THE ORIGINAL PURPOSE. (Lo scopo originale)

Ukrainian President Viktor Yanukovych clinched energy pacts with Azerbaijan on Jan. 28 and attacked Russia for plans to bypass his country in supplying gas to Europe, reviving market fears of regular spats between Moscow and Kyiv.

Markets were relieved when Yanukovych, perceived as friendlier to the Kremlin than his predecessor, Viktor Yushchenko, was elected Ukraine’s president last year.

That followed five years of disputes between the ex-Soviet neighbors, marked by mid-winter cuts in Russian gas supplies to Europe that represent a quarter of the continent’s total needs.

But Yanukovych has played a much less pro-Moscow role than expected since taking office, saying the European Union was an equally or even more important partner than Russia.

Speaking at the World Economic Forum in Davos, the president lashed out at new Russian pipeline projects and signed oil and gas deals with Azerbaijan to cut Ukraine’s reliance on Russia.

Yanukovych said Ukraine shared Poland’s concerns about political motives behind the Nord Stream pipeline to supply Russian gas to Western Europe along the Baltic Sea floor, bypassing central European nations.

“Another project being discussed today between Russia and Europe is the construction of South Stream. This possibility is directly related to Ukraine and here I share the position of Poland,” he said, referring to a project to pipe gas under the Black Sea to southern Europe.

Russia ships about 80 percent of its gas exports to Europe through Ukraine now and the remaining 20 percent via Belarus and says it needs the new projects to boost Europe’s energy security after disruptions in previous years.

Yanukovych said South Stream would cost $25 billion while it would cost much less to upgrade Ukraine’s pipeline system.

“Why are our partners today pretending that there is no alternative? A year ago we proposed a project that would cost five times less – not more than $5 billion, it would come to the same destination points to which South Stream would go.”

“That’s why we ask the same question, speaking eye-to-eye with our partners, and we are still waiting for an answer.”

“If this is a way to exert pressure, not a commercial project, then of course serious questions arise about how we should build our relations today, let alone in the future.”

Yanukovych used the Davos platform to sign a deal with Azeri President Ilham Aliyev to import liquefied natural gas to a planned Ukrainian terminal aimed at reducing the country’s heavy dependence on Russian gas. The memorandum did not specify volumes for the terminal to be opened in 2015. He also signed a memorandum on cooperation in shipping Azeri oil across Ukraine.

Yanukovych said Ukraine would ship the first million tons of Caspian Sea oil to Europe via the pipeline this year, thus ending its use to export Russian crude to the Mediterranean.

“The Odessa-Brody pipeline has been used in various directions. Very soon we will start working according to the original idea, delivering oil from Odessa to European countries,” he said.

Interfax news agency quoted Ukrainian officials as saying the deal covered deliveries of up to 4 million tons a year.

Aliyev, who spoke at the same panel, said he was under no pressure from Russia to shun the Nabucco pipeline, seen as a key European Union’s attempt to reduce reliance on Russian.
(Therearenosunglasses's weblogs)

TOO MANY PIPELINES. (Troppe pipeline)

Europe may not be able to sustain all its proposed gas supply pipelines but will need to build at least some soon to ensure security of supply in the latter half of this decade.

Scarred by the Russia-Ukraine gas row of 2009, which cut about a fifth of Europe's supply in mid winter, major European gas consumers plan many pipelines to promising producing regions in central Asia, North Africa and the Middle East.

With China competing to woo producers, Europe will likely struggle to secure enough gas to fill all the new connections and would be unable to use it all if they do get filled.

"If every project that is discussed is built then there will be way too much supply, so I think the best projects will be developed and marginal ones delayed, or not built," said Graham Freedman, a senior analyst at UK consultancy Wood Mackenzie.

"But I don't think anybody doubts the fact that Europe is going to need more gas because domestic production is falling. It is going to be an importer for many years to come," he said.

Wood Mackenzie forecasts that gas demand in the European Union, Turkey and former Yugoslav states could rise from 551 bcm in 2010 to 653 billion cubic metres in 2020.

Under what it says is a bullish demand scenario, this would leave a supply shortfall of 125 bcm by the end of the decade unless far more is produced at home or brought in from overseas.

But if all major new pipelines were built and filled to capacity, gas flows to Europe by 2020 could far outstrip demand.

Since the Russia crisis, Europe has been comfortably supplied with gas for power generation, heating and industry through existing pipelines and an increasing number of liquefied natural gas (LNG) tankers. The Medgaz link from Algeria to Spain could further increase supplies into the Iberian Peninisula by 8 bcm/year, if the repeatedly delayed pipeline opens this winter.

The 55 bcm/year Nord Stream pipeline under the Baltic Sea is expected to bring more Russian gas to western Europe, bypassing Ukraine by the end of next year.

Russia is pushing on with its South Stream project to bring up to another 63 bcm under the Black Sea via the Balkans.

The European Union is also championing the 31 bcm alternative Nabucco plan that would bring Caspian and Middle East gas via Turkey, excluding Russia.

But Italy also hopes that its projects TAP and ITGI for around 10 bcm capacity each can compete for mainly Caspian gas market share with South Stream and Nabucco, giving it more options via the "Southern Corridor" to Europe.

In all, the maximum capacity of these pipelines, some of which were conceived prior to the economic crisis which brought a gas price slump, adds up to 177 bcm to Europe's supply.

Pipeline supplies would also face competition from liquefied natural gas (LNG), which has become much more readily available because of a surge in North American shale gas production, with unconventional gas finds in Europe posing another threat to both types of external supplier.

"Some projects make sense from a security of supply perspective, because of the diversification of gas sources that they would bring," said Nigel Harris of UK consultancy Kingston Energy. "But with plenty of gas available from existing sources, there's no commercial benefit from diversification."

Nord Stream and South Stream are just additional routes for Russian-controlled gas flows, he said, while alternative sources from Azerbaijan, Turkmenistan and Iran remain uncertain.

The International Energy Agency (IEA) thinks global gas demand may recover from 2011, but it still expects supply to outstrip demand until 2020..

Some gas suppliers are more optimistic, pointing to buoyant demand in the Middle East, China and India which could leave less gas for Europe. Phillipe Boisseau, president of France's Total Gas & Power, told the recent European Autumn Gas Conference in Berlin that the "supply bubble will disappear in three years."

Speakers agreed that current gas prices in consuming countries would not support all Europe's proposed supply lines, although they expect demand for power generation to contine to rise as Europe looks to back up its increasing wind power capacity with gas-fired plants.
(FuturesPros.com via Reuters)

ALL AT THE ZAR COURT. (Tutti alla corte dello zar)

Alcune compagnie energetiche tedesche hanno espresso il desiderio di partecipare al progetto South Stream. E’ quanto emerge dall’incontro Berlusconi-Putin di domenica scorsa. Ecco che le ali del Nabucco sono sempre meno dorate e, se le cose continueranno per questa china, il progetto energetico europeo non andrà lontano. Nabucco è infatti il nome dato al gasdotto che dal mar Caspio dovrebbe rifornire i Balcani fino all’Italia e all’Austria. Lo scopo della sua costruzione è eminentemente geopolitico: estendere l’influenza “occidentale” sui Balcani e sul Caucaso. La sua progettazione è precedente all’adesione all’Unione Europea dei Balcani orientali e si profila quale strumento di persuasione a restare in orbita europea per i Paesi che vedono procedere a rilento il loro percorso di integrazione. Nabucco nasce come concorrente del South Stream russo poiché, si ragionò giustamente, dipendere dalla Russia nel settore dei rifornimenti energetici significherebbe perdere larghe fette di sovranità: come criticare la diplomazia di Mosca nel campo dei diritti umani se dal Cremlino controllano i rubinetti del gas? Come osteggiare la politica estera di Mosca, le guerre in Cecenia e in Georgia, l’assalto all’Artico, le ingerenze in Ucraina, se si diventa servi del gas russo? E ancora: come affermare l’autonomia dell’Unione di fronte a un duplice vassallaggio, militare-americano da un lato e russo-energetico dall’altro?

Ma sul Nabucco si è investito poco e male. L’Italia e l’Eni sono state le prime a capire che non c’era di che ingrassarsi col progetto europeo e si son subito vendute al “rivale” russo. Eni e Gazprom diventano così partners per la costruzione del South Stream con tanti saluti all’europeo Nabucco. L’Italia, che con difficoltà si annovera tra le democrazie compiute, predilige fare affari con Putin e Gheddafi. La torta russa piace non solo agli italiani, ecco che la Edf (Electricité de France) entra nella joint-venture con Gazprom ed Eni. Lo scorso giugno 2010 Nicolas Sarkozy vola a San Pietroburgo alla corte dello zar per sottoscrivere l’affare.

Ora anche i tedeschi vogliono partecipare all’abbuffata. “Benone” esclama Berlusconi in visita presso l’amico Putin, in questo modo sarà possibile riscuotere l’interesse dell’Unione Europea finora rimasta fredda nei confronti del South Stream. I tedeschi, va detto, già sono partner di Gazprom per la costruzione del gasdotto North Stream, quello che aggira repubbliche baltiche e Polonia (ree di scarso amore verso lo zar) e va dritto in Germania; quello sottoscritto a inizio anni Duemila dall’allora cancelliere Schroeder, attratto dall’oro azzurro russo, poi divenuto dirigente Gazprom e responsabile proprio del consorzio North Stream; quello per cui in Polonia si stracciano le vesti gridando a un nuovo patto Molotov-Ribbentrop.

Rumors indicano nella Basf il nome dell’azienda energetica tedesca pronta a unirsi ai tre moschettieri Gazprom, Eni, Edf. Un’ulteriore mazzata al progetto Nabucco per il quale la Banca europea per gli Investimenti (Bei) e quella per la Ricostruzione e Sviluppo (Bers) hanno appena stanziato altri 4 miliardi di euro, segno che l’affrancamento energetico dell’Europa dalla Russia è considerato prioritario da Bruxelles che si trova a dover gestire tre serpi in seno assai velenose.

Una nota finale: il Nabucco parte dall’Iran, via Tabriz ed Erzurum. Proprio ad Erzurum raccoglie il braccio che s’avvia da Baku e passa per Tiblisi. Poi va verso Ankara, Istanbul e l’Europa. Il governo italiano si è sempre mostrato molto duro nei confronti del regime degli Ayatollah, ai limiti dell’ottusità, e si è detto favorevole all’intervento militare a stelle e strisce mentre, per ragioni che dopo questo lungo discorso parranno ovvie, non ha mai detto “beh” sul massacro in Cecenia.

I partners del Nabucco, inoltre, stanno tutti cambiando casacca: L’Azerbaijan si è vincolato con Mosca, e ben poco della sua produzione resterà a Bruxelles, ma il Cremlino ha promesso protezione e denari in quantità al regime di Baku. Il Turkmenistan, altra dittatura, è da pochissimo entrata in affari con Eni e Gazprom e punta a rifornire la Cina più che l’Europa. L’Iran -grazie anche all’intervento americano- è assai indietro nello sviluppo dei suoi giacimenti. Ecco allora che non resta che prendersi in faccia l’ironia di Putin: “Che Dio li aiuti -ha dichiarato- il Nabucco è un tubo vuoto e il consorzio che lo sta sviluppando (l’austriaca Omw, l’ungherese Mol, la rumena Transgaz, la Bulgargas, la tedesca Rwe e la turca Botas. ndr) non fornirà nemmeno un metro cubo di gas fino al 2018 mentre fra un anno il South Stream sarà pronto”. Con buona pace della democrazia europea.
(East Journal)

THE THIRD ELEMENT. (Il terzo elemento)

The White Stream Pipeline Company is considering plans to build a gas pipeline linking Azerbaijan and Georgia.

According to British White Stream Pipeline Company Chairman Roberto Pirani, the proposed pipeline would transport gas from the Sangachal terminal near Baku in Azerbaijan to the Georgian port of Supsa.

The Sangachal–Supsa pipeline would provide an extension to the White Stream Pipeline currently in planning, which will transport natural gas from the Caspian Region to markets in Central and Eastern Europe.

Conceived in 2005, the White Stream project is intended to develop the Southern energy corridor, transporting gas from countries in the Caspian Region via Georgia directly to countries on the Western side of the Black Sea, such as Romania and Ukraine. The pipelines will cross the Black Sea in water depths in excess of 2,000 m.

Under the new plans, the project will also be linked in to gas supplies in Azerbaijan. The Sangachal terminal is currently supplied with gas from the Azerbaijani offshore field of Shah Deniz.

The White Stream project will be developed in stages and it is anticipated that at full completion will have two branches, one connecting Georgia to Romania through two parallel subsea pipelines, with an offshore length of approximately 1,100 km and the other connecting Georgia to the Ukrainian gas network also with two parallel pipelines an offshore length of 620 km.
The first White Stream Pipeline, expected to commence construction in 2012, will have a capacity of approximately 8 Bcm/a and is due for completion in 2015. During the subsequent years the other three subsea pipelines will be constructed and will take the overall capacity of the system to approximately 32 Bcm/a. A 430 km subsea connection between Crimea and Romania is also being considered.

The Southern energy corridor also includes [1) ndr] the Nabucco Turkey –Greece–Italy (TGI) Pipeline and [2) ndr] the Trans-Adriatic Pipeline (TAP).
(Pipelines International)

EVERYONE AGAINST EVERYONE. (Tutti contro tutti)

The drive by foreign companies to grab a piece of the action in gas-rich Turkmenistan is reported to be producing some strange bedfellows -- like PetroSaudi, owned by the son of King Abdallah, and Merhav, an Israeli conglomerate run by former intelligence officer Yosef Maiman.

According to Intelligence Online, a Paris-based Web site that covers global security issues, the companies from these longtime Middle Eastern adversaries are negotiating a partnership "through intermediaries" to explore the Serdar field that straddles the border between Turkmenistan and oil-rich Azerbaijan.

It is reported to contain the equivalent of at least 1 billion barrels of recoverable oil.

Turkmenistan is the world's 10th-largest gas producer. The United States, Europe, China, Russia and Iran are all clamoring for access to its vast gas fields.

These contain an estimated 20 trillion cubic meters of natural gas -- enough to supply Europe for 66 years.

Maiman once worked for the Mossad, Israel's foreign intelligence service, and is reputedly linked to a network of companies owned by the agency.

He has been moving into Central Asia for some time, spearheading an Israeli effort to secure influence -- and a significant intelligence presence -- in the energy-rich Caspian Sea basin, the economic center of the five former Soviet republics that make up the Muslim region.

The Merhav Group has been involved in Turkmenistan's natural gas industry for years. In 2004 The Jerusalem Post described Maiman, a familiar figure in the Turkmen capital of Ashgabat, as a "leading figure" in Central Asia's gas sector.

According to some reports, Maiman was made a citizen of Turkmenistan by decree of the country's eccentric and authoritarian president, Saparmurad Niyazov, who died of heart disease Dec. 21, 2006.

According to Intelligence Online, Maiman was behind the appointment of Israel's first ambassador to Turkmenistan, Reuven Dinia, by Foreign Minister Avigdor Lieberman recently. Dinai is another ex-Mossad officer, who once ran its Moscow station until he was expelled in 1996.

Merhav has reportedly dominated foreign business in Turkmenistan, including brokering energy projects in the country.

Turkmenistan and Azerbaijan are closely linked to Israeli commercial interests -- not to mention Israeli intelligence -- and Maiman appears to be well-placed to broker an agreement between them over the disputed Serdar field, which Ashgabat and Baku both claim, and secure a contract.

The German-born entrepreneur, who became an Israeli citizen in 1971 and founded Merhav five years later, also has longstanding business links with Saudi Arabia.

These connections may well expand as Israel and Saudi Arabia both find themselves in confrontation with nuclear-wannabe Iran.

Maiman has traveled to Riyadh several times in recent years on his collection of non-Israeli passports.
PetroSaudi, headed by Turki bin Abdullah bin Abdulaziz, one of the sons of the Saudi monarch, thus may be a front-runner in Turkmenistan if it cements its partnership with Merhav.

They face competition from Total of France, Eni of Italy, Royal Dutch Shell, TNK-BP, Lukoil of Russia and Chevron of the United States.

These companies are being welcomed in Ashgabat because the country was badly hit in April, when Russia suddenly stopped importing Turkmen natural gas.

That slashed Turkmenistan's exports by 84 percent, because Russia was experiencing a gas glut. Without Russia as a customer, Turkmenistan is losing an estimated $1 billion a month.

"Right now Turkmenistan is looking for any energy deal it can make with almost any player, because Russia's sudden halt to natural gas imports has cut off most of Ashgabat's cash flow," according to the U.S.-based security consultancy Stratfor.

Turkmenistan does not have a viable alternative export route and, warns Stratfor, "could go bankrupt if energy revenues do not start coming in from somewhere."

Moscow, which remains the dominant power in Central Asia, is unhappy about Turkmenistan's efforts to bring in new energy partners.

China, with its insatiable appetite for energy to fuel its expanding economy, is likely to take Russia's place. Russia does not want to see any challenge to its influence in Central Asia. Neighboring Iran is another energy-hungry prospect.

"The geography of Central Asia, the competition among its five countries for resources and the increasing competition among outside powers for Central Asian energy seem to indicate that a fight for the region's energy resources in inevitable," according to Stratfor.
(UPI)

ASTANA SEEN FROM ROMANIA (Astana vista dalla Romania)

The State Secretary of the Romanian Ministry of Economy, Tudor Sherban, spoke in an interview with Trend Capital correspondent.

Cooperation in energy was discussed during the eighth session of the Kazakh-Romanian inter-governmental commission on trade and economic cooperation in Astana today. You mentioned two projects - "Nabucco" and "Constanta - Trieste".

How does Romania appreciate Kazakhstan's participation in two these projects?

We think that the role of Kazakhstan in the Nabucco project is very important. Kazakhstan has its own gas reserves. It is known that Kazakhstan participates in some projects in Turkmenistan. So, certain gas reserves can be directed to the "Nabucco" from there.

Moreover, part of those gas volumes, which are under contracts with Russia, can be also supplied to "Nabucco". But it will be possible with the consent of all parties. The recent visit of Russian Prime Minister Vladimir Putin to Turkey encourages on this regards.

As Romania is involved in "Nabucco", I think that it will be possible to agree in coordination with other partners given other projects which Russia promotes in our region (the Balkans).

Azerbaijan is important partner for us in the Caspian region. it is our reliable gas supplier. We know that Azerbaijan has expressed its intention to participate with its gas in the Nabucco project. We welcome and fully support this decision. Moreover, Azerbaijan has strategically important location in the junction of transportation routes.

I would like to inform that Romania has plans to build a new terminal in Constanta for liquefied gas storage.

How do you appreciate Kazakhstan's participation in the project pipeline 'Constanta - Trieste'?

The Kazakh side made a request to participate in the negotiations on the project a year ago. It means for us that Kazakhstan is interested in participating in this project. At present, the project of "Constanta - Trieste" pipeline is at the stage of organizing. A consortium has been already established and its head has been appointed. But, unfortunately, one of the participants of the project - Croatia has blocked the course of negotiations and actions.

But the issue concerning drawing investments will occur soon, when goals of each company from the countries-participants of the project, through which the pipeline is laid, are defined.

From our point of view, Kazakhstan will be able to participate in this project, along with Romania. If it enters with investments, it will automatically mean that Kazakhstan can have certain package of shares.

What Kazakh share is indicated in the project?

It is difficult to name any specific figure without development of feasibility study. But when it is ready, it will be known about shares of all sides after determining the cost. Kazakhstan will be able to join the project as oil supplier in future. Thus, Kazakhstan can enter the center of Europe through Romania, providing its oil via Constanta - Trieste pipeline.

It dealt with establishment of energy bridge of Batumi - Constanta at one time. What are its prospects?

We hope that the geopolitical climate in the South Caucasus will stabilize. Georgia has great importance to ensure transit routes and gas, oil and other goods supplies, to Europe. We hope that the situation will normalize, because one can not talk about politics without economy, and Batumi is an important transportation hub in the region.

Moreover, the Black Sea and Batumi port are direct access to Europe. Therefore, stabilization of the situation in Georgia is in interests of the same Caspian countries to have direct access to the Black Sea.

How do you assess entry of the national KazMunaiGaz on the Romanian market by buying shares of Rompetrol?

Positively. At present, our companies, including the national oil company, OMV, faced with fierce competition in the person of KMG. But these are the laws of the market. It is very good. As a recommendation, I would like to advise KMG to be more transparent with the Romanian public authorities.
(Gazeta.kz)

LET THE COURT DECIDE (Lasciamo decidere la corte)

The unexpected and sudden renewal of the Turkmen-Azerbaijani dispute over three hydrocarbon fields in the middle of the Caspian Sea is the latest setback to the European Union's Nabucco gas-pipeline project.

An argument over ownership of the Caspian fields had soured Turkmen-Azerbaijani relations for more than a decade. But over the last two years, representatives of the two countries -- prodded by EU and U.S. officials -- had been meeting regularly, reviving hopes that Nabucco could be realized.

Those hopes took a hit on July 24 when Turkmen President Gurbanguly Berdymukhammedov cited a report from Deputy Foreign Minister Toyly Komekov during a cabinet meeting.

Berdymukhammedov said the report showed that the impasse over the demarcation of the Caspian seabed between the two countries has remained unresolved "due to Azerbaijan's specific position. The main reason behind this situation is that there are mineral deposits located exactly in the disputed areas of the Caspian Sea. Azerbaijan claims ownership of these deposits, including the deposit known as Promezhutochnoyee during the Soviet era and which we now call our Serdar deposit."

Berdymukhammedov went on to mention the Omar and Osman fields, which he said Azerbaijan is already exploring but which, he claimed, "belong to us." The Turkmen president expressed regret that 16 bilateral meetings had not resolved the issue and then instructed Foreign Minister Rashid Meredov to take the issue to "the International Court of Arbitration."

That could present a major obstacle to the European Union's Nabucco plans. The proposed 3,300-kilometer pipeline starts at Georgia's western border and then heads toward Europe via Turkey. Nabucco wants to include Central Asian gas in the pipeline, particularly gas from Turkmenistan, which has one of the world's largest reserves of natural gas.

For some 15 years now the plan was to construct a "trans-Caspian" pipeline along the Caspian seabed from Turkmenistan to Azerbaijan, where it would be join a pipeline leading to Georgia's western border. But the dispute between Ashgabat and Baku over ownership of the three Caspian fields made construction of this pipeline impossible.

The recent warming of ties between the two countries, including a visit by Berdymukhammedov to Baku last year, raised hopes the pipeline could finally be built.

On state television on July 25, Deputy Foreign Minister Xalaf Xalafov indicated Azerbaijan was prepared to have a court decide on the ownership issue. "We believe that we are ready to defend Azerbaijan's position and rights on all levels," Xalafov said.

Ilham Shaban, an Azerbaijan-based energy expert and the editor of the "Turan Energy" daily newsletter, tells RFE/RL's Turkmen Service that after years of this dispute, a court ruling may be the most "civilized" means of ending the stalemate.

"And to take this matter before a court is a natural step and we also hope the court will render a fair verdict," Shaban says.

Shaban adds that a resolution of the ownership question could then pave the way for dramatic improvement in Turkmen-Azerbaijani ties, which in turn opens up the way for projects like Nabucco. Nabucco foresees that the lion's share of the proposed 31 billion cubic meters of gas for the pipeline would come from Turkmenistan.

"I feel that this court will render a decision that will bring our countries even closer together if Ashgabat and Baku will observe and accept the decision of the International Arbitration Court," he says.

Shaban concedes that if the two countries do not show flexibility and maintain the rigid posturing that has marred bilateral ties for so long, the court case could drag on for years and endanger the construction of the trans-Caspian pipeline and also Nabucco.
(rferl)

RELY ON ALIYEV (Dipendere da Aliyev)

On July 13, the EU and Turkey signed what's been hailed as a historic deal to start work on the Nabucco pipeline, which is designed to give Europe an alternative to the unreliable supply of natural gas from Russia's Gazprom.

On paper, it's simple. By 2014, the Nabucco pipeline should be complete, and Azerbaijan will be the first, or at least among the first, to begin shipping gas to Europe at a modest rate of 8 billion cubic meters (bcm) per year.

The pipeline -- which will run 3,300 kilometers from eastern Turkey, through the Balkans, and finally to Austria -- should be fully operational by 2020, at which time it is expected to be pumping 31 bcm of gas to Europe each year, or approximately 10 percent of Europe's annual gas consumption.

That would relieve Europe of the risk of relying on Russia for gas, although the EU says that's not the point. But privately, EU officials say the continent has to find an alternative source, given Russia's recurring price disputes with transit country Ukraine that last winter left Europe struggling with a gas shortage.

Yet there are questions as to whether Azerbaijan can meet its annual commitment of gas. Baku says it has enough to get the pipeline going, but estimates of its reserves are just that: estimates.

Stephen Blank, who is a professor of national security affairs at the U.S. Army War College, says the issue is not whether Azerbaijan has an adequate supply of gas to get Nabucco started, but whether the country can afford to finish the project and will be able to resist pressure from Russia.

While Blank acknowledges that one issue is the question whether the Nabucco project has the financial muscle to "give their suppliers credible guarantees that a pipeline can be built from their country, through the Caspian Sea or [somewhere] else [in] Europe, and will it stand up to Russia?

"It looks like it will stand up to Russia, but the financing has to be there," he continues. "These are arranged marriages, and like arranged marriages, they're supposed to last a long time, so they take a long time to negotiate."

Blank says these political and economic risks merge into one overall risk: That Russia may persuade Azerbaijan to withhold its gas from Nabucco, and as a result, perhaps no one in the region will step up to supply financing for the pipeline.

If that happens, he says, Russia will have won a significant battle in what he calls an economic war that Russia has been waging on Europe.

"If Nabucco can't be built, [Russia's] South Stream [pipeline project] or the Russian pipeline through Ukraine and Belarus become the only option to the south. And Russia gets the ability to play the great power game and leverage its power in Europe as a gas power," Blank notes.

He says Moscow has "nothing else they can use [but] a lot of economic and political intrigue. It's nasty, it's brutal, but it's mainly economic. It's not guns and troops moving over borders. But it's hard power."

Azerbaijan isn't the only source of gas for Nabucco. EU officials are reluctant to discuss alternatives to Azerbaijan, but they have to be considered, says Kenneth Green, who studies energy issues at the American Enterprise Institute, a private Washington policy center.

But Green stresses that not all alternatives can be considered equally, either because of how much -- or little -- gas they can generate, and for political reasons as well.

He points to Iran and Iraq as good examples. Both are said to have generous gas reserves, but for the immediate future, he says, Iraq is a far more reliable source of gas than Iran, at least from a political standpoint.

"We have an interest in helping Iraq get back on its feet and realize revenues for rebuilding through [the] sale of natural gas and because they are, at least titularly now, they're a democratic regime that's going to be friendly to the West. One has a greater expectation that they won't play games politically with the supply," Green says.

"But when you have Iran, which is under sanctions already because of its nuclear program, is making threats to U.S. allies and to European allies -- I mean, going from Gazprom to depending on Iran is like going from the frying pan into the fire."

Green says it's also possible that, given its recent electoral trouble, Iran, too, may have a change of government and become a reliable source of gas, even if its foreign policy were to remain contrary to Western interests. That's because now, Iran lets ideology rule its economy.

Iran can maintain its current ideology -- including a harsh foreign policy toward Israel, plus support for militant groups such as Hamas and Hizballah -- if it separates politics from economics. In other words, it could do business with the EU, with which it has strong disagreements, as long as it makes a profit doing so.

Iran aside, Green says other Caspian states -- Kazakhstan and, in particular, Turkmenistan -- might be even better alternatives to Azerbaijan than Iran. But these countries also are former Soviet republics, and Russia may be able to persuade them to run their gas through Russian pipelines, not through Nabucco.

Like Blank, Green says there are so many options, so many countries, and so many other variables involved that it would be foolhardy to try to anticipate what will happen with Nabucco -- even whether it will eventually be built.
(rferl)

ALL EYES ON ANKARA (Occhi puntati su Ankara)

Azerbaijan, once the cradle of Russia's fledgling oil industry, wants the best deal possible for the natural gas craved by European consumers keen to reduce their energy dependence on Moscow.

But Europe needs assurances that gas from below the Caspian Sea will flow through costly new pipelines. Resolving the political stalemate, including a key transit deal with Turkey, will determine when Azerbaijan can start pumping more gas. "We are increasingly seeing infrastructure projects that are driven by politics, not business," said Sveinung Dankel, Statoil Hydro Azerbaijan's lead negotiator for gas transportation.

"The Nabucco project is a case in point. Clearly an important link is missing: the sourcing of gas," he said.

Azerbaijan, which plans to produce 45 percent more gas by 2015, could potentially supply much of the gas to fill the Western-backed Nabucco pipeline, an alternative route for European consumers reliant on Russia for a quarter of their gas.

But Azerbaijan, which has yet to agree on the amount of gas Turkey would take from the pipeline, has other options. As well as other routes through the 'Southern Corridor' to Europe, Baku could also sell its gas to Russia, Georgia or Iran.

Azeri President Ilham Aliyev, addressing the 16th Caspian International Oil and Gas Conference in Baku this week, said the energy sector had become very politicised.

"If we are negotiating sales and purchase contracts, the price should be reasonable. If the issue of transit is on the table, we should also get a reasonable price," Aliyev said.

For Western producers and consumers alike, the delays are a cause for concern.

The second phase of the Shah Deniz field could potentially supply 16 billion cubic metres a year, half of Nabucco's planned capacity, but project leaders StatoilHydro and BP cannot commit to a start date until contracts are signed.

"First come the politics, then comes the industry. Set the framework and the industry will do the rest," said Robert Klein, managing director of the Trans Adriatic Pipeline, an alternative route to southern Europe.

"This is what politics can do: a clear statement in Azerbaijan that gas is flowing to Europe; a clear statement from Turkey about transit terms and conditions; a clear statement from the EU that it's bringing in gas from new resources in the Caspian region."

Azeri state energy firm Socar says gas production could rise to 34 billion cubic metres by 2015 from 23.4 bcm last year. Annual exports could exceed 30 bcm within 10 to 15 years, said Kristian Hausken, president of StatoilHydro Azerbaijan.

Europe will need to import between 400 and 450 bcm annually by 2020, up from 267 bcm in 2007, said Elio Ruggeri, business development director at Edison SpA and project director for another pipeline alternative, ITGI.

The Caspian region could supply about half of the additional volumes, he said, with Azerbaijan in pole position to start flows ahead of Turkmenistan and other Central Asian states.

Interest in Azeri gas, particularly from the second phase of Shah Deniz, is strong. Elshad Nasirov, vice-president for investment and marketing at Azeri state energy firm Socar, said Russia, Iran and Georgia had all offered to buy the field's gas.

"We will consider all proposals," Nasirov told Reuters. Socar is also a shareholder in Shah Deniz, as well as Russia's LUKOIL, France's Total and Iranian and Turkish state firms.

Observers say a transit deal between Azerbaijan and Turkey will play a large role in determining whether Azeri gas will flow into Nabucco or other European pipelines, or north into Russia -- an option the Shah Deniz partners have not discounted.

Turkish Energy Minister Taner Yildiz said this week Ankara had not given up its demand to take 15 percent of the gas to be carried by the Nabucco pipeline, either for domestic demand or for re-export. Azerbaijan has previously opposed such a plan.

"It's critical that Azerbaijan and Turkey reach an agreement on pricing and on transit in the near future that will give confidence to the project," said Richard Morningstar, the U.S. Secretary of State's Special Envoy for Eurasian Energy.

A partner in the Shah Deniz project, speaking on condition of anonymity, was more blunt: "If we don't reach agreement with Turkey, we'll sell to Russia."
(Georgiandaily)