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Russia, Azerbaijan Achieve Gas Breakthrough

Russian President Dmitry Medvedev (left) at signing ceremony with Azerbaijani President Ilham Aliyev in Baku on June 29.
Russian President Dmitry Medvedev (left) at signing ceremony with Azerbaijani President Ilham Aliyev in Baku on June 29.
An energy supply agreement was reached this week between Russian and Azerbaijani officials that is likely to rekindle serious questions about the fate of the European Union's prospective Nabucco gas pipeline.

The deal to restart the flow of Azerbaijani gas to Russia in January 2010 represents a breakthrough as both Moscow and the European Union court Baku in hopes of tapping its vast gas deposits to fuel favored pipeline projects to Europe.

Visiting Russian President Dmitry Medvedev noted after the signing ceremony on June 29 that Moscow and Baku were "very significant suppliers of energy resources" who would build on extensive oil cooperation with new cooperation in the gas sector.

"This is only the beginning," Medvedev said, "but I think it is a good beginning for improving our contacts and continuing to develop mutually beneficial cooperation in the gas sphere."

Gazprom chief Aleksei Miller and the head of the State Oil Company of the Azerbaijani Republic (SOCAR), Rovnag Abdullaev, signed the agreement but revealed few details.

What is clear is that Russia will start receiving Azerbaijani gas on the first day of 2010 and the amount will initially be a modest 500 million cubic meters per year.

Blow To Nabucco

Gazprom's Miller noted that his company "can buy gas quickly" from Azerbaijan, since their neighbor status means they have no need for third-party agreements on transit and there is already a pipeline connecting the two countries.

In what could be a blow to hopes for the Nabucco project, Miller claimed that Gazprom has become a preferred buyer for the second half of Azerbaijan's offshore Shah Deniz gas field.

However, SOCAR spokesman Nizameddin Guliev dismissed the notion that the new deal has anything to do with Shah Deniz.

"We continue talks with potential buyers. We will consider all proposals," Guliev said, adding that there are no preferred buyers. "Talks with Turkey are ongoing."

Planners of the 3,300-kilometer Nabucco pipeline hoped to tap into the second phase of Shah Deniz, scheduled to start operations about the same time that Nabucco is due to be completed, in 2013.

But if Miller's claim turns out to be true, some or all of the gas Russia intends to buy from Azerbaijan could instead be bound for Moscow's rival project, the South Stream pipeline.

Current plans call for an initial 8 billion cubic meters of gas annually from Azerbaijan for Nabucco, an amount that should increase to 31 bcm as new suppliers join up, to be carried to Baumgarten, Austria.

More Buyers

Azerbaijani President Ilham Aliyev said after the meeting with Medvedev that Azerbaijan is already producing 27 bcm annually and expects that figure to reach 30 bcm this year.

But Aliyev lamented that Azerbaijan is currently exporting gas to only four countries, with Russia about to become the fifth.

The Shah Deniz field is estimated to hold some 1.2 trillion cubic meters of gas, but Gazprom last year offered to buy all the gas that Baku was willing to sell.

Ilham Shaban, an Azerbaijan-based energy expert and the editor of the "Turan Energy" daily newsletter, told RFE/RL's Azerbaijani Service that while Baku has enough gas to sell to Russia and the EU, Brussels needs to start pushing forward with talks on Nabucco and the Shah Deniz field.

"If Europe doesn't move, it loses a deal," Shaban said, adding that it's logical that Azerbaijan wants to sell to multiple partners.

"I was surprised to learn that Gazprom was the only company that offered and reached a deal," Shaban said. "No Western company offered anything; Gazprom was the first."

Related Dispute

Medvedev and Aliyev also suggested they were close to agreement on the legal status of the Caspian Sea.

The five littoral states -- which also include Kazakhstan, Turkmenistan, and Iran -- are still debating whether the Caspian should be designated as a sea or a lake. If it is a sea, then each country receives a national sector extending from its coastline. If the Caspian is deemed a lake, then its resources enjoy a "condominium" status and must be shared equally between the five.

Kazakhstan is estimated to have nearly 60 percent of the Caspian's hydrocarbon resources in its sector, while Iran would have a mere 13 percent. Astana is therefore said to be pressing for "sea" status, while Tehran reportedly wants it designated a "lake." All the littoral states have gone ahead with developing oil and gas sites off their coastlines, though Iran has lagged far behind.

Two previous summits failed to resolve the matter, and a third is tentatively planned for Baku.

Medvedev and Aliyev's joint declaration referred to a "division of the seabed" and "southern sectors."

The unresolved status of the Caspian presents another potential obstacle to Nabucco, since phase two of that project foresees receiving gas from Turkmenistan and possibly Kazakhstan and/or Uzbekistan.

For that, a trans-Caspian pipeline would need to be built from Turkmenistan or possibly Kazakhstan, across the bottom of the Caspian to Azerbaijan.

Russia and Iran have both said in the past that they would oppose such a project on environmental grounds.

RFE/RL Azerbaijani Service director Kenan Aliyev and Khadija Ismayilova of the RFE/RL Baku bureau contributed to this report

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