The story of gas (3)
by
MARIA BEAT*

As for Turkey, it became a Russian gas consumer back in the 1980s with a launch of the Western Corridor pipeline to bring 8 billion cubic meters (bcm) of natural gas through Ukraine, Moldova and Bulgaria to Turkey. It remained the sole source of Russian gas supply to Turkey until 2004, when the state-of-the-art Blue Stream underwater pipeline became operational. The Western Corridor Agreement, due to expire in 2011, was further extended for another 20 years in August during Prime Minister Vladimir Putin’s visit to Turkey.

The inauguration of Blue Stream in the autumn of 2005 almost coincided with the start of the first Russian-Ukrainian gas crisis to cause disruptions in its supply to the West -- actually, for the first time since the 1970s. Without overestimating the economic impact of the crisis on the West, since there was not a serious gas supply shortage experienced at the time, it still deserves to be mentioned as its prime impact was rather of a political nature: In the winter of 2006 the world at large came to realize that Russia was back as an aggressive player. It was in 2006 as well when the Russian government announced Russia’s becoming an energy superpower as a primary national goal.

The revelation that Russia was in the position to leave Western Europe freezing in mid-winter, having shut the gas valve, was of a shocking nature for the European Union’s new member countries, who were deeply concerned with the state of their gas affairs. As such, they did not pay enough attention to the fact that, of all the Russian gas consumers in the region, Turkey was the only country immune to the Russian-Ukrainian gas row. Two gas pipelines from Russia ensure regular gas deliveries, without bottlenecks and interruptions, to Turkey.

Building pipelines

For natural gas, pipelines are the ultimate means of transportation, provided that the gas is not liquefied. Once built, a pipeline draws the gas supplier and the consumer closer together and the costlier its construction is, the stronger the supplier-consumer bond becomes. Logical as it sounds, this assumption implies as well that, when a dispute or conflict of interest happens, its resolution is next to impossible. Hypothetically, a resolution could be still found provided that a political will is present but … there is always a “but.”

Pipelines are a fashionable business today, largely focused on the Black Sea region, in the past decade this business has led to the construction of the state-of-the-art underwater Blue Stream pipeline; the second longest pipeline in the world, the Baku-Tbilisi-Ceyhan (BTC) pipeline, which transports Caspian crude oil; and the first Caspian gas pipeline, the Baku-Tbilisi-Erzurum (BTE) pipeline. By coincidence or not, all of them come to Turkey, making it a regional energy hub and a sound player in the world energy market.

Turkey drew the attention of Russia’s energy sector in the mid-1990s when its all-powerful Gazprom decided to build the Blue Stream line by crossing the bottom of the Black Sea from Izobilnoe in the vicinity of Novorossiysk to Samsun in northern Turkey and to deliver 16 bcm of natural gas a year without passing through transit countries. Successfully completed in 2004 and officially opened a year later, today Blue Stream ensures direct Russian gas supplies to Turkey.

Largely, regional pipeline construction issues have topped the agenda of international business since the 1990s and two developments of prime importance have triggered this process. They are the 1991 collapse of the Soviet Union which resulted in the emergence of oil- and gas-rich post-Soviet economies and the adoption of the Caspian region policy by the United States administration in the mid-1990s.

Later on, two regional pipelines came into being to deliver Caspian crude oil and natural gas to the world markets by establishing a new southern export corridor bypassing Russia. Of them, the BTE gas pipeline became the second successful US pet project in the Caspian after the BTC oil pipeline. Commissioned in 2007, it is a major channel for natural gas deliveries from Azerbaijan to Georgia, Turkey and later Europe, with a sound potential to ensure Caspian gas supply for the Nabucco pipeline, provided of course that Azerbaijan agrees to continue supplying gas.

As for Azerbaijan, since its independence it has become a prime player in the regional oil and natural gas markets. It is estimated that geological analyses to be completed in 2015 will prove that its natural gas reserves are almost 3 trillion bcm, with potential to increase the overall gas production in the country to up to 45 bcm a year in another seven years. As of 2009, Azerbaijan’s gas production stands at 28 bcm a year.

Built at the cost of $900 million, the 690-kilometer-long BTE line came into being as a modified version of the Trans-Caspian Pipeline (TCP) originally envisaged by the US to bring natural gas from Turkmenistan through Azerbaijan and Georgia to Turkey and further on to European clients. Nevertheless, while being actively pursued by the Clinton administration initially, the project lost momentum right after its high-profile endorsement in November 1999 and was speedily replaced with the BTE pipeline to bring gas from the newly discovered Shah Deniz off-shore Azerbaijani block in the Caspian Sea to Erzurum in northern Turkey through Georgia. In operation for almost two years now, the BTE is expected to reach an additional capacity of 20-30 bcm a year shortly, which implies higher volumes of natural gas pumped to the world’s markets through Turkey, bypassing the Russian gas exporting system.

As was the case with the BTC, the construction of the BTE was largely triggered by the idea of ending Russia’s long-existing monopoly over the transportation of Caspian energy reserves to world markets and both projects were considered an absolute success story until Aug. 8, 2008, when the Russia-Georgia War broke out. Apparently when designed, the BTE was expected to improve the security of the international gas supply business by saving its transportation from bottlenecks and interruptions. Correct as it may have been initially, the expectation lost its ground in August 2008 when the pipeline was temporarily closed and gas production at Shah Deniz put on stand-by due to the military hostilities between Russia and Georgia. Moreover, Georgia’s image as a safe transit channel for commodities and energy resources transportation from the Caspian region to the world markets was severely damaged and the international community started looking into other transit options for oil and gas deliveries from the Caspian to the world markets.

Attention was immediately drawn to Armenia, though there were political complications there too, as the closed Turkish-Armenian borders were unanimously recognized as an obstacle. In the year that has passed since then, there has been a dramatic change in the existing status quo as Turkish-Armenian relations experienced a major breakthrough, bringing both countries to the final stage of opening the border and establishing diplomatic relations.

This surprising development is likely to result in a crucial change in the regional energy pipeline construction plans, with the potential to make Armenia a new transit corridor in the southern export route to the world markets. The approach is actively pursued by the US and the EU, and the Nabucco pipeline, as the focus of their energy attention, could use Armenia as a new transit route in the Caucasus, replacing Georgia. This brave scenario is more than speculation considering that a whole network of bypass pipelines functional in the Soviet times still exist in Azerbaijan and Armenia.

Dependence vs. independence

Energy reserves largely come to Europe from the Persian Gulf, northern Africa and Russia. As such, energy dependence is an issue of prime concern for Europe, as the European Security Strategy specified in 2003. While energy dependence is an accepted fact of life, overdependence on any country for key oil or gas supplies is fraught with the danger of disturbing national energy security. Still, the EU countries, being the world’s greatest importers of energy, are dependent on gas imports: from 32 percent of its gas for Italy to nearly 100 percent for Bulgaria, Estonia, Finland, Latvia, Lithuania, Romania and Slovakia. More than 30 percent of EU’s gas imports come from Russia and while the imports are duly diversified for Western Europe, new EU members from Central and Eastern Europe almost entirely depend on Russian gas.

As such, countries like Italy and Germany take the existing gas supply situation as normal and regard closer ties with Russia as a business opportunity and strategic necessity, while the others, mainly the former “people’s democracy” regimes concerned with Russia’s dominance in energy matters, fight against their dependence on Russian gas. While comfortable for Old Europe, energy dependence is unacceptable for them and their chief aim is to strive for energy independence. As the best solution to achieve energy independence, the diversification of gas supply sources coupled with the construction of alternative pipelines have been chosen as the best of available options, with the focus of attention on the Central Asian and Caspian reserves and the construction of the Southern Corridor pipeline system which is to include Nabucco as an imperative.