COMMENT — The final leg in the race for Caspian gas

Alexandros Petersen
Woodrow Wilson International Center for Scholars
Washington, DC

In the past few months, the race for Caspian gas has shifted more rapidly and more frequently than it had in the past decade. The runners and judges have changed since early 2011, and the spectators are rooting for entirely new contenders. A once wide-open playing field of midsize European companies and regional national champions has given way to a competition to be determined almost exclusively by Azerbaijan's state energy company SOCAR.

Just a year ago, the race focused on the massive 30 billion cu m/year Nabucco pipeline, expected to bring Azerbaijani, Turkmen, and possibly Iraqi or even Egyptian natural gas to Austria's hub at Baumgarten. Nabucco, without a champion among the major oil companies, had been on the table for years, struggling to convince potential investors to support a project that had not secured any commitments for natural gas volumes.

As summer approached, the European Union's Commissioner for Energy and the US Special Envoy for Eurasian Energy made a point of using the term "Southern Gas Corridor" in public statements to reflect that Nabucco's once dismissed competing projects—the Trans-Adriatic Pipeline (TAP) and the Interconnector Greece-Italy (IGI)—were quickly gaining credence. Most observers considered these 10 billion cu m/year projects, which sought to transport the same Azerbaijani gas as Nabucco to Italian and Western Balkans markets instead of Central Europe, more feasible given their reliance on only one source of gas. Statoil's participation in TAP elevated this project to favored status, the company also being a partner with SOCAR in the Shah Deniz consortium holding the Azerbaijani gas.

Just before the Oct. 1 deadline for the three competing projects to submit their proposals to the Shah Deniz consortium, however, BP announced it was sponsoring a fourth competitor. The South East Europe Pipeline (SEEP) would bring 10 billion cu m/year from the Turkish border to Austria using an expanded version of BP's South Caucasus Pipeline and Turkish BOTAS's existing domestic pipeline network. BP is the other major foreign shareholder in the Shah Deniz consortium.

And in mid-November, SOCAR's chairman Rovnag Abdullayev announced to surprised delegates at a conference in Istanbul that IGI, SEEP, or TAP could be complemented by a joint Azerbaijani-Turkish project, the Trans-Anatolian pipeline, which would serve as the non-EU half of the original Nabucco vision, complementing SEEP's EU portion.

This 20+ billion cu m/year pipeline proposal not only drove a stake into the heart of Nabucco, but also marked a seminal change in the Eurasian pipeline politics game. Until now, the Shah Deniz consortium largely sat back, entertaining offers from outside companies for how their gas would reach EU markets. SEEP and the Trans-Anatolian proposal, however, clearly show the holders of the gas taking matters into their own hands. It now looks likely the winners of the race will be two runners not even in contention just a few months ago.

The Shah Deniz consortium has, however, postponed the date to choose a pipeline project to sometime in the late spring from this winter. Having decided to build their own midstream infrastructure, the holders of the gas now seem to be negotiating among themselves. This could mean a SEEP-Trans-Anatolian condominium, but it may also turn out to be a TAP-Trans-Anatolian pairing, or some other combination.

What has become clear is that SOCAR will decide the outcome. Azerbaijan's state energy company will use its in-country clout to play BP off Statoil within the consortium. SOCAR will make sure shareholders behind whichever pipeline project it anoints will also support the Trans-Anatolian pipeline, perhaps even financially.

Barring another vacillation in the coming months, it looks increasingly like Baku has this race under tight control.

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