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Caspian:A zone of special interest

Caspian:A zone of special interest
When back in the ‘90s the international community discovered the Caspian region’s enormous hidden wealth, US energy experts were quick to announce the region as the world’s third largest in energy resources.

The Caspian: A zone of special interest

When back in the ‘90s the international community discovered the Caspian region’s enormous hidden wealth, US energy experts were quick to announce the region as the world’s third largest in energy resources.

In no time, the world energy map experienced a shakeup: A largely unknown energy reserve was drawn straight at the borders of Eurasia. It’s called the Caspian region.

Following up on it, the US established a Caspian energy policy, which was a position of the US energy ambassador for the Caspian. In 1998 it sent the world at large a clear-cut message: The Caspian was declared a zone for US special interest. In a short while, in spring of 2002 the adjacent post-Soviet democracy of Georgia turned into the key US ally in the Black Sea region. Tiny and impoverished, Georgia enjoys a crucial geo-strategic position of a transition point on the way of the BTC and BTE export energy pipelines.

Russia fell a bit behind the US in announcing the Caspian region a focus of its attention: It only happened in 2000, when Vladimir Putin became president. Neither Gorbachev nor Yeltsin paid a special attention to the Caspian region, apparently considering it no more than a remote part of the former Soviet empire. The situation changed dramatically with the coming to power of President Putin: The Caspian became a vital element of Russian relations with the post-Soviet democracies.

As a result, by now Russia has established fiduciary relations with Kazakhstan, resumed friendship with Turkmenistan, returned Uzbekistan to the inner circle of its friends and has managed to remain on good terms with Azerbaijan. Russia enjoys a 200-year history in the Caucasus and nearly 100 years in the Caspian. Jointly with its robust Caspian foreign policy, this makes the Russian position in this region unbeatable and immune to political shakeups.

This fact of life is recognized both by the Caspian countries and the Westerners present in the region. The time of the lopsided presidency of Boris Yeltsin is over, and the pragmatic and no-nonsense President Putin is determined to remain in control over the regional situation.

The EU was the last to come to the Caspian region with a clear-cut and sound policy. True, during the past decade the EU and the European Commission have undertaken a number of regional initiatives, such as establishing the EU TRACECA intergovernmental commission to assist in establishing transportation corridors from Central Asia and the Caspian to the West. In the framework of the TRAFICA project, European financial institutions have been supporting development of transportation networks from China to Europe through the Central Asian and Caspian countries.

The Caspian’s energy resources have also been the focus of its attention. In November 2006, the European Commission signed a Memorandum of Understanding with Azerbaijan on the facilitation of Caspian hydrocarbon deliveries to Europe. The matter was also addressed at a February meeting in Berlin between German Chancellor Angela Merkel and Azeri President Aliev. It was mentioned that preparations were under way for commissioning new pipelines passing through Ukraine to Poland, and through Greece to Southeastern Europe to bring Caspian hydrocarbon reserves to EU countries.

Also last February, EU Energy Commissioner Andris Piebalgs, while visiting Kazakhstan, pointed out that “strengthening discussions with Kazakhstan in the energy sector is of great importance for improving the security of energy supplies to the EU.”

The EU considers Kazakhstan a big oil exporter, an important future gas supplier and a business partner, according to Commissioner Piebalgs. The Kazakh leadership, for its part, considers construction of a gas pipeline from Kazakhstan to Azerbaijan, Georgia and Turkey and further to Europe as one of the feasible routes. Kazakhstan expects its production capacity to reach 45 billion cubic meters of natural gas per year by 2015.

Nevertheless, the Central Asian and Caspian components continued to be missing in the EU foreign political dimension until recently. On April 12 they finally received a boost for potential: On that day the EU made a long-expected announcement of its new Neighborhood Policy covering the Black Sea region, known as the Black Sea Synergy. In particular, the newly revealed document mentions the importance of strengthening relations with the countries of the regions adjacent to the wider Black Sea area.

As for Turkey, due to its close proximity to the Caspian countries, it enjoys long-established and special relations with them. Still, for more than 70 years communist rule kept them divided as ideological enemies regardless of ethnic similarities. With the Soviet regime’s collapse, Turkey found itself in a position of discovering its Caspian and Central Asian neighbors anew while establishing relations with them on the principles of national sovereignty and independence. Today, Turkey enjoys an impressive business presence in oil-rich Azerbaijan and rapidly developing Kazakhstan and has handsomely contributed to construction and textiles in Turkmenistan. Turkish trade relations with Russia have reached an impressive volume of $20 billion, to make Russia its second-biggest foreign trade partner after Germany.

By this Turkey has managed to ensure its special and advantageous regional position, in the Caspian energy market in particular. Two main pipelines of major international importance, namely Baku-Tbilisi-Ceyhan (BTC) and Baku-Tbilisi-Erzurum (BTE) bring Caspian oil and gas to Turkey. Turkey is an energy-dependent country, and as such it imports the larger part of its crude oil resources and practically all the natural gas vitally important for the national economic development. In natural gas exports alone Turkey relies 65 percent on Russian deliveries, which makes the diversification of its supply vitally import.

Due to its geo-strategic position at the crossroads of Europe and Asia, Turkey is developing into the regional energy hub. The commissioning of the BTC to pump 1 million tons of crude oil daily has the potential of developing the southern Mediterranean seaport of Ceyhan into the largest regional oil terminal to receive crude from Azerbaijan and Kazakhstan, and in the future from Iraq. Besides dispatching oil to the West, Ceyhan will also host in the near future a state-of-the-art oil refinery whose construction is estimated at $4 billion. More than 10 million tons of Azeri crude arriving in Ceyhan will be processed by the new refinery to be dispatched to the markets of Turkey and Europe.

The recently commissioned BTE is in the process of delivering gas from the Shah Deniz offshore deposit in Azerbaijan to Turkey. This important development provides Turkey with Caspian gas resources, vitally important for its national economy, enabling it to become an alternative to Russian gas coming through the Blue Stream and Western corridor pipelines. According to BOTAS of Turkey, already during the first year of the BTE operation Turkey will receive 3 billion cubic meters of natural gas at a price of $120 per thousand cubic meters, which is half what Turkey pays for imported Russian gas.

The natural gas coming to Turkey from Shah Deniz has the potential to become a source of supply for the long-planned Nabucco pipeline to eventually bring Caspian gas to EU countries. Experts believe the Shah Deniz field to have 1 trillion cubic meters of gas deposits. The EU is pursuing the Nabucco pipeline construction to ensure its energy security by means of arranging gas imports from the Caspian region through Iran and Turkey to European markets as an alternative to Russian imported gas. Nevertheless, the situation around Iran substantially complicates the planned construction, which opens the doors for Shah Deniz gas delivered to Turkey by the BTE.

Diversification dramatically politicized

Without too much exaggeration, one may assume that energy transportation matters are getting increasingly politicized. Some energy experts today sincerely believe that diversification of energy supply routes has become a weapon of intimidation and dictate used by certain countries. US Vice President Dick Cheney, addressing a meeting in Riga, Lithuania, last February lashed out at Russia, accusing it of using its vast energy resources to blackmail its neighbors. Former US Deputy Secretary of State Strobe Talbot was even more explicit: “Russia is now using its energy resources as an instrument of state power,” he announced at an international conference in Istanbul in June 2006.

Russia denies using energy as a political weapon. As for Cheney’s remarks, it refers to them as “completely incomprehensible.” Nevertheless, Russia has been concerned with the growing Western presence in the Caspian region since the mid-’90s. “A distant transoceanic state declares the Caspian region a zone of its vital interests,” remarked Russian Deputy Foreign Minister for the Caspian Viktor Kalujnyi in June 2001 in Istanbul.

The construction of alternative pipelines from the region to the West has been generating even bigger concern on Russia’s part. Initially openly against the planned BTC construction, it later on resorted to questioning the project’s economic feasibility and never approved its construction. “The Caspian oil will bypass Russia,” announced Russian media on the day the BTC construction started in September 2002.

The EU position has been traditionally softer and compromising, though, the community is getting increasingly concerned about the stability of Russian oil and gas deliveries to the West, especially after the Russian-Belarus January 2007 oil crisis. Still, the EU rhetoric on the matter is more philosophical than practical. “We support the idea of Russia establishing a market price with both Ukraine and Belarus,” acknowledged Chancellor Angela Merkel, meeting with President Putin on Jan. 21, 2007. “Still, we’d like to have secure oil and natural gas deliveries to Europe.” Nevertheless, the recent boost of activity related to construction of pipelines to deliver Caspian oil and gas to the West has motivated the EU to adopt a more explicit and aggressive position.

During 2006, Gazprom delivered 140 billion cubic meters of gas to the EU, which accounted for 26 percent of the overall European gas consumption and for 40 percent of its imports. Within the next decade or two Europe is expected to start experiencing a sufficient deficit of natural gas: Its consumption by 2010 may reach 436 million tons of oil equivalent, while domestic natural gas production may go down from the current 200 million tons of oil to 178 million tons. In the meantime, Gazprom is expected within the next decade to reduce gas production at its principal deposits by 150 billion cubic meters a year.

The EU is the mastermind of the Nabucco gas pipeline construction, which will carry Caspian natural gas to the European Community in order to reduce its energy dependence on Russia. The long-planned Nabucco is to travel from Turkey through five EU countries, including Hungary and Austria. Nevertheless, Hungary has also recently expressed an interest in participating in the Blue Stream-2 pipeline construction to carry Russian gas from Turkey to Hungary and Austria. This move immediately earned a sharp negative reaction on the part of the EU: Brussels has started to accuse Hungary of undermining the European energy security. Energy experts from different countries, including Turkey, today believe that the Hungarian position may “kill Nabucco in its cradle.” US and European diplomats express off-the-record opinion that Hungary could leave the Nabucco project for good.

For their part, the Hungarian authorities acknowledge that they continue to consider the Nabucco pipeline as a priority project, while investigating other and alternative options for gas pipeline construction. Sharp criticism voiced by the EU surprised Hungary, said its Minister for Foreign Affairs Kinga Goncz, since other EU members -- namely, Germany, France, Italy, Romania and Bulgaria -- had signed their long-term contracts with Gazprom, but nobody had tried to accuse them of an attempted undermining of European energy security.

Means for transporting the Caspian energy resources are today generating an increasing competition between their producers and consumers. Control over the export pipelines jointly with the sources of supply has become an issue of bitter international competition.

As an energy-dependent country, Turkey has also started to express certain concerns over the stability of its energy exports. Until quite recently, Turkey remained fully satisfied with its mutually beneficial energy cooperation with Russia ensuring for Turkey 65 percent of its natural gas imports. In line with that, Turkey looked positively at its potential participation in the Russian-planned construction of the Blue Stream pipeline branches to Europe and Israel. Turkey was as well entertaining the idea of engaging Russian business in the Samsun-Ceyhan oil pipeline construction to relieve the congested Bosporus Strait from oil tanker passage.

Nevertheless, the plans experienced a fiasco: Not only did Russian businesses remain reluctant to participate in Samsun-Ceyhan, but on March 15, in Athens, Russia initiated the signing of a long-debated pipeline construction to connect Burgas on the Bulgarian coast of the Black Sea with Alexandroupolis in the Greek Mediterranean. The pipeline will establish a direct route for Russian crude oil to lucrative Western clients, bypassing the Turkey-controlled Bosporus Strait and undermining the economic feasibility of the Turkey-planned Samsun-Ceyhan pipeline, which is regarded as an oil supply source for the planned Ceyhan super refinery. Russia’s Transneft, a principal stakeholder in the Trans-Balkan pipeline, believes the Samsun-Ceyhan will lose commercially if the Burgas-Alexandroupolis project is to happen.

Besides Russia, Bulgaria and Greece are two other participants in the Trans-Balkan pipeline. Both of them are immediate Turkish neighbors enjoying excellent relations through mutually beneficial cooperation. Certain Turkish energy experts believe that Greece’s participation in the Trans-Balkan project will indirectly assist Russia in taking under its control another crucially important pipeline to be constructed, this time from Turkey via Greece to Italy.

In general, establishing the Turkey-Greece-Italy transportation route is advantageous for both Greece and Turkey. Still, the EU believes it natural for both of the countries to support the project for bringing natural gas from the Caspian region, and not from Russia, to EU countries. The final choice to make belongs to Turkey and Greece; nevertheless, if the countries choose to support the Blue Stream branch construction to Italy, they will most probably put an end to the plans of establishing a European gas transportation network without Russian participation.

Source: Maria Beat is an international journalist and writer who specializes in the CIS countries. Her email address is [email protected]

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