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Caspian: Energy Still A Hot Topic In The Region

Azerbaijan took a major step toward realizing its energy and investment goals as oil companies approved a $3.2-billion project for its biggest Caspian gas field. But a long-awaited meeting of Caspian neighbors in Baku produced unexpected friction between Russia and Kazakhstan over naval forces and pipeline plans.

Boston, 28 February 2003 (RFE/RL) -- Signs of accord and discord were on display in the Caspian region this week as a major gas project won approval while shoreline countries continued their struggle over questions of control.

In a big boost for Azerbaijan, the partners in a group to develop the Caspian Sea's largest gas field voted on 27 February to launch the $3.200-billion Shah Deniz project, which is scheduled to start pumping gas through Georgia to Turkey in 2006.

Azerbaijani Energy Minister Medjid Kerimov called the consortium's decision a milestone, saying, "The scale of the project means that Azerbaijan is now firmly positioned to become a major gas exporter," AP reported. The group includes Britain's BP oil company, Norway's Statoil, TotalFinaElf of France, Azerbaijan's SOCAR, the Russian-Italian LukAgip, OEIC of Iran, and Turkey's TPAO.

Construction of a 960-kilometer pipeline linking Baku and Tbilisi with the Turkish gas network at Erzurum is expected to start in 2004, despite the current gas glut in the Turkish market, which is already supplied by Russia and Iran. Developers are hoping for a combination of Turkish recovery and transit to other countries to absorb the surplus.

Perhaps most importantly, the companies are sticking to a plan to build both gas and oil lines through a Caucasus energy corridor that includes the already-approved Baku-Tbilisi-Ceyhan pipeline project.

Annual production at Shah Deniz in the first phase will reach an estimated 8.4 billion cubic meters, although Turkey's forecasts call for taking only 2 billion cubic meters in 2006 and only 6.6 billion annually from 2009 to 2020. The giant field is expected to yield up to 16 billion cubic meters per year, the industry newsletter "Petroleum Argus" said, although some reports put the figure even higher.

While the ultimate destination for all that gas seems uncertain, the project has already survived several doubts. Construction, first expected last year, was put back by long negotiations and cost increases.

This week, Interfax reported that the European Bank for Reconstruction and Development will lend SOCAR $170 million to help finance its $320 million share of the project, although the company had sought $250 million. But the Shah Deniz decision now makes it likely that Azerbaijan will realize the goal it has had since the mid-1990s of having two pipeline projects at the same time, making it one of the world centers for energy investment.

Both projects also seem to be going ahead without a legal agreement on how to draw the Caspian's post-Soviet borders between Russia, Kazakhstan, Azerbaijan, Turkmenistan, and Iran. This week, a working group of deputy foreign ministers from the five countries met in Baku for two days of work on a convention that has been repeatedly delayed.

At a closing press conference, Russia's Caspian envoy Viktor Kalyuzhnii said he was satisfied with the session but that further efforts to reach final agreement could take another year, the RIA-Novosti news agency reported.

Details of a draft carried by the Interfax and Turan news agencies suggest that Russia has been driving its neighbors to settle all the issues that they can for the sake of some agreement, even if borders remain unresolved. The draft covered items such as shipping and fishing rights, as well as demilitarization. It would also establish sectors based on a median line for exclusive mineral rights, along with shoreline zones 15 nautical miles wide. The document also reportedly "establishes the right of the countries to lay underwater pipelines and cables."

Kalyuzhnii seems to be counting on the bilateral process to settle the border issue. Russia has already signed accords with Kazakhstan and Azerbaijan. He also argued openly against Iran's stated claim to an equal 20 percent share of the Caspian. Despite some predictions that Iran would drop its demand in exchange for a "resource-sharing principle," Kalyuzhnii said Iran was expected to alter its stand only over time.

Speaking on local television, Kalyuzhnii argued that Iran's position was no longer valid because of Russia's border agreements, saying, "Today, when trilateral documents have been signed by presidents, to say that, 'No, we have made a mistake, let us review everything,' I think that this is simply not serious." The comments were transcribed by the BBC.

But greater frictions emerged between Russia and its closest Caspian ally, Kazakhstan, over a surprise announcement by Deputy Foreign Minister Kairat Abuseitov that Astana wants to create a Caspian navy. Abuseitov cited the need to fight terrorism, drug trade, and illegal migration.

Kazakhstan's military presence in the Caspian is minimal. In 2002, when Russia held huge naval exercises and invited it to join, Kazakhstan scrambled to assemble a token force.

But Kalyuzhnii blasted the idea, saying that it made "no sense," Interfax reported. Kalyuzhnii said, "The basic principle of a new convention on the Caspian's legal status, on which we are working, is the absence of any new armed forces in the Caspian, as Kazakhstan suggested." He also told ITAR-TASS that it was "not feasible" to raise the issue. Despite the remarks, RIA-Novosti reported last week that Russia will soon add another missile-patrol ship named "Daghestan" to its already-dominant Caspian fleet.

Kalyuzhnii also raised doubts about the rights of Russia's neighbors under the convention by announcing that Moscow will oppose any attempt by Kazakhstan to build a pipeline across the Caspian. Astana has raised the idea as a possibility if it joins the consortium for the Baku-Tbilisi-Ceyhan line.

But Kalyuzhnii said in Baku, "We take a very negative view of the building of a pipeline across the Caspian Sea," AFP reported. He cited a "fluid geopolitical situation" and risks from earthquakes. Kalyuzhnii said Russia would seek a pipeline ban, AP reported. But the stand made it unclear what underwater pipeline rights would be protected by the convention, if Kazakhstan and Azerbaijan agree to a line between their two zones.