The southern energy corridor in context

by Bala Celebi Senturk

Complementing Russia's foreign policy is Gazprom's strategy of buying into various energy markets and perpetuating its "divide and conquer" maxim. The gas row between Russia and Ukraine, which escalated into the "New Year's crisis," exposed European disunion along differing levels of Russian gas dependency and clashing concepts of energy security.
Russia, on the other hand, has been able to capitalize on this.

Europe's lack of unity over which energy policies to pursue stalled legislation for preventing third parties such as Gazprom from expanding control over strategic energy assets. Although the EU tends to downplay this deficiency, it decreases the chances that a genuinely European common strategy will come to fruition any time soon.
The Nabucco consortium includes several leading energy companies: the state-run Turkish Pipeline Corporation (BOTAS), Bulgaria's Bulgargaz, Romania's Transgaz, Hungary's MOL, Austria's OMV Gas and Power and Germany's RWE Supply and Trading. As projected, Nabucco would run through Georgia (or any other alternative transit route, such as Iran), Turkey, Bulgaria, Romania and Hungary, and would terminate in Baumgarten, Austria.

On Jan. 25, 2008 OMV sealed a deal for a joint venture with Gazprom for extending Baumgarten's storage and distribution capacity. Accordingly, Gazprom holds a 50 % stake there.
Initially OMV insisted that this project had nothing to do with Nabucco, although some took it as a sign that the Austrians were secretly hoping that Russian gas could fill the pipeline if other supplies did not. Yet a different train of thought seems to be more plausible.

The Baumgarten facility, led by OMV, was planned to store Nabucco gas and distribute it to other European consumers. Gazprom, in which the Russian state has a 51 % stake and which intends to sell its own gas through its own pipelines, now shares control over the OMV network, and thus is a stakeholder in its decision-making. As a result, Gazprom, on the one hand, can decide which natural gas artery (Nabucco or South Stream) should flow into the major European terminal, and Russia, on the other, can steer decisions over which role transit countries such as Turkey will play in the future supply chain.
With Gazprom's participation in this venture, Russia has improved access to information regarding price offers the EU is extending to Azerbaijan, allowing Russia to trump the offers each time.

Moreover, OMV has been buying into Hungary's MOL. Considering Russia's significant share in OMV, any amount of OMV ownership of MOL again translates into stakes for Russia's energy giant. Even further challenging the Nabucco project is the fact that OMV and MOL, together with yet a third consortium member, Bulgargaz, have already signed up to Gazprom's South Stream project.
If, under the current circumstances, Nabucco were to materialize at all, Russia's increasing control over its planned supply chain would, first of all, diminish the security-enhancing aspect of Nabucco, which is the reason it was planned in the first place, and ultimately obstruct any Turkish plans to assume a hub position in the planned supply route.

Prospects for Turkey
Summits prior to the upcoming "southern corridor" conference have taken place against the backdrop of a range of partly correlated developments, which have obscured prospects for a secure southern gas corridor balancing Russian involvement, a prerequisite for a strong Turkish posture in the future European energy structure. Russia's assertive politics against the crumbling facade of unity and cooperation among Western opponents has been able to induce a shift in the southern energy corridor concept for European energy security and independence, which ultimately evolved to include Russia for strategic reasons.
The Georgia crisis ruined the idea of a secure alternative gas route via Georgia, and thus Turkey, which does not have any other operable gateways to energy sources. Inevitably, it accelerated the pace of Turkish-Armenian rapprochement, yet alienated Azerbaijan, and seemingly pulled it closer to Russia.

Energy triangle?
There are incentives on the Azerbaijani and Armenian sides for exploring the pragmatic aspects of a potential trilateral relationship. Its dependency on Russian energy forecloses any future chances for Armenia to play an independent and significant role in the region.
But rapprochement with Turkey and Azerbaijan would change this in several ways. It would free Armenia from its landlocked position, as an effect of which its foreign policies remain myopic and based on a limited worst-case-scenario perspective. It could elevate Armenia's role to an energy transit route for future pipeline projects, with prospects for foreign investment in the modernization and expansion of its infrastructure as in the case of Georgia.

Turkey is already working out arrangements for the US and the EU to extend financial aid to Armenia. As of April 1 this year, Armenia's natural gas prices will rise gradually to European levels until 2010, in accordance with an energy accord signed between Gazprom and ArmRosGazprom. Yet the availability of Azerbaijani gas in the Armenian gas market would fuel competition and would arguably keep Russian gas prices down at reasonable levels in the future.
Reportedly Azerbaijan's proven gas reserves have been revised up from approximately 2 tcm to 5 tcm, which makes it even more attractive. Azerbaijan would lose its strategic importance for the West and, ironically, for Russia if it moved closer to the latter, particularly in the energy sphere.

The Russian offensive in Georgia has forced Azerbaijan to rethink its relations and priorities with the West. But Azerbaijan needs a Western prospect as well, particularly because only this promises a more equal footing in relations with Russia and on the Nagorno-Karabakh issue. Azerbaijan will continue to press ahead with its choices only by balancing Russia and the West, particularly regarding the energy dimension of relations.
In the swiftly changing global system, Turkey is a regional power on the rise. Over the last couple of years it has been able to shake off the remains of a rigid foreign policy, previously enforced by the Cold War paradigm.

With its far-sighted, highly diversified and multi-dimensional foreign policy based on the synthesis of others' sensibilities, preferences and possibilities and its own interests, necessities, priorities and capabilities, Turkey has evolved from a highly functional Western military bulwark to a highly strategic state, now able to balance various roles and power poles.
However, if Turkey is to consolidate itself as a pivotal energy bridge in the region and wants to extend its influence among its Central Asian kinsmen, it needs to have direct access to Azerbaijan. The shortest route is through Armenia. Russia will profit from the normalization of ties between Armenia and Turkey only if it does not involve a comprehensive approach to disputes, which could tie Azerbaijan closer to the two.

Rapprochement with Armenia must go hand-in-hand with a diplomatic foray into Azerbaijan with a view to assuaging its concerns. Turkey has to understand that a hasty rapprochement with Armenia without consultations with its Azerbaijani counterparts will not only lift Azerbaijan's dual leverage on Armenia in the Nagorno-Karabakh issue, but will turn this dual pressure toward Azerbaijan, as two recent statements reflect.
On the one hand, the Azerbaijani Defence Ministry expressed concerns over Russian arms transfers to Armenia in January this year.

Russia's motive for transferring arms to Armenia appears to have been threefold.
First, after the Georgia crisis Russia sped up the implementation of its ambitious military modernization plans, which include upgrading aging arsenals and acquisition of precision "smart" weapons and modern communication gear. While rising oil prices have enabled Moscow to almost quadruple its defence spending over the last decade, modernization plans allowed Russia to sell older arms to Armenia at domestic prices.
Secondly, Russia presumably anticipates the future possibility of NATO training camps and troop bases in Georgia, which gives it incentive to beef up its Armenian outpost. Based on an agreement for military cooperation signed in 1997, Russia is Armenia's military ally.
Thirdly, Russia had seen Azerbaijan channelling energy export revenues toward boosting its armed forces and increasingly determining the balance of power with Armenia. Russian arms sales tilt the military balance in the Caucasus in favour of Armenia, Russia's ally.

Most recently, on the other side, Azerbaijan warned that Turkey's Armenia venture may increase tensions in the region. Given the shift in the balance of military power, in addition to dynamics exacerbating Azerbaijan's security dilemma, this is quite probable. Russia's military cooperation with Armenia indicates that the Nagorno-Karabakh issue cannot be solved impartially.
Turkey must reiterate its support for Azerbaijan and communicate its incentives to restore ties with Armenia on a bilateral basis. The coincidence of a meeting between Armenian and Azerbaijani leaders and the "Southern Corridor -- New Silk Road" conference carries great symbolic value. A positive outcome in the bilateral meeting will have an impact on the future of the European southern corridor concept, and inevitably on which role Turkey either must or can assume in the broader energy structure. Without Azerbaijan, the second Turkish state, trilateral energy dialogue is inconceivable.

The Turkmen window of opportunity
In early April, prior to the Ashgabat Energy Summit on Reliable and Stable Transit of Energy, an explosion struck the Turkmen-Russian Central Asian Centre 4 (CAC-4) pipeline, temporarily suspending Turkmen gas supply to Russia. The rupture, which Turkmenistan claims happened due to GazpromExport's sudden import cut (arguably because of lower demand in Europe) and a sharp rise of pressure in the pipe, curbed Russo-Turkmen dialogue for expanding energy relations. Russia attributed the incident to worn-out infrastructure and Turkmen negligence.
Previously Russia had expressed concerns over Turkmenistan's failure to set up a follow-up meeting with Russia after Turkmen President Gurbanguly Berdymukhamedov's visit to Moscow on March 25, 2009. During the March visit the presidents had signed a dozen agreements on enhancing cooperation at multiple levels, leaving aside the most critical one, which called for the construction of a new "East-West pipeline."

From the Russian perspective this left the meeting inconclusive. According to Russia's plans, the new natural gas corridor would run Turkmenistan's gas to its Caspian coast, plugging it into the existing, but old Caspian Pipeline, which already carries Turkmen gas to Russia via Kazakhstan. Together, the East-West pipeline and Caspian coastal conduit, once fully reconstructed and revamped, would add at least another 20 bn cm to the annual 45 bn cm of Turkmen gas flow into Russia.
From the Russian perspective, these outlets would deliver the gas needed to feed Russia's ambitious pipeline projects, Nord Stream and South Stream, which are to boost the vast volumes of gas exported to the major European market.

A day after the Nabucco Budapest Summit, Gazprom deputy chief Alexander Medvedev had announced plans to enhance the projected capacity of its South Stream by 50 % from 31 bn cm annually to 47 bn. Securing Turkmen gas for its own purposes would strengthen Russia's project against any southern gas corridors excluding its involvement. Thus, Turkmenistan's attitude is a serious blow to Russia.
Citing the lack of alternatives to Russia and the recent pipeline explosion, the Turkmen president used the Ashgabat conference to communicate Turkmenistan's "sovereign right" to diversify export routes and markets for its vast 75 bn cm of produced gas per year. In order to benefit from this outburst, Turkey will have to boost its ties with Turkmenistan.

Operable pipelines theoretically exist linking Turkmenistan to Turkey via Iran. Such projects have to be given a new impetus. Turkey's foreign policy must consider the recent developments as opportunities, rather than challenges, and must integrate them to consolidate Turkey as a major regional player politically and in the new great game for energy security.
Turkey's own energy security is of the utmost importance by virtue of being an underpinning of national security. At the domestic level privatization policies must, therefore, be executed to a degree that allows Turkey to maintain its sovereignty over its strategic energy assets and energy companies, such as BOTAS.

Bala Celebi Senturk is an energy strategy analyst who can be reached at balacelebi@nyu.edu.