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Monday, April 20, 2009

Azerbaijan and Russia edge closer to gas deal

20 April 2009 - EurActiv - Europe's hopes of securing natural gas from Azerbaijan via the Nabucco pipeline were further dampened on Saturday (18 April) when Azerbaijan's President Ilham Aliev said he wanted Russia to serve as a transit route for selling gas to Europe. During a visit to Moscow, the president of Azerbaijan Ilham Aliev also confirmed his country's interest in selling gas directly to Gazprom.
Until 2007, Russian state-owned company Gazprom was virtually the sole supplier of natural gas to Azerbaijan, as Azeri production remained marginal. However, this privileged relationship ended in 2007, when Gazprom signalled its intention to cut supplies to Azerbaijan from 4.5 billion cubic metres to 1.5 billion, and increase gas prices to $235 per 1,000 cubic metres.
Now, Azerbaijan meets its gas needs from its own production, including from the Shah Deniz field. In addition, since 2007 Azerbaijan has been supplying gas to Georgia. Natural gas consumption in Azerbaijan totals 10-11 billion cubic metres a year. The 200km Baku–Novo Filya gas pipeline, via which Azeri gas will be supplied to Russia, requires an upgrade, but specialists say this is not a problem. Nabucco and the Russian 'South Stream' project's capacities are almost the same (30 billion cubic metres a year). Both bypass Ukraine and use approximately the same sources (Central Asian and Caspian gas). 'South Stream' runs directly through the Black Sea from the Northern Caucasus shore, while Nabucco runs through Turkey from the borders of the Southern Caucasus. Their commissioning terms are nearly identical too.
The meeting between President Aliyev and his Russian counterpart Dmitry Medvedev was expected to improve the chances of a gas deal under which Azerbaijan would sell 16 billion cubic metres of gas annually to Gazprom from its Shakh Deniz gas field. Baku, which currently exports gas to Georgia and Turkey, says it is looking to new markets – including Russia – and the Azeri president expressed enthusiasm for a deal with Moscow. "There are no transit countries between us, and this means that quite an effective transport infrastructure is already in place. There is no need for additional investment in building a gas pipeline. All the conditions therefore look very advantageous," said Aliev at the joint press conference, quoted by the Kremlin website. His Russian host also expressed optimism that a deal could be hammered out soon. "I think that we have excellent prospects for reaching a full-fledged agreement that takes into account our countries' interests and the companies' commercial interests. This could open a new chapter in our energy cooperation," Medvedev stated. The talks appeared to strike another blow to the EU-favoured Nabucco pipeline project, which aims to decrease the Union's dependence on Russian gas. Anticipating wary EU reactions, the Russian press gloated that Brussels had better not complain. "The European Union would likely welcome the emergence of a new supplier from the East, albeit one dependent on Russian pipelines, especially since the completion of Nabucco remains in doubt," the Moscow Times wrote today.
US policy shift? - At the same time, analysts said the US had started shifting from the policies of previous administrations, which focused on promoting alternative energy corridors Europe, in order to improve its relations with Moscow. Alexander Rar, director of Russia and CIS Programmes for the Foreign Policy Council of Germany, a think-tank, said "Americans offered to unite 'South Stream', Nabucco and other pipes into a general project under the code name 'Southern Corridor' in order not to create geopolitical contradiction at the moment when we need Russia to solve Iranian problem and other matters". The EU also recently attempted to rebrand Nabucco under the wider 'Southern Corridor' expression (EurActiv 17/03/09). The term 'Southern gas corridor' also includes an offshore pipeline, ITGI, to be built between the Greek Ionian coast and Italy, and other projects in the south. Positions: Christian Dolezal, a spokesman for Nabucco GmbH, told EurActiv it was "understandable" for a gas-producing country such as Azerbaijan to look for business opportunities. "It is understandable that gas producers are looking forward to selling their gas. We are optimistic that Nabucco will be used as outlet to Europe by gas producers in Azerbaijan, Iraq, Turkmenistan and Egypt," Dolezal said.

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