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Azerbaijan: Options Unfold For Caspian Sea Gas Project

Boston, 9 September 1999 (RFE/RL) -- Azerbaijan has outlined a series of options for exporting its Caspian Sea gas to Turkey, as pressure mounts on Turkmenistan to compromise on its Caspian claims.

Officials of Azerbaijan's state oil company SOCAR said late last week that they are considering four alternatives for gas exports from their newly found resources at the Shakh-Deniz offshore fields. Only two options involve cooperating with Turkmenistan, which hopes to build a trans-Caspian pipeline to Turkey for its own gas.

Turkmenistan's plan ran into trouble in June when Azerbaijan announced the discovery of a massive gas field at Shakh-Deniz, estimated at 700 billion cubic meters. Azerbaijan is closer than Turkmenistan to the Turkish market, and so far, Azerbaijan has not agreed to allow Turkmen gas to cross its territory.

The unidentified SOCAR officials told the Azer-Press news agency that Azerbaijan would prefer to reach an agreement with Turkmenistan on building and using the trans-Caspian pipeline. The first option would be to convince Turkmenistan that it would be foolish to compete with Azerbaijan for gas sales to Turkey because Baku's resources are closer and presumably cheaper.

In July, Azerbaijan indicated that it would seek at least half the pipeline's capacity before allowing the trans-Caspian pipeline to be built. The pipeline planned by a U.S.-led consortium would deliver 16 billion cubic meters of Turkmen gas a year to Turkey initially, rising over time to carry an additional 14 billion cubic meters through Turkey for sales to Europe.

Azerbaijani officials have previously said they want to export 25 billion cubic meters through the pipeline, assuming that its capacity would be larger. The second option suggested last week would be to raise the pipeline's capacity from the initial 16 billion cubic meters to 25 billion. Eventual throughput could be increased from 30 billion to 45 billion cubic meters, the officials said. They estimated the cost of construction could be several hundred million dollars more.

If there is no agreement with Turkmenistan, Azerbaijan could pursue a third option of upgrading its old Soviet-era gas pipeline and extending it to Turkey, leaving Turkmenistan out entirely. The fourth option would be to build a new line along the path of the Baku-Ceyhan oil route, again without using gas from Turkmenistan.

There is more than the choice between cooperation and competition at the heart of these strategies. Azerbaijan is trying to persuade Turkmenistan to drop its claims to Caspian oilfields that lie on their common border, while also seeking a share in the Turkish gas market and the trans-Caspian line. Azerbaijan has been sending mixed signals about its tactics. A SOCAR official said last week that Azerbaijan would never use the pipeline issue to pressure Turkmenistan.

But the statement was at odds with one by Azerbaijan's Ministry of Foreign Affairs last month. Delimitation of the Caspian among the littoral states would be a precondition for Azerbaijan's participation in the trans-Caspian project, the ministry said. Building the pipeline and then solving the problem of dividing the Caspian would not be acceptable, said Deputy Foreign Minister Araz Azimov, as quoted by Platt's news service.

Azerbaijan is speaking with two voices because of U.S. pressure to resolve the issue of the trans-Caspian pipeline while negotiating separately over the Caspian border dispute.

Turkmenistan laid claim to the oilfield it calls Serdar over two years ago after Russia signed an agreement to develop the field with Azerbaijan. Russia then canceled the deal for the deposit, which Baku calls Kyapaz.

Washington has been drawn into the argument because U.S. companies have organized the trans-Caspian project. U.S. policy also seeks to join Turkmenistan's gas to the west while avoiding Iran. Azerbaijan's conciliatory voice on the border and pipeline issues is apparently directed at Washington, while its tougher statements are aimed at Ashgabat.

If Azerbaijan sticks to its latest demand that the entire issue of Caspian delimitation be resolved before the pipeline can proceed, it would represent a much tougher problem than simply resolving the claims over Kyapaz-Serdar. The five littoral states of the Caspian have been wrangling over delimitation for five years. An agreement on division into national sectors would require consensus of all nations, including Iran, which strongly opposes such a pact.

The bilateral issue is already complicated enough without making the pipeline contingent on a larger treaty. Tehran also objects to the trans-Caspian pipeline, which bypasses Iran. As a result, the statement by Azerbaijan's foreign ministry amounts to saying that the pipeline can never be built.

While the demand is likely to be little more than a bargaining ploy, it may demonstrate Azerbaijan's relative strength in dealing with Turkmenistan.

But the complications run the risk of stalling the trans-Caspian project indefinitely, placing it in the same category as the Baku-Ceyhan oil project. The larger threat is that total investment in the region may be damaged by the stalemate, leaving no winners in the dispute between Turkmenistan and Azerbaijan.