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Russian President's Caspian Tour All About Gas And Oil

  • Bruce Pannier

Medvedev is in Baku for business

Medvedev is in Baku for business

In the great game over Caspian gas and oil, Moscow appears to hold all the winning cards as Russian energy giant Gazprom seeks to monopolize energy sales from across the region.

Yet with competition for Caspian energy rising from Europe, China, and the United States, that game is far from over. It includes possible pitfalls even for leading player Russia -- particularly in Azerbaijan, long a strategic thorn in Moscow's side and the first stop on a three-country tour of the region by Russian President Dmitry Medvedev.

Energy is expected to dominate the agenda of the former Gazprom chairman, who will also visit Turkmenistan and Kazakhstan.

But in Baku, unlike in the other Caspian capitals, Medvedev must contend with Moscow's diminishing clout. Azerbaijan has used U.S.-backed, non-Russian routes -- the Baku-Tbilisi-Ceyhan oil pipeline and the Baku-Tbilisi-Erzurum gas pipeline -- to evade Moscow's grip on energy exports to the West. "So Russia has seen its influence erode in recent years [in Azerbaijan]," notes Federico Bordonaro, an analyst for Milan-based "In particular, the old Baku-Novorossiysk pipeline has been in part replaced by the Baku-Tbilisi-Ceyhan for conveying oil to the West."

Mindful of those and other challenges, Moscow dispatched Gazprom Chairman Aleksei Miller to Baku and Ashgabat in June to help lay the groundwork for the president's visit. Miller returned to Turkmenistan last week.

During his stay in Baku, Miller offered to buy as much natural gas as Azerbaijan would be willing to sell -- and to do so at world market prices. That offer remains on the table for Azerbaijan, which over the past two years has nearly doubled its annual gas output to 10.3 billion cubic meters (bcm).

Energy And Security

In Baku, Medvedev hopes to further Russia's regional aim: to gain full control for Gazprom over Caspian energy resources.

But he faces a tall task. Already able to export gas through non-Russian pipelines, Azerbaijan may have further export options in the future.

The EU and United States are backing the Nabucco pipeline project, which would carry fuel across Turkey and the Balkans some 30 bcm of gas annually to Europe. Nabucco has named various potential suppliers for the pipeline, including Azerbaijan, Turkmenistan, and Kazakhstan.

"The main goal of Medvedev in his visit to Azerbaijan is to use Azerbaijani gas in Russian interests. They want to buy all Azerbaijani gas; they don't want Azerbaijani gas to go to the Nabucco pipeline; that is the main purpose" says Vefa Guluzade an Azerbaijani analyst and former adviser to late President Heydar Aliev. "But Medvedev is not able to give anything constructive for Azerbaijan. Azerbaijan is an independent state and will use its gas and other natural resources in its own national interests. That's why I don't think that Medvedev will be able to achieve a deal with Azerbaijan."

Further complicating Medvedev's plans is Azerbaijan's own emerging security orientation. Baku is an active member of NATO's Partnership for Peace and in recent years has appeared to show greater interest in becoming a full member of the trans-Atlantic military alliance.

Although such a development remains hypothetical, Guluzade says it is still of concern to Russia and likely to be part of Medvedvev's calculations.

"There is another goal: Russia is very disturbed by Azerbaijan and NATO cooperation," Guluzade says. "Russia is always warning Azerbaijan not to enter NATO, not to improve relations with NATO, but this is interference in our internal affairs. We are an independent state. We were a Russian colony. Now we want to be in the worldwide security system and this is NATO and we will improve our relations with NATO, and in the future we will be a member of NATO. Medvedev is not able to stop it."

Turkmen Attraction

Meanwhile, Russia's Caspian strategy also faces challenges in Turkmenistan, although arguably less so than in Azerbaijan. Medvedev is due to arrive in Turkmenistan, just across the Caspian in Central Asia, on July 5.

Turkmenistan is the region's largest gas producer. Gazprom, which inherited the Soviet-era pipeline running out of Central Asia, enjoyed an absolute monopoly on exporting Turkmen gas until Iran helped fund and construct a modest pipeline linking the two countries in the late 1990s.

Gazprom exports more than half of Turkmenistan's gas. Last year, the Russian giant scored a victory when it reached a deal to build a gas pipeline along the Caspian's northeastern shore to ship gas from Turkmenistan, Uzbekistan, and Kazakhstan to Russia -- and on to Europe.

Nonetheless, competition for Gazprom looms.

Next year, a pipeline to China will begin pumping some 30 bcm of gas. Nabucco, set to become operational in 2013, also wants Turkmen gas. And India, Pakistan, Ashgabat, and Kabul have a project that envisages pumping Turkmen gas across Afghanistan to Pakistan and India.

Given the massive interest in Turkmen gas, Ashgabat-based analyst Atageldi Garaev calls it "the most precious commodity in the world." He tells RFE/RL's Turkmen Service that gas will be the focus of talks between Medvedev and Turkmen President Gurbanguly Berdymukhammedov:

"Russia and President Medvedev want to have the most precious commodity in the world -- Turkmen gas -- and to get Turkmen gas for a cheap price," Garaev says. "Of course, there will be talk about the future development of cultural ties between the two countries and about trade relations. But the main topic will be Turkmen gas."

Crowded Field

Precisely because of the increased competition, Garaev says Medvedev won't find it easy to get Ashgabat to sell cheaply.

"Turkmenistan will insist and will attempt to sell Turkmen gas for a higher price," Garaev says. "Right now, Turkmenistan has an opportunity, greater opportunities to sell its gas to other countries -- for example, to China and other countries. And because of that, Turkmenistan will try to sell its gas for much higher than the current price."

When Gazprom's Miller went to Turkmenistan in early June, Berdymukhammedov did not meet with him -- hardly a good sign for diplomats or major businessmen. In his follow-up visit on June 30, Miller was finally able to meet with the president but no breakthrough was reported.

Amid record world prices for natural gas, Azerbaijan and the Central Asian energy exporters now want more for their precious commodity, which just a few years ago they sold for well under $100 per 1,000 cubic meters.

In March, Gazprom offered Kazakhstan, Turkmenistan, and Uzbekistan what it said were "European prices" for their gas in 2009. The three accepted, but days later Gazprom announced the price for Tashkent would be $210 per 1,000 cubic meters -- or about one-third less than most analysts had expected.

Turkmenistan and Gazprom have yet to agree on a price.

John MacLeod, a senior editor at the London-based Institute for War and Peace Reporting (IWPR), says the Caspian energy-exporting countries are obviously trying to take advantage of the recent rise in prices and global interest in their gas and oil.

But MacLeod says Russia has great "clout" in the region and knows how to get what it wants.

"Certainly, the Turkmen are being a bit more difficult about the pricing issues," MacLeod says. "I think they're a little more assertive. I think that world prices, I think encouragement from external actors like the Europeans, for example -- this interest in Central Asian energy, and gas in particular, makes them feel a little more assertive. [But] I think the Russians understand this is a long game -- changing your export routes in any significant way takes a lot of time."

On July 4, Medvedev heads to Kazakhstan, the final stop on his Caspian tour. Astana, the region's largest crude oil producer, is also looking for new export routes. And in a clear sign of Russian priorities, Medvedev made the Kazakh capital his first foreign visit after taking over from Vladimir Putin in May.

RFE/RL Azerbaijan Service director Kenan Aliyev, Turkmen Service director Oguljamal Yazliyeva, and Guvanch Geraev of the Turkmen Service contributed to this report