After nearly 30 years of talks, arguments, and threats, Azerbaijan and Turkmenistan have agreed to jointly develop a disputed hydrocarbon field that lies in the Caspian Sea about midway between the two countries.
Turkmen President Gurbanguly Berdymukhammedov and Azerbaijani President Ilham Aliyev announced the signing of a memorandum of understanding on the development of the Dostlug field at a videoconference meeting on January 21.
While an agreement on the hydrocarbon field is a major step in the improvement of relations between the two Caspian littoral countries, it also rekindles the prospect of the construction of a trans-Caspian pipeline.
The name of the field -- Dostlug or “Friendship” -- symbolizes compromise.
Since the collapse of the Soviet Union in late 1991, both countries have laid claim to the field, with Azerbaijan naming it Kyapaz and Turkmenistan calling it Serdar.
It was actually one of three disputed fields that are located in the middle of the Caspian Sea, roughly halfway between Azerbaijan and Turkmenistan. The other two are the Azeri and Chirag fields, which Turkmenistan calls, respectively, the Omar and Osman fields. But Azerbaijan started developing the two fields, Chirag in 1997 and Azeri in 2002, with help from an international consortium led by BP, and without resolving the ownership dispute with Turkmenistan.
Azerbaijan’s decision to develop the two fields angered Turkmenistan’s first president, Saparmurat Niyazov, who had met with Azerbaijani President Heydar Aliyev in Baku in 1996 to discuss cooperation to benefit both countries.
Azerbaijani-Turkmen relations plummeted and grew worse as the Chirag and Azeri fields started production.
Together with a third nearby field -- Gunashli -- combined estimated recoverable reserves from the three fields is some 7 billion barrels of oil and ACG fields quickly accounted for the bulk of Azerbaijan’s oil production (though production peaked in 2010 at 823,100 barrels per day and has been gradually decreasing since).
Meanwhile, the lack of tankers limited the amount of oil Turkmenistan could export.
Relations started to improve between the two countries after the deaths of Heydar Aliyev (2003) and Niyazov (2006), though as late as 2009 Berdymukhammedov was still contemplating taking the matter of ownership of the Chirag and Azeri fields to international arbitration.
In 2007, Berdymukhammedov’s first year in power, Turkmenistan issued a license to the Cyprus-based company Buried Hill to develop Block III, the Serdar (now Dostlug) field, and the company began seismic surveying, but Turkmenistan and Azerbaijan agreed to hold off on any work until they resolved their dispute over the field.
So the signing of a memorandum on the Dostlug field is a significant accomplishment for the two countries and Aliyev mentioned it was the result of "persistent activity from our two countries."
An official from the State Oil Company of the Azerbaijani Republic (SOCAR), Ibragim Akhmedov, said, “Many technical and commercial details still need to be worked out in connection with the future development of the field,” but he hailed the memorandum as heralding a “new era in the history of relations of Azerbaijan with neighbor Turkmenistan.”
Dostlug has proven reserves of some 1.4 billion barrels of oil and further exploration could find more.
Akhmedov added that due to the development of the Chirag and Azeri fields, “We have infrastructure and pipelines in the Caspian, oil pipelines and gas pipelines connecting the region to markets in Europe and other areas.”
That raises the larger matter of the Trans-Caspian Pipeline (TCP), which aims to annually bring some 30 billion cubic meters of Turkmen gas across the Caspian Sea to Azerbaijan for export to Europe.
Robert Cutler is a senior research fellow and director of the Energy Security Program, NATO Association of Canada, and leading authority on Caspian geopolitics and energy matters.
Cutler told RFE/RL, “This [memorandum of understanding], which was enabled and accelerated by the August 2018 Aqtau Treaty, in fact dissolves away the final obstacle to the TCP.”
The long debate over the status of the Caspian Sea and its division was largely resolved at the Caspian summit in Aqtau, Kazakhstan, in August 2018 when the leaders of the five littoral states -- which also include Iran, Kazakhstan, and Russia -- signed the Caspian Sea Convention.
An agreement on developing Dostlug would be a major step in Azerbaijani-Turkmen cooperation in jointly developing sites in the Caspian Sea and could be key to finally constructing the TCP.
Cutler said “there should be no doubt that the two sides have had detailed conversations on TCP cooperation in the context of bilateral discussions that have now produced this [memorandum of understanding].”
As Akhmedov mentioned, there are still “many” details left to be resolved in cooperation on the Dostlug field and one of those will undoubtedly be the financing for the project.
Azerbaijan does not have enough gas to fill the Trans-Anatolian Natural Gas Pipeline (TANAP) as the volume the pipeline carries have increased, eventually to 60 billion cubic meters, and although several countries have been mentioned as possibly contributing to the gas that will be transported by TANAP.
Turkmenistan, with the fourth-largest reserves of natural gas in the world, is the obvious choice to send gas through TANAP and on to Europe.
Cutler said that since the memorandum on Dostlug has been signed, “Observers should not be surprised by further progress on TCP implementation in the foreseeable future.”
There is, however, one drawback.
SOCAR has invested its own money into the energy-export projects, including the TANAP pipeline, which brings Azerbaijani gas across Turkey to Europe.
Turkmenistan’s economy is currently in crisis and the country could desperately use any new revenue it can find.
But Aliyev made it very clear in late August 2018 that Azerbaijan was willing to act as a transit country for Turkmen gas but if Turkmenistan wanted a pipeline built, the government should fund the project the same way SOCAR funds its export-route projects.
There was no clue from the complimentary exchanges between the Azerbaijani and Turkmen leaders at the video summit if Aliyev thought Turkmenistan should also contribute financially to the development of the Dostlug field.