Pipeline Choice a Win for Azerbaijan, EU

Azerbaijan’s state gas company, SOCAR, and its partners in the development of the country’s Shah-Deniz 2 natural gas field have announced the winner of a competitive bid to deliver Caspian Sea gas to Europe.  The consortium has chosen the Trans Adriatic Pipeline, or TAP, over the longer, bigger, and more expensive Nabucco pipeline.  While TAP’s carrying capacity is only about a third of the Nabucco proposal, its logistical advantages will reap bigger benefits for European countries than Nabucco, and help reduce dependence on Russian gas giant Gazprom for supply.

Both TAP and Nabucco were planned as part of the EU’s proposed Southern Route, a network of pipelines from the Caspian and beyond that will deliver natural gas to the heart of Europe, bypassing Russian territory.  For years, Russia has ridden heard over Europe’s gas supply, using the flow of gas as a cudgel against its former satellites in the east, and as a geopolitical weapon against rivals in the west.  Gas shortages in Ukraine and Poland are a rite of winter, while Gazprom charges confiscatory rates for the supply that does manage to get through.

Gazprom’s ability to manipulate Europe’s supplies of gas stems from a pipeline bottleneck in Ukraine.  Virtually all of Europe’s gas imported from Russia must pass through the Ukrainian transit corridor.  When Moscow is sated, the situation is a boon to Ukraine, which collects royalties on the gas that flows to the West.  More often in recent years, however, Gazprom turns off the spigot at the Ukrainian border, starving Kiev and its western neighbors of energy, lightening Ukraine’s pocketbook in the process.

The EU has recently begun to fight back, developing plans for alternative supply routes that would reduce Gazprom’s choke hold.   Last summer, Poland and Lithuania announced an agreement to study a proposed linkage of the two countries’ distribution systems. If approved, the project would form part of the proposed North-South Energy Corridor in Europe.  The corridor would eventually link energy systems – starting with natural gas – in European Union member states Bulgaria, the Czech Republic, Hungary, Poland, Romania, and Slovakia, as well as the Baltic states of Lithuania, Estonia, and Latvia.

TAP will eventually deliver 10 billion cubic meters from Azerbaijan and Central Asia directly into the EU; and it will do so at minimal cost compared to the larger Nabucco plan.  The key is in the proposed route.  Azerbaijan will use existing gas pipeline networks to deliver gas through Georgia to eastern Turkey. Traversing Turkey, the pipeline will cross the Sea of Marmara near Gallipoli to mainland Europe where it will cross Greece and Albania before reaching the heel of Italy.

Nabucco, on the other hand, would turn north at Istanbul terminating in Austria and crossing six countries to TAP’s four.  The smaller number of transit countries and resulting lower transit fees plus TAP’s 400-kilometer shorter route will keep the price of Azerbaijani gas low.  That benefits both Europe and Azerbaijan, which gets access to new markets at competitive rates and closer integration with the EU.

Perhaps as important, Azerbaijan gets valuable business ties with some of the largest corporate nameplates in the EU.  SOCAR’s consortium partners include, British Petroleum (UK), Total (France), and Statoil (Norway). Choosing TAP over Nabucco demonstrates that Azerbiajan’s energy sector can work cooperatively with the West to meet one of Europe’s greatest needs, reliable supplies of energy at competitive prices.  That cooperative spirit will in turn help attract more investment resources to Azerbaijan, benefiting businesses in other sectors and the nation as a whole.

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