Turkish Forum

Tag: Energy

  • ANOTHER SMALL STEP FOR NABUCCO

    ANOTHER SMALL STEP FOR NABUCCO

    Caucasus Update, Issue 13, December 8, 2008

    Released by Caucasian Review of International Affairs (www.cria-online.org)

     

    In late November a trilateral summit was hosted in the city of Turkmenbashi , on Turkmenistan ’s Caspian coast. In attendance were President Gurbanguly Berdimuhammedov, the host; President Ilham Aliyev of Azerbaijan , and President Abdullah Gul of Turkey . Apart from a number of cultural and transportation agreements, the three leaders were there to discuss the much-hyped Nabucco project. Nabucco would transport Central Asian and Azerbaijani gas to Europe, via an undersea pipeline in the Caspian Sea, through Azerbaijan , Georgia and Turkey . The project would do for gas what the Baku-Tbilisi-Ceyhan pipeline did for oil – tap into Central Asian resources bypassing Russian territory.

     

    The concluding statements emerging from the summit were typically vague. However, Vladimir Socor at the Jamestown Foundation has suggested that the official line was to avoid publicly naming particular projects for fear of offending Russia (although the Kremlin can hardly have doubted the topic of discussions). This explains the oblique reference to Azerbaijan and Turkmeniatan’s “common position on the policy of diversification of exports of energy resources to the world”, and President Gul’s ‘keen interest’ in energy collaboration. Similar rectitude with the name of Nabucco was observed during a recent oil and gas conference in Ashgabat.

     

    Such reluctance on the part of the Turkmen government was to be expected, however frustrating to Western energy pundits. The country’s secretive attitude towards its oil and gas wealth is a reflection of its isolationist political stance. It is highly unlikely that President Berdimuhammedov will be prepared to publicly back a project of Nabucco’s size without cast-iron guarantees on transit infrastructure, destination markets, and prices. However, the references to energy diversification and the role of the Caspian region’s energy potential as a bridge between Asia and Europe are extremely significant, signalling that, in principle at least, Turkmenistan is on board.

     

    Where would this leave Moscow ? Russia currently accounts for almost all of Turkmenistan ’s gas exports, and has been staging a rearguard action – or a determined offensive, depending on your viewpoint – against Nabucco for months. In November 2007 Gazprom struck a gas deal with Turkmenistan in which the Russian gas corporation would pay $130 per thousand cubic metres (tcm) in the first half of 2008, and $150tcm in the second half. This was a major rise from the 2007 level of $100, but it pales into significance next to the deal that Gazprom chief Alexei Miller made with Ashgabat in July. This would raise the price to around $350tcm: according to Mr Socor, once an expected rise in transit fees by other states is accounted for, Turkmenistan would still pocket between $225 and $295/tcm. An attractive offer. But President Berdimuhammedov remains unwilling to place all his eggs in one basket, however financially appealing, hence his moves towards Nabucco. It is not implausible that Gazprom will offer to pay even higher prices, since the July deal was already underpinned by political, rather than economic, motives. Pushing the price even higher would be a gamble for the Kremlin, already reeling from the financial crisis. In any case, even a price hike will not be enough to tempt Turkmenistan , provided that Nabucco’s other backers, principally the EU and Azerbaijan , remain committed. Azerbaijan has not yet given a positive response to Russia ’s offer to buy its whole gas at European prices, judging that such a Faustian pact would cost more in political terms than it would provide in economic terms. President Aliyev has insisted that, since Azerbaijan lacks the reserves to fill Nabucco alone, “this is not only our project”, implying that the West must apply pressure to Ashgabat instead of Baku .

     

    The EU is a different matter. The Union’s backing of Nabucco has been, like much of the EU’s policy towards the former Soviet Union , fitful and patchy. In mid-November President Berdimuhammedov made an unprecedented visit to Germany and Austria . As at the Turkmenbashi summit, no concrete plans were formally announced, but much noise was made about the chances for co-operation in the energy sector amongst others. Germany’s reputation as something of an apologist for Russia within the EU (certainly in the eyes of Britain and Scandinavia) makes these statements of intent rather interesting, suggesting that Berlin is willing to throw its weight behind Nabucco (the growing German support for Nabucco could also be linked to the ongoing difficulties with the construction of the North European Gas Pipeline from Russia to Germany). This probably reflects growing support for Nabucco amongst the Union as a whole. For instance, EU special representative to Central Asia Pierre Morel announced, after talks with President Berdimuhammedov on December 3, that the Union would take “concrete steps” towards including Turkmenistan in Nabucco (somewhat undermining the official veil of silence on the project in Ashgabat). It may take a dramatic event, such as an escalation of the current Ukraine-Russia gas dispute, to underline the urgent need for supply diversification and prod Europe into action.

     

    It would be unfair to characterise the EU as the only obstacle to Nabucco, however. Turkey has been surprisingly obstructive for a country so eager to portray itself as a regional energy hub. The prices it has offered for Azeri gas are unacceptably low for Baku , and it has also allegedly demanded 15% of the project’s supply to feed its own rising demand. In the light of Russia ’s ongoing offer to buy Azeri gas, this is a move that could conceivably backfire on Ankara . Although it will calculate – correctly – that Azerbaijan ’s commitment to Nabucco will force it into concessions regarding Turkish transit, this would sour relations at a time when Azerbaijan is already wary of Turkey ’s diplomatic overtures to Armenia .

     

    Energy analyst Andrew Neff has argued that planned gas links between Iran and Turkey will allow Ankara to use Iranian gas for domestic consumption and therefore allow Turkmen and Azeri gas to pass to Europe : the political complications with such an approach are obvious. This situation would create an uncomfortable scenario in which Europe was indirectly reliant on Tehran for the security of its gas security, since any cuts in supply to Turkey would draw off Azeri and Turkmen gas from the European route to feed Turkey ’s internal consumption.

     

    Nabucco still has a long way to go before becoming reality. Although there is a tendency to overstate the political, as opposed to economic, risks involved in any trans-national pipeline project, in this case the tendency seems justified. The problems with implementing Nabucco tap into a whole range of wider (geo)political issues – the EU’s relationship with Turkey , the future of the landlocked Central Asian states, Russia ’s role in Eurasia, and the isolation of Iran – of profound significance. One should not, therefore, underestimate the importance of the Turkmenbashi summit. Although it produced no clear victories for Nabucco, negotiating these obstacles will only be possible one small step at a time.

  • FM: Greece determined to expand ties with Iran

    FM: Greece determined to expand ties with Iran

    Greek Foreign Minister Dora Bakoyannis said here Friday in a meeting with IRI Ambassador to Athens

    that her country is determined to expand comprehensive ties with Iran.

    According to IRNA correspondent in Athens, Bakoyannis added in her meeting with Mahdi Honardoust, “I am pleased with the results of the recent visit of the secretary General of the Greek Ministry of Foreign Affairs to Tehran and in near future the secretary general of Greek’s International Economic Affairs Office, too, would visit Iran to survey possibilities for broader economic cooperation with Tehran, articularly at energy field.”

    Pointing out the two centuries’ old relations, she reiterated, “As I have promised to the Minister of Foreign Affairs of the Islamic Republic of Iran, Manouchehr Mottaki, I myself, too, would visit Tehran at my earliest convenience”
    The Greek foreign minster meanwhile referring to the warm and friendly feelings of the Greek nation towards the Iranians, said, “It would be my great pleasure to meet in person with the Iranian nation and officials, who are highly respected by our nation.”

    She further emphasized, “Greece has always had a positive approach and a feeling of proximity towards the Iranian history and culture.” Honardoust, too, during the meeting considered the amicable feelings of the two nations towards one another and the regular visits of the two countries’ officials as positive factors at the service of broadening the range of bilateral cooperation, particularly in the fields of tourism and energy.

    Our country’s ambassador to Athens added, “The Islamic Republic of Iran is ready for cooperation with Greece in the fields of mutual interest, as well as cooperation at important regional and international scenes.”

    The Iranian diplomat said, “Increasing the two countries’ trade volume and the diplomatic relations aimed at comprehensive development of the two countries’ relations and are obvious signs for both countries’ determination for boosting bilateral ties.”

    Honardoust meanwhile referred to the existing potentials for transfer of energy from Iran to Europe through Greece, arguing, “Iran and Greece can in order to define a new framework for cooperation, upgrade the ceiling of their relations to the highest possible level.” -IRNA

    Source: www.mathaba.net, 08.11.2008

  • Shell-Iraq gas company is a monopoly, secret agreement shows

    Shell-Iraq gas company is a monopoly, secret agreement shows

    By BEN LANDO, UPI Energy Editor

    A secret document obtained by United Press International reveals a planned joint venture company between Royal Dutch Shell and the Iraqi Oil Ministry would give the company a 25-year monopoly on the gas industry of southern Iraq.

    Shell and the ministry are currently negotiating the terms of the joint venture company. On Sept. 22 the two signed what’s known as a “Heads of Agreement,” basically a rough draft of the contract, a legal framework establishing the management team and the scope, purpose and other details of the company.

    Though it’s non-binding, the confidential document is telling.

    If the joint venture company is finalized as outlined in the HOA, it would give Shell the largest role in Iraq’s oil and gas sector since the 1960s, when the world’s Big Oil firms were kicked out after 40 years of virtual control of exploration, production, exports, and payments to the government.

    The joint venture will be the “sole gas company engaged in business,” as outlined in the HOA, “and providing gas for domestic and export markets and generating revenues from gas marketing activities.”

    At the time of the HOA signing, Shell and ministry officials pitched the future joint venture company’s role as utilizing for domestic needs the natural gas currently being wasted in Basra province. Iraq would own 51 percent and Shell 49 percent.

    Developing Iraq’s gas resources is important for delivering basic services like electricity and fuel to citizens and business. Iraq’s once top-shelf state-run oil and gas industry was devastated by Saddam Hussein’s misuse, sanctions and nearly three decades of war. Infrastructure and equipment were harmed, and new technology and training were shut out.

    More than 60 percent of Iraq’s natural gas production is burned or released into the air or reinjected into the ground because of insufficient infrastructure to transport and utilize the gas. The gas would be helpful for Iraq’s power and other industries currently, and more so as the economy grows. Electricity last week supplied only 58 percent of demand, according to the U.S. State Department’s Iraq Weekly Status Report.

    The oil and gas sector is in need of new and modern investment, though there’s a dispute over how to proceed: rebuild the once prominent domestic oil and gas industry or allow foreign companies to re-enter the sector.

    A new oil and gas law is supposed to set post-Saddam guidelines and regulations for developing the oil and gas industry, but a draft of the law has been stalled for nearly two years. A top roadblock: to what extent foreign companies should be allowed to invest. The oil unions say it should be limited to contracts to help rebuild the Iraqi sector. Others, a decidedly smaller group, favor an all-out reversal of the nationalism that saw Shell and others booted out of the country 40 years ago.

    The Shell joint venture is an attempt by the Oil Ministry to walk the fine line, relying on remaining Saddam-era laws, though some have complained the Parliament should have more of a say and the contract should not have been a private negotiation with one company.

    According to the previously unseen HOA, “the joint venture will off-take and purchase all Raw Gas produced in the South of Iraq by either the South Oil Co. or any other producer.” The HOA defines “South of Iraq” as the southernmost province — and oil and gas capital — of Basra, though a map appendix to the HOA shows the contract territory extending for an unknown distance into the Persian Gulf “and any other areas as may be agreed by (Shell and the Oil Ministry).”

    The joint venture would not focus solely on gas currently being produced in the agreed upon area. As oil production increases, as expected by the ministry, so will the gas; most of Iraq’s gas production is what’s called “associated gas,” found during oil production.

    Iraq has the world’s 10th-largest proven gas reserves, according to the U.S. Energy Information Administration, most of it located in southern Iraq. Two to three times more reserves could be found when it is fully explored, and much more expected to be “non-associated” gas, reservoirs independent of the oil.

    “The Parties acknowledge that access to non-associated gas is essential to ensure that the aims of the Joint Venture are met,” the HOA states, adding one of the objectives of the company is to “pursue development of non-associated gas fields in southern Iraq according to respective rules and regulations for field development in Iraq.”

    According to the HOA, the joint venture will purchase the raw gas from producers — mostly state-owned companies — and process it into products used in domestic and foreign markets.

    The agreement does not stipulate whether Iraq’s residents and industries would have first dibs on the gas.

    Shell, which has proposed to the Iraqi government a nationwide gas master plan, will create a “high-level evaluation of dry gas export schemes.”

    Shell would have the rights to all liquefied natural gas. Although Iraq currently does not have LNG facilities, the HOA tasks Shell with assessing the “feasibility of an early LNG export project.”

    All other products, such as fuel for cooking and heating, would be sold to the Oil Ministry, directly to domestic consumers and bypassing the ministry, or exported.

    “The products will be sold at prices linked to international market prices,” the HOA states, and the joint venture would pay for the raw Iraqi gas with “a fixed percentage of the revenues received by the Joint Venture for selling products.”

    While the HOA does not bind the ministry and Shell to create the joint venture, it is a legal contract for 12 months — with a six-month automatic extension — during which it restricts the Iraqi Oil Ministry from negotiating with any other company or carrying out any work that could be interpreted as competing with the Shell joint venture.

    “The ministry shall not pursue any discussions with the intention of entering into a project with a similar scope to that set out in this HOA with any third parties,” the HOA states.

    The joint venture would be “of a long term (25 years extendable),” according to the HOA. Iraq and Shell would split the revenue dividends and required investment 51/49 percent, respectively. The joint venture would owe the state a 15 percent tax as well.

    Both sides, however, have equal representation on the six-member Joint Management Committee, which was to begin work Oct. 22. All of the JMC decisions must be unanimous, though only one person each from the ministry and Shell is required for quorum.

    The JMC will determine “activities” of the joint venture, and Shell and the Oil Ministry will work together “in good faith with each other and shall not participate in any similar activities with any third parties.”

    Shell has the option of offering a part of its stake to a third party, and UPI understands Shell is in talks with Chevron. All equipment and “technical and operational support” will be purchased by Shell, which “has developed a strategic alliance with General Electric (NYSE:GE) for the benefit of the Joint Venture.” Mitsubishi Corp. (OTCPK:MSBHF) and other companies are negotiating “strategic alliances” as well.

    —

    (e-mail: [email protected])

  • Energy at Root of Karabakh Accord

    Energy at Root of Karabakh Accord

    By Nikolaus von Twickel / Staff Writer

    The presidents of Armenia and Azerbaijan have signed a declaration on the Nagorno-Karabakh conflict at a meeting with President Dmitry Medvedev in a sign of the Kremlin’s growing role and the importance of energy politics in the South Caucasus.

    Armenian President Serzh Sargsyan and Azeri President Ilham Aliyev signed the largely symbolic document at Medvedev’s Maiendorf residence, just outside Moscow on Saturday.

    Armenia has traditionally been a staunch ally of Russia, while energy-rich Azerbaijan has maintained friendly ties with Georgia, but Moscow has been looking for greater cooperation with Azerbaijan on energy issues.

    The five-point document, published on the Kremlin’s web site, says both countries will step up efforts to find a peaceful solution over Nagorno-Karabakh, an ethnic Armenian enclave inside Azerbaijan that broke away after a bloody conflict in the early 1990s that killed more than 30,000 and displaced more than 1 million.

    The declaration is the first such document signed by the heads of the two states since Russia mediated a cease-fire agreement in 1994.

    While it stresses the need for a political settlement based on international law, the document does not contain any significant commitments, such as to forego the use of force, nor does it mention the conflicting issues at the heart of the conflict, territorial integrity and national self-determination.

    The outcome of the meeting was not as significant as some may have hoped.

    “This was not much different than dozens of meetings before,” Svante Cornell, research director at the Central Asia-Caucasus Institute, a joint U.S.-Swedish think tank, said Tuesday by telephone from Tbilisi, Georgia. “All we have seen is basically two leaders committing themselves to solving the conflict.”

    Alexei Malashenko, an analyst with the Moscow Carnegie Center, said the declaration was largely ceremonial.

    “The fact that Medvedev [presided over the talks) just means that both sides accept Russia as mediator,” Malashenko said Tuesday. “Russia needed an urgent rehabilitation as peacekeeper in the region.”

    Moscow’s relations with the West worsened dramatically after it sent soldiers and tanks deep into Georgia to repel a Georgian military attack to reclaim its breakaway region of South Ossetia in August.

    The declaration also says negotiations should continue within the framework of the so-called Minsk Group, a 12-member body headed jointly by Russia, France and the United States, and overseen by the Organization for Security and Cooperation in Europe.

    U.S. Deputy Assistant Secretary of State Matthew Bryza and French Ambassador Bernard Fassier were at Maiendorf, an OSCE spokesman said by telephone from Vienna.

    Bryza, the senior U.S. diplomat overseeing the South Caucasus region, praised the result.

    “My country fully supports this document. The declaration shows that both presidents can work seriously towards solving this conflict,” he said, Interfax reported Monday.

    Cornell said the declaration was a show of force by the Kremlin capitalizing on the weakness of the West, as the Georgian war in August, the global financial crisis and the leadership change in the United States would all work to cripple Western influence in the region.

    “There is a new geopolitical situation now,” he said.

    Russia, he said, was offering a solution that would mean a loss of independence for Azerbaijan, possibly through the deployment of a Moscow-sponsored peacekeeping force on its territory.

    Cornell said Moscow was probably eyeing a “common state” solution, something that had been on the negotiating table back in the 1990s.

    This proposal, which had been rejected by Baku, focuses on bringing Azerbaijan and Nagorno-Karabakh together in a confederation.

    Carnegie’s Malashenko said that while its influence in the region has grown, Russia would not go it alone.

    “To solve this conflict, you need more than one mediator; you need a group of mediators,” he said. “Moscow won’t act outside the format of the Minsk Group.”

    Malashenko also denied that the talks might herald a weakening of Moscow’s traditional support for Armenia.

    “I cannot imagine that one country will give one-sided support to one party, because this is impossible,” he said.

    Both Azerbaijan and Armenia depend on trade routes through Georgia.

    Moscow has recently been courting Azerbaijan, which wants to sell more gas to Russia.

    Medvedev signed a cooperation agreement with Aliyev in Baku in July, and in Moscow this September both leaders discussed direct talks between Azerbaijan and Armenia over Nagorno-Karabakh.

    Europe has also been making overtures to Azerbaijan as a vital supplier to a proposed new gas pipeline, which would reduce Western dependence on Russian energy.

    The Nabucco pipeline project has been backed both by the European Union and the United States.

    EU Energy Commissioner Andris Piebalgs will travel to Turkey and Azerbaijan this Wednesday to show Europe’s commitment to the project, The Associated Press reported.

    Moscow has worried the EU by negotiating with Turkmenistan and Kazakhstan to commit to sending their Caspian Sea gas through Russia.

    It is also pushing South Stream, a rival pipeline project by state-controlled Gazprom, which is slated to cost some $13 billion.

  • EU Fights For Nabucco’s Future

    EU Fights For Nabucco’s Future

    Andris Piebalgs heads to Istanbul and Baku to make his case.

    November 05, 2008
    By Ahto Lobjakas

     

    BRUSSELS — The fate of the Nabucco pipeline project appears to be hanging by a thread. No EU official would publicly admit this, but the signs tell their own story.

    First, as a senior EU official told reporters in Brussels on November 4 on condition of anonymity, transit talks with Turkey have stalled.

    Second, Azerbaijan is dithering between competing Russian and EU bids for its gas exports, which are crucial to bringing Nabucco on line in 2012 as planned.

    Third, in the long term, Azerbaijani gas alone will not be sufficient. The EU official said that “other countries in the region” must supply most of the 31 billion cubic meters (bcm) of gas Nabucco is expected to carry by 2020.

    But Iran, with the world’s second-largest reserves, remains off-limits as long as it continues to enrich uranium. And Turkmenistan, with its enormous export potential, has yet to decide whether to invest in a trans-Caspian pipeline linking it to Azerbaijan — and Nabucco.

    The common thread for all these countries, and the EU as the ultimate beneficiary of the 3,300-kilometer-long pipeline, is the question of intent and commitment.

    EU Makes Its Case

    On November 5-7, EU Energy Commissioner Andris Piebalgs will visit Turkey and Azerbaijan to demonstrate the bloc’s continued commitment to Nabucco.

    “The first objective of this trip is to show the political commitment of the European Commission to the Nabucco project and to reaffirm once more that we are convinced that it is going to be online according to the planned timetable,” says Piebalgs’ spokesman, Ferran Tarradellas.

    The Russian-Georgian conflict sent shock waves through the region and among potential investors. But official Brussels remains steadfast in the belief that Nabucco is safe from Moscow’s interference. “Russia would jeopardize its reputation as a reliable supplier” to the EU if it acted in any way to damage Nabucco, said one official.

    However, none of Nabucco’s essential building blocks is currently in place. Turkey continues to hold out for a better transit deal while Azerbaijan has yet to formally commit its gas exports to the project.

    Tarradellas says that while Piebalgs’ visit is a sign that the EU is upping the ante in its talks with the two countries. “We’re going to discuss also the remaining differences with the Turks and the question of the transit of the gas through Turkey,” he says, “and then we’re going to be visiting Azerbaijan, which will be probably be the first supplier of gas for the Nabucco pipeline.”

    The senior EU official who spoke on condition of anonymity said that, apart from charging a transit fee, Turkey wants to divert 15 percent of Nabucco’s gas for cheap domestic use. As Azerbaijan is insisting on selling its gas at European market rates minus transit costs, the Nabucco consortium and its subsidiaries in Turkey, Bulgaria, Romania, Hungary, and Austria would be left to pick up the tab.

    Piebalgs is keen to break the deadlock before the end of the year. In Turkey this week he will meet with the country’s president, prime minister, foreign minister, and economy minister.

    Where Will Gas Come From?

    Azerbaijan, meanwhile, has yet to decide to whom to sell the estimated 7-9 bcm of gas it is able to export annually in the early years of Nabucco’s operations. The senior Brussels official said EU companies are pitted against Russian competitors. There are fears in the EU that Russian political pressure could clinch the deal for Russian bidders. A decision is expected sometime in 2009.

    EU officials say that the fact that Piebalgs has secured a meeting with Azerbaijani President Ilham Aliyev is a sign of “interest” on the part of Baku in doing business with the EU.

    But Azerbaijan’s gas reserves, even if supplemented by the planned expansion of the Shah Deniz field, will not be sufficient to keep Nabucco in business.

    And this is where Nabucco currently hits a wall. Iran will remain untouchable  in trade terms as long as it refuses to cease uranium enrichment. Like Azerbaijan, Turkmenistan and Kazakhstan can be swayed by Moscow’s cash — or outright pressure. And even if Turkmenistan’s recently confirmed reserves of 14 trillion bcm dwarf Russia’s own transit capacity, Moscow will be seeking to deny the EU a piece of the pie.

    Piebalgs is hoping to soon visit Turkmenistan and Kazakhstan, his aides say.

    This leaves Iraq and Egypt as the only other viable regional suppliers for Nabucco — with one extremely unstable and the other rather remote.

    Meanwhile, EU officials reject suggestions Nabucco could eventually carry Russian gas diverted south. This, they say, would defeat the purpose of Nabucco — which is to diversify supplies. (Competing Russian projects, such as South Stream, are not seen as a problem, however. The EU’s growing demand for gas will make sure it has a market and the diversification of transport routes is a good in itself).

    If the degree of insecurity associated with the 8 billion-euro ($10.3 billion) project coupled with the global financial crisis is making potential investors nervous, officials in Brussels remain serene. When pressed, they do point out, however, that should private investors balk, public lenders such as the European Investment Bank and the World Bank stand ready to step in.

  • Turkey facing gas shortage

    Turkey facing gas shortage

    ANKARA, Turkey, Oct. 28 (UPI) — Turkey is faced with the possibility of a severe gas shortage if development of an Iranian natural gas pipeline falters, the state-owned pipeline firm said.

    BOTAS, the oil and natural gas pipeline firm in Turkey, warned government officials that gas shortages would emerge as early as January if a pipeline from the Iranian South Pars gas field was not completed soon, the business daily newspaper Referans reported Tuesday.

    Ankara and Tehran had agreed to develop additional arteries to meet Turkish demands as gas compression issues diminished the capacity along conventional routes.

    Iran hopes to link its South Pars gas field to the planned Nabucco pipeline, a project favored by the European Union as a means to ease dependency on Russian natural resources.

    Iran is keen on expanding its customer base amid Western-imposed economic sanctions as punishment for its controversial nuclear program. For its part, BOTAS has urged Iran to act expeditiously on developing its infrastructure to avoid shortages.