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Azerbaijan: Turkmenistan To Pay Dearly For Turkish Gas Line

Boston, 21 July 1999 (RFE/RL/) -- Azerbaijan is prepared to ask a high price for cooperating with Turkmenistan on a trans-Caspian gas pipeline to Turkey.

Azerbaijani officials indicated last week that the country would seek at least half of the pipeline's capacity to sell its own gas. The country's new goal to become a major gas exporter is likely to change the strategic calculations in the region, as Azerbaijan joins the race for the Turkish market in the next two to three years.

Valekh Aleskerov of the State Oil Company of the Azerbaijani Republic said last week that the country wants to export 25 billion cubic meters of gas through the pipeline, assuming it would carry a total of 45 to 50 billion cubic meters per year.

The figures are far higher than those previously given for the pipeline's capacity. But SOCAR's claim is aimed at establishing the principle that it has a right to a major share of the trans-Caspian plan.

With the finding this month of a giant offshore gas deposit at the Shakh Deniz field, Azerbaijan has been transformed into a potential gas supplier, in addition to its main role as a center for oil. The discovery has interfered with the U.S.-backed strategy for the trans-Caspian project, which was based on Azerbaijan's concentration on oil, not gas.

Turkmenistan, with its huge gas reserves, was seen as the supplier for the trans-Caspian pipeline. The idea was to pair the project with the Baku-Ceyhan pipeline to carry Azerbaijan's oil in an energy corridor through the Caucasus to Turkey.

But last week, Socar's vice president, Ilham Aliev, said that Azerbaijan would not be content to serve only as a transit country for gas. Azerbaijan would only approve the trans-Caspian project if it was given a share of the consortium and access for its own gas, said the son of President Heidar Aliev.

Azerbaijan's new demands could squeeze Turkmenistan's planned exports through the pipeline, under an agreement announced with Turkey in March. Turkmenistan has promised to supply Turkey with up to 16 billion cubic meters of gas a year for its own use and 14 billion more for transit to Europe.

Turkmenistan's goal of shipping a total of 30 billion cubic meters of gas annually cannot be reached if Azerbaijan takes 25 billion cubic meters of the pipeline's capacity. A smaller share for more distant Turkmenistan would also raise doubts about the benefits of crossing the Caspian in a project that could cost $2.5 billion. It is also unclear whether Azerbaijan would use transit fees as a way to price Turkmen gas out of the market, as Russia has done.

One obvious reason for the new demands is Azerbaijan's continuing conflict with Turkmenistan over claims to Caspian oilfields. The two countries have ostensibly agreed to keep their border dispute from blocking the trans-Caspian project. But Azerbaijan's gas discovery has come just in time to achieve its ends by other means.

With its claim to the oilfields, Turkmenistan has sought a share of the Azerbaijan International Operating Company. Azerbaijan has now countered by claiming a share of the trans-Caspian gas project, which has been organized by U.S.-led PSG International. Azerbaijan is likely to have a stronger hand because it controls the transit corridor.

The complications for Azerbaijan's neighbors are also far-reaching. Baku is talking about piping gas to the Turkish city of Erzurum, which is also the junction for an Iranian gas pipeline, due to be ready in 2001. Even without the trans-Caspian project, Azerbaijan believes it can compete by upgrading a system of old lines through Georgia.

Russia is also working to build its Blue Stream line across the Black Sea to Turkey. But with the late entry of Azerbaijan into the gas race, it now seems clear that at least one competitor will have to drop out. Analysts say that Turkey has already agreed to buy more gas than it can use. The complications come as negotiations over the Baku-Ceyhan oil line appear to be entering a final phase with predictions that a series of key agreements will be signed next month. But the frictions over gas could be a sign of the difficulties that the trans-Caspian project may face.

In March, Edward Smith, the president of PSG International, told a U.S. congressional committee that the United States government should provide a sweeping guarantee for pipeline investors against the risks of competing claims in the Caspian. A direct indemnity by the government might be needed in order to expedite financing for the project, Smith said.

The appeal for such special treatment is a sign of the seriousness of the problems in the region. While officials worry about competitive threats from Russia and Iran, there seem to be few signs of an end to the trouble between Turkmenistan and Azerbaijan.