By Alexandros Petersen
Azerbaijan’s ongoing dispute with Turkey about transit terms and revenues for natural gas heading to Europe across Anatolia, as well as uncertainties about the Nabucco pipeline project, have compelled highest-level officials at Azerbaijan’s State Oil Company (SOCAR) to publically consider the option of exporting hydrocarbons eastward, potentially to China and other East Asian markets. However, as Baku would have to surmount significant hurdles to make that proposition a reality, it remains to be seen whether a reorientation of Azerbaijan’s energy posture is in the cards, or whether this is just rhetoric to spur the development of Western-oriented projects. That said, the prospect of increased Azerbaijani gas exports to Russia and Iran supplanting westward flows should not be ruled out.
BACKGROUND: Since independence from the Soviet Union, Azerbaijan’s energy policy has largely been Western-oriented. Former president Heydar Aliyev’s energy and foreign policies were closely linked. Their common objective was to bolster Azerbaijan’s independence and diversify its international links away from Russia and the post-Soviet space, to Western and world markets. The “Contract of the Century” to develop Azerbaijan’s Caspian hydrocarbons and the construction of the Azerbaijan-Georgia-Turkey (AGT) projects, including the famed Baku-Tbilisi-Ceyhan (BTC) oil pipeline, were keystones in an energy posture that not only afforded land-locked Azerbaijan the opportunity to export its natural resources, but did so in a way that allowed Baku to garner new international partners and greater independence of action in Eurasia and on the world stage.
The logical continuation of this trend was to do with Azerbaijan’s gas what had been done with its oil. The European Union’s vision of a Southern Corridor for energy would link EU consumers to Azerbaijan and potentially other Caspian producers of natural gas through Turkey and Georgia. The most discussed project of this Corridor was and is still the Nabucco gas pipeline, which would link Turkey’s border with Georgia to Austria’s European gas hub at Baumgarten. However, the geopolitics of gas are very different from those of oil, and power politics in Eurasia have drastically altered from those of the late 1990s when BTC was on the table.
The Southern Corridor faces a number of challenges: slow-motion progress on Nabucco due to political and commercial concerns, competition from Moscow-backed projects such as the South Stream and Nord Stream pipeline projects, and lackluster diplomatic support from the EU itself. However, the most pressing obstacle at the moment is the dispute between Baku and Ankara regarding transit revenues and gas pricing for Azerbaijani gas transiting Turkey to fill another Southern Corridor pipeline: the Turkey-Greece-Italy Interconnector.
This frustrating picture recently compelled highest-level SOCAR officials to publically air the option of exporting gas eastward, across the Caspian to China. SOCAR’s President, Rovnag Abdullayev, said on November 20 that Azerbaijan is seriously considering exports to China as part of the country’s energy diversification strategy. This is a direct message to the Nabucco consortium and Western companies and governments involved in the development of the Southern Corridor to step up their game and achieve results, such as a coordinated strategy with Turkey, along with project financing and comprehensive and clear offers to producers such as Azerbaijan. Also speaking in mid-November, SOCAR Vice President Elshad Nassirov could not have put it more clearly: “If Europe takes too long putting together a solution, then all the gas in the Caspian will go to Asia. It’s more serious than it seems”.
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