November 20, 2008
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Home / Issue Archive / 2007 / July #7 / Struggling for the EU Gas Market Across the FSU Territory

№ 7 (July 2007)

Struggling for the EU Gas Market Across the FSU Territory

By Yagmur Kurbanov

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Last May, in the city of Turkmenbashy (Turkmenistan), the presidents of Russia, Kazakhstan and Turkmenistan made agreements on upgrading of the operating cross-country gas pipeline Central Asia – Center. The key accomplishment at the summit was a decision to build a new overland gas pipeline in the Caspian region, to run along the Caspian shore – from Turkmenistan through Kazakhstan to Russia.

From Central Asia – to Europe

The agreements reached in Turkmenistan will allow Russia to strengthen its positions among the suppliers of natural gas to European market yet more. At the EU-Russia summit in Samara the Russian President Vladimir Putin said the agreements signed in Turkmenistan were “good news for Europe and Germany, because as a result of these deals both Europe and Germany will be receiving more energy resources.”


The growth of exports from Central Asian countries to Russia will allow not only to increase the volumes of transportation of cheap gas from Central Asia to the Russian market, but also to increase exports of Russian gas. In this case, the decline in production rates at the biggest fields, such as Urengoiskoye, Yamburgskoye and Medvezhje, which, as Gazprom predicts, may occur after 2010, will be compensated by the new gigantic fields, such as Shtokman (Barents Sea offshore) and Yuzhnorusskoye (Western Siberia).

Additional deliveries and production at the new fields, for instance 90-100 bcm  per year from Central Asia and 110-120 bcm per year from Shtokman and Yuzhnorusskoye fields, will allow Russia to have more safeguards in place by 2015 to ensure reliability of the contractual supply to Europe. By that time general European demand for gas will reach 700 bcm (compared to 530 bcm – the demand for gas in 2005), and the share of import will reach 75 percent (in 2005 imported gas accounted for 57 percent).

Such a big growth of gas export from Russia requires adequate transportation facilities, thus, refurbishment of the existing pipelines and gas compressor stations and construction of new ones have become an urgent necessity. As it seems, an ideal solution would be to deliver gas to end consumers through neutral territories, thus ensuring that one does not depend on transit through the third countries. One can cite as an example two pipelines – Blue Stream (across the seabed of the Black Sea to Turkey) and Nord Stream (across the seabed of the Baltic Sea to Germany).

However, while Blue Stream has been up and running since 2003 and there are plans for its expansion, the construction of Nord Stream, which is in full swing, has already provoked disputes and disagreements, mainly revolving around the environmental safety of the sea and the lands along the projected pipeline route.

Experts believe that the true reason for these disputes is a desire to reduce the European market’s dependency on Russian gas deliveries, and the contiguous issues of security of energy supplies along alternative transportation routings. According to expert evaluations, by the middle of the next decade the share of gas deliveries from Russia will grow from the current 27 to 30 percent. This is why the new agreements between Russia and the Central Asian countries cause anxiety among European consumers.

Nabucco and Trans-Caspian pipelines: projects or reality?

In spite of the announcement by Turkmen President Gurbanguly Berdymukhammedov that the Trans-Caspian project “is still on the agenda,” the prospects for having alternative gas transmission routings to Europe anytime soon seem somewhat vague. It seems vague because, with no new gas production outlets in the region, there is little gas available for alternative pipelines.

Such scenario can delay the launch of Nabucco and Trans-Caspian gas pipelines, which are to deliver gas from the Middle East and the Caspian region through Turkey to Europe, until the mid-2010s. Experts from the International Energy Agency believe that in this case Nabucco’s traffic will not reach 10 bcm per year before 2020. Previously, the project was expected to be launched by 2011-2012 and its capacity to reach 20 bcm per year by 2015.

Experts believe that other important reasons for the postponement of the implementation of the new projects include financing, availability of end consumers and reliability of long-term deliveries. As for the latter, it should be pointed out that experts assess gas deliveries from Iran as unreliable, because they are prone to interruptions for a variety of reasons. For instance, Dr. Soner Cagaptay from the Washington Institute for Middle East Policy points at the unreliability of the deliveries from Iran, especially in winter. And it is generally believed that the interruptions are caused by frequent repairs of Iranian gas transmission facilities.

However, some analysts – for instance, Jonathan Stern from Oxford Institute for Energy Studies – believe that the new agreements cannot have any impact whatsoever on the progress of new independent deliveries, because these agreements concern only the understandings reached by Russia and Turkmenistan as far back as 2003.

Besides, experts believe that by 2015 the region will experience a big hike in gas production, with quantities sufficient for European export. Here one should also mention predictions about gas production increases in Azerbaijan, which is viewed today as the most likely “blue fuel” supplier from the Caspian region to Europe.

By 2015 gas production in Azerbaijan can reach a level of 25-30 bcm per year (as compared to more than 6 bcm produced in 2006). If this happens, Azerbaijan will become a net supplier of gas, able to sell on world markets up to 10-15 bcm per year. And, practically all of the gas will be transmitted through the new South Caucasus pipeline (Baku – Tbilisi – Erzerum).

Admittedly, only long-term agreements with European countries can ensure the above-mentioned export volume. Presently Azerbaijan has agreements only with Georgia and Turkey. Therefore, one is led to believe that Azerbaijan will hardly be able to single-handedly ensure maximum traffic for the new pipelines, while idle facilities can negatively affect profitability of the above-mentioned projects.

Thus, if a main obstacle for a quick launch of the Nabucco pipeline consists in limited quantities of reliable gas suppliers, the situation with the Trans-Caspian project is made yet more difficult by the disputes around the status of the Caspian Sea, which complicate the construction of the submarine facilities.

Russia and ex-Soviet Republics: partners or competitors?

In connection with the recent events there is increasingly more talk that Russia may get involved in the Nabucco project. For instance, Dr. Cagaptay believes that Russia’s participation will allow Russia to diversify the transmission routings for gas deliveries to Russia. Besides, Dr. Cagaptay believes there will be a greater likelihood of gas deliveries from the nations in the Caspian Sea region. So, European consumers are to receive a new safe transmission route.
On the other hand, some Russian experts believe that the Nabucco project is not good for Russia, because this pipeline is becoming a direct rival to Blue Stream, whose throughput capacity by 2010 can grow more than twofold, reaching 16 bcm, as against 7.4 bcm in 2006.

Besides, it is not unlikely that disputes will arise as to the costs and the transmission of the gas, as well as the possibility of different sorts of gas getting mixed along the way, which will result in the deterioration of the gas quality, which, in turn, can negatively affect the pipelines maintenance.
To satisfy their exporter ambitions, some nations of the Caspian region can resort to delivering liquefied natural gas on the sea. Moreover, Turkmenistan and Kazakhstan are already producing LNG and actively building the necessary infrastructure.

Meanwhile, in comparison with deliveries of other sorts of gas, the problem of cost-effectiveness of LNG production and, especially, cost-effectiveness of LNG transmission facilities can delay for long the implementation of so big a project.
So, it can be reasonably supposed that in the near future the former Soviet republics will have a limited direct access to European market. As noted earlier, the competition can grow as gas production in the former Soviet nations increases. In this case, it would seem probable that competitive struggle for access to South European markets, where Azerbaijan and other Caspian nations can start delivering gas, will increase.

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