EU Seeks Caspian Gas Accord to Cut Russian Dependence

The European Union is seeking an agreement on a natural gas pipeline between Turkmenistan and Azerbaijan as the 27-nation bloc aims to import Caspian fuel and reduce its dependence on Russia.

The EU regulator’s energy unit drafted a document that the parties could use as the basis for a deal on building at least one pipeline across the Caspian Sea, according to a copy of the non-binding paper obtained by Bloomberg.

The EU, seeking less reliance on Russia, wants Turkmen gas for the proposed Nabucco pipeline. Turkmenistan, where foreign investment was held back until the 2006 death of isolationist President-for-Life Saparmurat Niyazov, ships gas to Russia and Iran, and opened a pipeline to China last year. Plans to build a link across the Caspian Sea have been frustrated by unresolved marine borders and opposition from Russia and Iran.

“Without Turkmen gas, Nabucco wouldn’t make sense,” said Alexander Rahr, a Russia and Eurasia expert at the German Council on Foreign Relations in Berlin. “The EU is trying to get this pipeline through, but they’re running out of time as the Turkmen are sending more gas to China.”

Azerbaijan attended an EU-hosted meeting in Brussels with Turkmenistan and no agreements were signed, said Vagif Aliyev, head of investment at The State Oil Co. of Azerbaijan. Marlene Holzner, a spokeswoman for the European Commission’s Directorate-General for Energy, declined to comment on the document.

UN Talks

Phone calls to Turkmenistan’s department of foreign economic relations went unanswered. Officials from a state hydrocarbon agency and the Foreign Affairs Ministry will visit New York to hold talks with the United Nations on developing recommendations to draft an “international legal document on energy transit,” according to a statement the government posted on its website yesterday.

Azerbaijan has yet to receive a concrete proposal from Turkmenistan, holder of the world’s fourth-largest gas reserves, Aliyev said by phone from Baku. “We are ready to provide transit for Turkmen gas,” he said.

The EU must get “serious” about Nabucco to compete with Russia’s OAO Gazprom for Caspian natural gas, Azeri President Ilham Aliyev said in January. Nabucco lacks a clear leader able to attract the necessary financing or hold talks with suppliers and transit countries, Aliyev said.

‘Tangle of Countries’

“The European Commission is showing that a way can be navigated through this tangle of countries and we actually are in the course of doing so,” EU Energy Commissioner Guenther Oettinger said in a copy of a July 27 speech the regulator posted on its website. “We may need extraordinary measures to achieve success, such as the Caspian Development Corporation or the building of a trans-Caspian pipeline link.”

Turkmenistan and Azerbaijan would have to assure that the owner of the link maintains optimal use of the asset subject to market conditions, according to the draft document. The owner wouldn’t be able to refuse to offer free capacity or reject requests to use available volumes, according to the paper, which does not specify the size or route of the pipeline.

The two governments would have to consult one another before designating entities that can request to use the pipe, according to the draft. The link could be used to transport gas in either direction, according to the document.

‘Political Issue’

“It isn’t a long distance, the water isn’t very deep, it’s more of a political issue,” Werner Auli, a management board member at OMV AG, the company leading the 7.9 billion-euro ($10.4 billion) Nabucco project, said today at a press conference in Vienna. “That’s why Brussels has started a project and is working very intensively to solve these legal issues we consider solved so that the Azeris and Turkmen can start on this pipeline.”

After Niyazov’s death, governments from the EU to Asia jostled for access to Turkmenistan’s gas reserves, estimated at 8.1 trillion cubic meters by BP Plc. That’s enough to meet current German demand for more than a century.

Russia wants Turkmenistan and Kazakhstan to build a new gas pipeline along the Caspian coast to keep control over the former Soviet republics’ energy exports. Iran has presented an alternative plan envisioning a network of shipping routes and pipelines that would turn the country into a regional hub for Caspian energy exports.

East-West Link

Turkmenistan is building a $2 billion East-West pipeline that will carry about 30 billion cubic meters of gas from the country’s biggest fields toward the Caspian coast when opened in June 2015 as it seeks to increase fuel exports.

Nabucco is planned to stretch more than 3,300 kilometers (2,050 miles) from Turkey to Austria to send gas to Europe and reduce the region’s dependence on Russia. Nabucco is also seeking to source gas from Azerbaijan and Iraq.

The Nabucco partners, which also include Essen, Germany- based RWE AG, Budapest-based Mol Nyrt., Bulgargaz EAD, Romania’s Transgaz SA and Ankara-based Botas, have said they’ll decide on the investment by the end of this year. Construction is set to begin in 2011 and shipments may start at the end of 2014, according to the venture’s website.

While Nabucco welcomes increased support from the EU for a southern gas corridor, the venture doesn’t have any formal knowledge of efforts to push for an Azeri-Turkmen deal on a pipe between the countries, spokeswoman Gabriele Egartner said in an e-mailed response to questions.

Sub-soil Jurisdiction

The proposed framework isn’t to be interpreted as affecting Azerbaijan or Turkmenistan’s jurisdiction over sub-soil resources or their sovereign rights under international law to the Caspian Sea, according to the document.

The delineation of the Caspian Sea became an issue after the 1991 breakup of the Soviet Union, when Iran found itself with four neighbors on the body of water instead of one.

“We think that defining the borders is not the main problem blocking such a project,” Vagif Aliyev said. The main issue is coming up with a commercial project that will be profitable to investors, he said. “We, as investors, are not ready at this moment.”

To contact the reporters on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net Stephen Bierman in Moscow at sbierman1@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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