CASPIAN NATURAL GAS—Conclusion: Trans-Caspian pipeline remains contentious

Jan. 12, 2009
The routes Kazakhstan could use to export its natural gas resources are of interest to both potential customers and the region’s other producers.

The routes Kazakhstan could use to export its natural gas resources are of interest to both potential customers and the region’s other producers.

Kazakhstan’s large natural gas reserves and limited domestic demand make the country an increasingly important potential supplier to consuming countries in both Europe and Asia. Its geographic position, meanwhile, makes it a potential transit nation for natural gas supplies moving from Uzbekistan and Turkmenistan to Europe.

The first part of this article examined the various land pipeline projects designed to export Kazakh natural gas. This concluding article will focus on the Trans-Caspian Gas Pipeline and the legal status of the Caspian Sea.

Trans-Caspian gas

Recent doubts about the reliability of Russian and Middle Eastern gas supplies have renewed European and American interest in the Trans-Caspian gas pipeline (TCGP) system. The project, actively lobbied for by the US in the 1990s, initially aimed to promote gas exports (up to 30 billion cu m/year; about 1 tcf/year) from eastern Turkmenistan via a subsea pipeline to the coast of Azerbaijan and on to Turkey.

The 1,020-mile pipeline was to cost $2-3 billion. The project was to ship 16 billion cu m/year of gas to Turkey and 14 billion cu m/year to other European consumers. Conflict between Turkmenistan and Azerbaijan over both gas share in the proposed pipeline and the division of Caspian hydrocarbon fields crippled the project.

Subsequent attempts by the littoral states to resolve the legal status of the Caspian Sea have failed, apart from a 2002 bilateral agreement between Russia and Kazakhstan on the division of Caspian hydrocarbon fields. Turkmenistan and Iran initially denounced the Russian-Kazakh agreement as contravening their legal rights, while Azerbaijan welcomed the deal.

Advancement of the Nabucco pipeline project has also helped reinvigorate European and US interest in the Trans-Caspian pipeline. The proposed 3,300-km Nabucco pipeline would run from Erzurum, Turkey, to the Austrian gas hub at Baumgarten. At Erzurum Nabucco would link with the TabrizErzurum gas pipeline and the South Caucasus gas pipeline (Baku-Tbilisi-Erzurum), which in turn could be connected to a Trans-Caspian gas pipeline.

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Nabucco would initially carry 8-13 billion cu m/year of gas, to be expanded by 2020 to 31 billion cu m/year. Estimated construction cost of the Nabucco pipeline totaled €7.9 billion in May 2008 ($12.3 billion).1

Nabucco Gas Pipeline International GmbH, formed in 2004, consists of OMV (Austria), MOL (Hungary), Transgaz (Romania), Bulgargaz (Bulgaria), RWE (Germany), and Botas (Turkey), with each company holding a 16.67% stake. OMV leads the consortium. Gaz de France, the national oil company of Azerbaijan, and Kazmunaigaz (Kazakhstan) have all since expressed interest in joining the project.

Potential gas volumes for Nabucco could come from a variety of countries, including Azerbaijan, Turkmenistan, and Kazakhstan as well as Iran, Iraq, and other Persian Gulf producers. Political instability in the Middle East increases the likelihood gas volumes for Nabucco would come only from Central Asian suppliers.

Kazakhstan could become the entry point for Central Asian gas supplies shipped by the Trans-Caspian gas pipeline (TCGP) from Aktau on Kazakhstan’s Caspian coast (near Tengiz field) to Baku, Azerbaijan. The TCGP could connect there to the South Caucasus gas pipeline. The Kazakhstan section of the TCGP would also connect via Turkmenbashi to Turkmenistan’s Caspian fields.

TCGP would cover 1,592 km (about 989 miles), including onshore sections in Kazakhstan (600 km), Azerbaijan and Turkey (Baku to Erzurum, 692 km), and the 300-km offshore section crossing the Caspian Sea. Nominal capacity of 20 billion cu m/year could expand to 30 billion cu m/year.

Alternative methods of delivering gas from Kazakhstan and Turkmenistan include:2

  • LNG.
  • Compressed natural gas.
  • Gas-to-liquids.

Several issues mitigate against construction of the Trans-Caspian and Nabucco pipelines; competition from other projects, Russia’s well-known opposition to these projects and Central Asia’s participation in them, and the still unclear legal status of the Caspian Sea.

Gazprom and Italian ENI signed a memorandum of understanding to build the 900-km South Stream pipeline in June 2007. The companies say construction will take 3 years following EU approval. The pipeline will run from the Russian Black Sea coast to Varna, Bulgaria, and then in two directions: to Greece and southern Italy (southwestern route), and through Serbia and Hungary to Austria (northwestern route). The pipeline’s planned capacity is 30 billion cu m/year. The successful pursuit of South Stream, to be fed by the Caspian Littoral pipeline discussed in Part 1 of this article (OGJ, Jan. 5, 2009, p. 56) could work against completion of both TCGP and Nabucco.

The accompanying table summarizes currently discussed Central Asian natural gas pipeline projects.

Legal status

Apart from any questions regarding its economic viability, the proposed pipeline faces difficulties stemming from the uncertain territorial status of the Caspian Sea.

Only two Caspian littoral sates—Iran and the Soviet Union—existed before the 1991 collapse of the latter. The two signed bilateral treaties regarding the Caspian Sea in 1921 and 1940 but never established seabed boundaries or held consultations regarding oil and natural gas exploration in the area.

The primary current problem centers on whether to define the Caspian as an inland lake or a sea. If defined as a sea, the Law of the Sea Convention would apply and both full maritime boundaries and mineral rights of the five states would be established accordingly.

The Law of the Sea, however, does not apply to inland lakes, requiring that the Caspian either be developed jointly or that surrounding states reach agreements regarding its development.

An agreement on the legal status of the Caspian Sea will require not only Russian but also Iranian participation. The latter is highly unlikely given current tensions between Iran and the US. Russia has already voiced its concerns about the possible environmental effects of a Trans-Caspian gas pipeline and demands all Caspian countries be consulted before such a project commences.

Azerbaijan and Kazakhstan must also reach a consensus with Turkmenistan regarding the division of hydrocarbon resources in the area, contested since the collapse of the Soviet Union. Kazakhstan signed a hydrocarbon agreement with Russia in 1998 and Azerbaijan in 2001 but has so far been unsuccessful in reaching an accord with Turkmenistan.

Political circumstances also hinder other potential pipeline routes through Afghanistan to India and Pakistan or via Iran into Turkey and Europe (favored by Kazakhstan).


  1. “Nabucco pipeline cost rises to 7.9 bln euros,” Reuters, May 28, 2008.
  2. “Gas Exports to Europe: Transportation Alternatives,” S.H. Lucas & Associates Inc., 2007.