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Azerbaijan: Oil Rich Caspian Region To Import More Gas

As Azerbaijan hosts its annual oil and gas show this week, the country is facing a contradiction over its plans to import gas and its claims to be the most important Caspian energy exporter. RFE/RL's Michael Lelyveld reports.

Boston, 8 June 2000 (RFE/RL) -- An announcement by Azerbaijan that it will seek to import more gas this fall has injected a dose of reality into claims about Caspian prospects this week.

The Reuters news agency reports that on Monday, Ilham Aliev, vice president of the Azerbaijani state oil company SOCAR, told a press conference that the country will import at least 2 billion cubic meters of gas beginning in October.

Aliyev spoke a day before his father, Azerbaijani President Heidar Aliev, opened the country's annual oil and gas show in Baku with an optimistic claim.

President Aliyev said, "Since we became independent, Azerbaijan has turned into the most important oil and gas center for the Caspian region." Few experts doubt the importance of Azerbaijan's resources but their extent and the ability to export them remain matters of debate.

On at least one level, the announcement of Ilham Aliyev and the statement of President Aliyev seem contradictory. If Azerbaijan has become the Caspian center for oil and gas, why should it need to import gas this year?

The answer lies in the difference between Azerbaijan's current needs and its long-term prospects. Last winter, the oil-rich country was surprised when it ran out of fuel for its power plants, leading to electricity rationing in the country for several months.

At the same time, Turkish Foreign Minister Ismail Cem announced last month that his country has opened talks on buying gas from Azerbaijan, which may have enough of the fuel to export from the Caspian in late 2002. In the meantime, it is Azerbaijan that must look to other countries for supplies of gas.

There have been at least two interpretations of Ilham Aliev's remarks on imports. Reuters reported that the gas purchases are planned to avoid a repeat of last winter's shortage. Aliyev said that imports may continue until 2002, when Azerbaijan's giant Shakh Deniz field in the Caspian is expected to produce results.

The Russian news agency Interfax also reported that imports are needed to convert Azerbaijan's oil-fired power stations to gas, a move that will free more oil for export to earn cash. While the two explanations are not necessarily inconsistent, they may tell only part of the story.

Last year, Azerbaijan's power stations ran out of both oil and gas as the plants shifted from one fuel to the other, creating shortages in both. The trouble started because Azerbaijan, like other countries in the region, had tried to maximize oil exports to take advantage of high world prices for oil. It then discovered that it no longer had enough oil for domestic refining and power. World oil prices were so high that Azerbaijan could not even afford to buy its own oil back.

To avoid the same fate next winter, Azerbaijan will now turn to Russia, Iran, or Turkmenistan for gas imports, according to Ilham Aliev. But there could be problems with relying on any of those countries to keep the heat and lights on in Azerbaijan. Although Baku exports some of its oil through Russia, it has promoted a plan for a main export pipeline through Georgia and Turkey precisely in order to avoid dependence on Moscow. By importing Russian gas, Azerbaijan could come under the same political pressures that are felt by other former-Soviet states that are supplied by Russia's Gazprom.

There could be similar worries about gas imports from Iran. Although both Russia and Iran may treat their exports as strictly business, Azerbaijan's relations with both countries are complex, making the outcome unpredictable.

Energy trade with Iran is also facing a host of complicated options. Iran has recently been urging Azerbaijan to agree on converting an old gas line between the two countries to carry Azeri oil to Iran's refinery in Tabriz. The gas line could now be upgraded for gas sales to Azerbaijan instead. At the same time, Iran has offered to buy gas from Azerbaijan in the future when its exports begin.

The idea of buying gas from Turkmenistan may also face difficulties. The country has been locked in a dispute with Baku over building a trans-Caspian gas pipeline. It is not clear that gas sales to Azerbaijan would be treated separately. Last year, Ashgabat also complained that Azerbaijan still owed $55 million for past gas deliveries. Baku acknowledged that it has been slow to pay.

But perhaps the greatest trouble that Azerbaijan faces over its energy needs in the midst of its energy riches is the basic policy question about its drive to export. Although the government blamed corrupt officials for oil shortages last year, it has tried to maximize exports for hard currency, leading to the winter fuel crisis. In the future, it will be under pressure to export even more oil to fill the Baku-Ceyhan pipeline.

The same export pressures may soon be felt in the case of gas, as Azerbaijan competes with Turkmenistan, Iran and Russia for the Turkish market. The question is whether Azerbaijan will overlook its own needs again in the rush to cash in on its Caspian wealth.