Friday, March 30, 2012

Trans – Caspian Gas Pipeline Still a Pipe Dream?

Potential major developments in the Caspian energy landscape may be underway, but laden with more doubt than certainty. Negotiations between the European Union (EU), Azerbaijan and Turkmenistan on building a much debated Trans-Caspian Gas Pipeline (TCGP) has led to an agreement in principle in March 2012. A key point is that under such an agreement, Azerbaijan and Turkmenistan would also overcome disputes over the ownership of the Kapaz/Serdar oil fields in the Caspian for the TCGP project to move forward. But TCGP’s imminence may be unrealistic for a number of reasons.

First, Azerbaijan and Turkmenistan continue to hold differing views on the sectoral demarcation of the Caspian Sea. Unless both countries reach an agreement on the disputed Kapaz/Serdar hydrocarbon deposits, there will be no TCGP. Second, while some analysts argue that legally there would not be problems if both countries sign a bilateral deal on the status of the Caspian Sea, its other littoral states are bound to disagree and protest it. Namely, Russia and Iran are against TCGP because it does not serve their commercial or geopolitical interests. They have invoked at various times the unresolved legal status of the Caspian and environmental threats in building an undersea infrastructure. Iran sent troops to the Caspian area when an attempt to begin development of a field in the so-called 'gray zone' was made in the late 1990s – early 2000s.

Meanwhile, Moscow continues to insist that only the Caspian littoral states have the right to decide on any pipeline traversing the sea. EU’s invitation of Kazakhstan to join TCGP and talks between the Austrian President Heinz Fischer and the Turkmen president Gurbanguly Berdymukhammedov in October 2012 on creating a legal framework for supplies of Turkmen gas to EU caused a bitter reaction from Russia. It is not ruled out that Russia may threaten to cut off gas supplies to the growing domestic consumption in Azerbaijan or exert pressure on Baku not to participate in the TCGP on the grounds of creating an unnecessary rival if Turkmenistan winds up supplying cheap gas to the Turkish market. In the long run, Turkmenistan and EU could agree to ship compressed natural gas via tankers, but it will depend on the availability of a pipeline to send the gas onward to European markets.

Lastly, the funding sources of TCGP are still unclear. As Rovshan Ibrahimov, head of the foreign policy department at Azerbaijan’s Centre for Strategic Studies, aptly pointed out, neither his country nor Turkmenistan would handle the risk of financing and running the project on their own. And it is doubtful that the EU would sponsor the project due to its lack of supranational mechanisms to implement a comprehensive energy agreement across several countries. It is uncertain who is willing to and can provide the guarantees to justify the risk.

No comments:

Post a Comment