For more than two decades, the European Union has sought gas from the vast reserves of the Caspian Sea. During that time, grand pipeline projects were mooted and forgotten. At all times, the bloc has become more dependent on Russian gas.
As a journalist who has specialized in Turkish and Caspian energy issues over the past 25 years, I am not surprised to see the President of the European Commission, Ursula von der Leyen, Been trying desperately to source in Baku last month excess amount of gas. Russia, as security mavens have long predicted, is now using its supply hold on the EU to try to make concessions on its war in Ukraine.
But why did the Caspian gas not be supplied to Brussels long ago? It was only in 2020 that small amounts finally started flowing into Europe along the so-called “Southern Gas Corridor”. In Baku, von der Leyen achieved a non-binding promise that those supplies could double to 20 billion cubic meters per year (BCM) by 2027. This is a small one. Compare this figure with the 155 bcm that Russia supplied last year, which meets 40 percent of the EU’s demand.
something went very wrong
The core problem is Brussels’ insistence that pipelines be developed by private firms and be “commercially viable”. The EU is unwilling to reduce the infrastructure needed, assuming market forces will prevail. Maybe it would be in a world of perfect competition. But market forces have been unable to compete with Gazprom, a Russian monopoly that plays by its own rules.
In theory, as one EU technocrat patiently explained to me, creating a commercially viable pipeline project to take Caspian gas to Europe is simple: you need Europeans to sign contracts to buy gas. what they are willing to do. This guarantees a revenue stream and enables banks to finance the tens of billions of dollars needed to develop fields and pipelines to deliver gas.
Simple – but, he warned, the opposite is also true. If, like Gazprom, you have the finances, you can go ahead and build the pipelines and then secure buyers – whose main interest is short-term supply, not long-term security. In the process, Gazprom has effectively blocked the development of rival pipelines.
In short, this is how Europe has lost a succession of opportunities to import gas from the Caspian and has allowed itself to be blackmailed.
If Gazprom only liberalized
The collapse of the Soviet Union in 1991 and the rise of independent, gas-rich Caspian states coincided with Europe’s first warning of a decline in its gas production and over-dependence on Russia.
Soviet-era agreements and pipelines meant that Russia already supplied 30 percent of Germany’s gas by the early 1980s. Last year, Germany relied on Gazprom for more than half its gas consumption. With so many eager buyers, Gazprom funded its own pipelines,
In contrast, bringing Caspian gas to Europe required developing difficult offshore gas fields and building 3,500 kilometers of pipelines running through many countries that were familiar only with democratic and commercial norms – some of which barely were on speaking terms.
Brussels recognized that the liberalization of the Russian economy would end Gazprom’s monopoly, while a European market governed by legally enforceable contracts would ensure free competition and competitive pricing. If Caspian gas was commercially viable, the mantra would go, the private sector would be able to bring it to market.
The private sector tried, but repeatedly came up against insurmountable odds.
The first effort, launched in 1999 with strong support from Washington, allows US giants GE and Bechtel partner in an ambitious project to produce more than 30 bcm of gas from fields in Turkmenistan through the “Trans-Caspian Pipeline” in Azerbaijan. Was seen to move. Georgia to Turkey.
Ankara agreed to take half the gas, and transfer the rest to Europe to develop the pipeline, apparently securing project finances.
Yet it was established not on a commercial basis but after Azerbaijan’s discovery of its vast Shah Deniz gas field, and the failure of Baku and Ashgabat to agree to share the planned pipeline. Has a European guarantee of proceeds from gas sales persuaded two emerging states to agree to share a pipeline? we will never know. Brussels showed little interest in the Trans-Caspian project. (Russia also dumped cold water on the pipeline, arguing that the Caspian Sea was a lake, and therefore Azerbaijan and Turkmenistan required its approval before anything could be built across the sea.)
In 2001 Turkey and Georgia signed contracts to take some of the newly discovered Azerbaijani gas, with Turkmenistan bypassing. This allowed the BP-led consortium to develop Shah Deniz and build the South Caucasus Pipeline (SCP), which eventually delivered Azerbaijani gas to eastern Turkey in 2006.
Waiting for Nabucco
Plans for the South Caucasus Pipeline inspired European firms, and in 2002 Austria’s OMV collaborated with state gas transmission operators from Turkey, Bulgaria, Romania and Hungary to develop blueprints for a 31 bcm “Nabuco” pipeline from several Caspian sources. Formed a union to carry the gas. Europe’s Baumgarten gas trading hub in Austria.
The European Commission eventually took an interest, funding half the cost of a feasibility study. But this was only with the publication six years later. EU’s “Second Strategic Energy Review”In 2008 concern over the growing dependence on Russia developed into a de facto policy for the development of the “Southern Gas Corridor”. Having said: “A Southern Gas Corridor should be developed to supply gas from Caspian and Middle Eastern sources, which could potentially supply a significant portion of the EU’s future needs. This is one of the EU’s highest energy security priorities. is one of them.”
Nevertheless, Brussels stuck to the idea that development is a job for the private sector. It failed to identify Nabucco or any other pipeline project that might fit the bill.
At the same time, Nabucco was facing other challenges.
Two smaller projects were in the works to transport the same Azerbaijani gas to Europe. And Gazprom had announced its massive 63 bcm “South Stream” pipeline from the Black Sea to Bulgaria, which would swallow up the European market.
Nabuco did not get gas to fill its 31 bcm capacity. The planners looked to Turkmenistan, then Iran, even Iraq. But with Azerbaijan still unwilling to move Turkmen gas, Iran gripped by international sanctions, and Iraq embroiled in its endless problems, no one expected gas within a practical time frame. Shah Deniz of Azerbaijan could supply less than 20 bcm, and the BP-led consortium was unwilling to give its gas to Nabucco to develop the field, unless Nabucco’s supporters could ensure it to other suppliers. not found commercially viable to do.
If the European Union was sufficiently committed to building its Southern Gas Corridor, it could have awarded Nabuco a project of “strategic importance” and guaranteed funding, to ensure that the pipeline was built.
In the event, the Azerbaijani government grew tired of waiting and announced that it would fund its 31 BCM pipeline in Turkey, called the Trans Anatolian Pipeline (TANAP), a move that effectively killed Nabuco.
Construction began in 2015. After crossing into Greece, TANAP connected to the Trans-Adriatic Pipeline (TAP), one of Nabuco’s rivals.
Supply to Turkey started in 2018The gas will finally flow to Italy at the end of 2020.
Twenty-one years after the first serious talk of moving Caspian gas to Europe, and 12 years after the Southern Gas Corridor became an EU policy, the market finally delivered Caspian gas to European consumers.
But the Southern Gas Corridor takes only 10 BCM to Europe (this year the amount will increase to 12 BCM). Can this be seen as a success? Does it reaffirm Brussels’ commitment to seceding from Russia?
far from it. In the same 21-year period Gazprom commissioned three major gas pipelines in Europe with a total capacity of over 125 BCM.
Only the last of these, the 55 bcm Nord Stream 2 line – partly financed by German gas companies – faced any serious roadblocks, when German Chancellor Olaf Scholz finally succumbed to EU and US pressure and blocked operations, and that only on 22 February 2022Two days ago Russian tanks rolled into Ukraine.
It is possible to further increase the quantity of Caspian gas in Europe. Turkmenistan, which has been effectively excluded from the Southern Gas Corridor to date, Boasts 13.6 trillion cubic meters of reserves – Fourth highest in the world. has ties with Azerbaijan Hot and russia left his protest For the Trans-Caspian Pipeline in 2018.
But delivering enough to Europe to replace or meaningfully compete with Russian gas would require several tens of billions of dollars and the willing cooperation of countries through which to build new pipelines. More importantly, Brussels may need to reject its urge to play by neoliberal market rules.
Still, such a pipeline would take years, during which time Europe would depend on Russia.
This raises the question of whether the huge investment required for Caspian gas can be better spent on another pressing energy issue that has occupied my time over the past two decades – namely, carbon reduction goals. To develop Europe’s renewable energy resources to meet
Failing to realize the delivery of significant quantities of Caspian gas to Europe is proving to be a costly mistake. Evidence from this summer’s heat and wildfires suggests that failure to address climate change could prove more costly still.
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