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Azerbaijan Supply Agreement Pumps New Life Into EU's Energy Plans

The EU wants to reduce its dependency on Russian gas with its Nabucco pipeline
The European Union and Azerbaijan have signed a long-awaited agreement on natural-gas supplies in Baku that pumps new life into Brussels' energy plans.

While the deal commits Azerbaijan to selling "substantial volumes of gas over the long term" to the EU, it stops short of specifying that the gas would fill the EU's much-heralded Nabucco gas-pipeline project.

No further specifics were offered on when exactly the gas supplies would begin, the length of the agreement, or how much gas would be provided. Still, European Commission Jose Manuel Barroso called the agreement a "major breakthrough."

“A driving force of our bilateral relations is well-established energy cooperation," Barroso said after his meeting with Azerbaijan's president. "We had very important dialogue on this matter with President [Ilham] Aliyev. Azerbaijan is indeed a strategic partner and an ally in this field. We appreciate the key role Azerbaijan plays as a producer and transit country.”

The agreement obligates Azerbaijan to make gas available to the EU's Southern Corridor energy-import route but is vague about which pipeline would carry the gas.

There are several options, all of which are tied to the Southern Corridor, the network of potential import routes the EU unveiled in Prague in May 2009.

One is Nabucco, a key part of Brussels' effort to reduce its dependence on Russia or Russian-controlled routes for its natural-gas supplies. The 3,300-kilometer route, once completed by 2016 as expected, will be capable of carrying some 31 billion cubic meters of gas from the border of Georgia (or possibly Iran if bilateral relations were to improve) to Baumgarten, Austria.

Another is the Turkey-Greece-Italy pipeline (TGI), still in the proposal stage, which would carry some 8 bcm if realized.

The Trans-Adriatic Pipeline (TAP), also still on the drawing board, would have an initial capacity of carrying some 10 bcm via Greece, Albania, and the Adriatic Sea to Italy.

The White Stream project, which currently has no financial backing, would travel across the Black Sea to Romania and/or Ukraine and on further west into Central Europe.

Turkey would be central to delivering Azerbaijani gas to any of the four pipelines, and many questions remain, but the agreement in Baku marks the first firm commitment from a Caspian Basin country to provide gas for the EU's Southern Corridor.

Barroso was in need of such a breakthrough, considering that potential gas suppliers have been reluctant to sign on to supply the EU via the Southern Corridor.

Russia's Rival Pipeline

The main problem was and remains the fact that except for one gas pipeline leading from Azerbaijan to Turkey (Baku-Tbilisi-Erzurum) there are no other pipelines leading westward and construction has not started on any of the proposed routes, most notably Nabucco.

For several years now various EU officials have said it is a case of "which comes first, the chicken or the egg" -- meaning, which comes first, construction before the securing of gas supplies, or gas supplies before construction. It appears now that the latter is the case.

The EU's Southern Corridor plans have faced increasing competition from Russia, which is expected soon to complete the first phase of its Nord Stream pipeline that will carry some 55 bcm to Germany and later to countries in northern Europe.

Nord Stream is scheduled to start operating later this year. There is also Russia's South Stream pipeline that many view as a rival to Nabucco. South Stream, tentatively scheduled to start operations in 2015, would carry some 63 bcm across the Black Sea and supply countries in south and Central Europe.

Russian officials and those of gas-giant Gazprom have often cast doubt on the chances of EU projects getting off the ground. Just this week, Russian Prime Minister Vladimir Putin pointed out Nabucco's failings to this point, suggesting it had little chance of success compared to projects like South Stream that already had funding and gas behind them.

"Nabucco's major problem is a lack of guaranteed volumes of raw materials and no source to fill this system," Putin told RIA Novosti. "Russia will not deliver anything there, Iranian deposits are not explored, and Azerbaijan's volumes are small. Moreover, Azerbaijan has signed a delivery contract with Russia."

Emphasizing the importance, perhaps even desperation, of making some progress on receiving commitments from gas suppliers, Barroso was accompanied to Baku by EU Energy Commissioner Guenther Oettinger.

The two will continue on January 14 to the country singled out as the key to supplying Nabucco -- Turkmenistan. Turkmenistan, like Azerbaijan, has been vocally supportive of EU plans to import Caspian Basin gas but like Azerbaijan has held back from signing any deals until the EU's commitment to building these energy import routes became clearer.

Both Azerbaijan and Turkmenistan currently sell gas to Russia and neither country wanted to anger Moscow over EU deals that may or may not be realized.

But in Turkmenistan's case, the EU may have an opening. Relations with Russia have deteriorated in the last two years, specifically over disputes on Russia buying Turkmen gas. Russia has cut the amount of gas it buys from Turkmenistan buy some 75 percent since 2009.

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