the equation: Part 1
by Dr. Robert M. Cutler
On the Caspian front, all signs are "go" for Azerbaijani gas from the offshore Shah-Deniz deposit to find purchasers
in Europe. The head of the European Union's TACIS (Technical Assistance for the Commonwealth of Independent States)
program declared earlier this month during a visit to Bau that anticipated industrial growth in South-western Europe
would assure a stable long-term market for this gas.
Norway's Statoil, which owns a 25.5 % share in the Shah-Deniz consortium and has experience with deep-water gas development in the North Sea, is proposing a strategic partnership to SOCAR. In particular, it seeks to organise and operate, together with SOCAR, the country's midstream gas development. Significant investment in Azerbaijan's Soviet-era gas infrastructure would be necessary.
With the Trans-Caspian Gas Pipeline (TCGP) consortium downsizing its offices in Ashgabat, Turkmenistan's entry into
Western markets via the growing Turkish energy hub thus becomes increasingly problematic. Various press reports have
hinted at the specific reasons for this. None of these reports has been independently confirmed, but they all point
to conditions imposed by President Saparmurad Niyazov upon the project's sponsors, which the latter were unwilling to
For example, Niyazov had objected to the proportion of the profit that the consortium's sponsors wished to conserve for themselves. This was later publicly asserted indirectly by Niyazov himself, who accused the consortium of wanting him to accept lower prices during the initial period.
However, a report out of Washington, citing an anonymous high official, asserts that the straw that broke the camel's back was Niyazov's re-imposition of a demand for a side payment of $ 500 mm as a signing bonus after he had relinquished such a demand at the personal request of Suleyman Demirel, who has just stepped down as Turkey's president.
This report cannot be immediately dismissed because it would explain why Turkey, in early April in Baku, approved the idea of importing Kazakhstani gas through the old Soviet pipeline running round the northern shore of the Caspian and through Azerbaijan, leaving Ashgabat out of the picture. Yet another unconfirmed report asserts that Niyazov has objected to a consortium proposal to deposit Turkmenistan's profit in an offshore bank rather than one physically located in Turkmenistan itself.
In May, Russian President Vladimir Putin visited Ashgabat, where he agreed with Niyazov that Russia would renew and
expand a December 1999 agreement foreseeing exports of about 20 bn cm for the calendar year 2000. The new agreement
projects increasing this figure by 10 bn cmpy for three to four years until import levels reach 50-60 bn cmpy.
However, the two sides are still far apart on price.
Earlier this year, the president of Itera, the Russian-based company that would transport the gas from Turkmenistan said that even $ 36 per 1,000 cm would be too high for any new agreement with Ashgabat. (During the negotiations for the December 1999 agreement, Gazprom and Turkmenistan reached a compromise at this price, of which 60 % is paid in barter and 40 % in cash.)
Gazprom may also have its eye on the Dauletabad field, on the Iranian border, which is still hooked up to the old Soviet pipeline network. It is perhaps as a sign of dissatisfaction over the Russian prospect in Dauletabad that Iran cut gas imports from Turkmenistan's Korpedje field in May. Iran had spent nearly $ 200 mm to build a pipeline from that field, which sum has apparently still not been repaid. Press reports indicate disputes over price and quantities.
Iran's move only increases the pressure on Turkmenistan to reach a deal with Russia. But quantities and price are
still a problem there as well. Russia needs Turkmenistan's gas because export commitments to Europe combined with a
lack of domestic investment have created a large shortfall. However, Turkmenistan may need Russia's market even
For now, Turkmenistan is leftwith a scheme to pipe gas to Pakistan through Afghanistan, a plan that fell apart several years ago when the treatment of women under the Taliban regime led to international opprobrium. The absence of US recognition of the Kabul regime in particular has the effect of making international funding for the project impossible to find.
Given the continued uncertainty of the situation in Afghanistan, Ashgabat has recently raised the possibility of its gas going south into Iran before turning eastwards into Pakistan, minimising or eliminating the Afghanistani trajectory. This idea is unlikely to bear fruit, because Iran is seeking now to develop additional section of its South Pars field and would certainly prefer that this gas rather than Turkmenistan's to satisfy Pakistan's -- and India's -- demand.
(Long-term LNG shipping contracts with India have also become a subject of discussion, given the political and strategic uncertainty of assuring supplies through a pipeline transiting Pakistan, although this land route would be less expensive.)
Meanwhile, earlier this month, the project to refurbish and expand Iran's pipeline from Neka to Tehran fell apart
again, this time following the decision by the Chinese National Petroleum Company (CNPC) to pull out of the project.
This pipeline had been planned to serve to expand the volume of imported Kazakhstani oil that is swapped for Iranian
crude exported from terminals on the Persian Gulf. In fact, a dispute between the two countries has reduced such
swaps to minimal levels in recent years.
It is therefore worth noting that President Nursultan Nazarbayev of Kazakhstan was one of two heads of state to stay away from the meeting of the Economic Co-operation Organisation (ECO) in Tehran, held earlier this month. Nazarbayev stayed in Astana to host a meeting of the Central Asian Economic Council (formerly the Central Asian Union), which also includes Uzbekistan, Kyrgyzstan, and Tajikistan. The other head of state absent from the ECO meeting was the new Turkish President Ahmet Necdet Sezer, who declined the invitation despite special efforts by Iran to attract him. It is perhaps a noteworthy coincidence that Turkish Foreign Minister Ismail Cem was in Astana just as the meeting of the Central Asian Economic Council closed.
Robert M. Cutler was educated at the Massachusetts Institute of Technology and the University of Michigan and holds a Ph.D. in political science. He has worked in European and Eurasian affairs for 20 years, specialising in Euro-Caspian and post-Soviet energy. His management specialities include organisational analysis and design and organisational learning under complex systems of information and cross-cultural communication.