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BUILDING A BLACK SEA/CASPIAN NATURAL GAS BRIDGE: CHALLENGES AND OPPORTUNITIES
By Mamuka Tsereteli
Central Asia-Caucasus Analyst, DC
Jan 24 2007
http://www.cacianalyst.org/view_article.php? articleid=4682
Developments in 2006 and notably the recent Russian-Belarusian crisis
proved that energy is consolidating its position as Europe's long-term
security challenge. Different countries are facing different types
of challenges, however. With diversified supplies of natural gas and
access to alternative energy resources, leading European states feel
less vulnerable to potential Russian pressure.
Unlike France, Germany or Italy, East European states have no
alternative to Russian gas, while Gazprom's constant problems with
transit countries and producers in Central Asia make them increasingly
vulnerable. Eastern Europe hence needs alternative supply of natural
gas. This demand could support long-term purchase contracts with
Caspian suppliers via the Black Sea, making the development of new
transportation infrastructure possible.
BACKGROUND: After gaining full control over Armenia's pipeline network
and the Moldovan distribution network, as well as partial control
over the Belarusian transit pipelines, Russia's State-controlled
gas monopoly, Gazprom, is getting closer to its ultimate goal to
control all pipelines connecting the former Soviet Union's states
to other markets and potential suppliers. The same strategy is now
being applied to Europe.
Russia is the primary source for imported natural gas in most European
states, and its role is set to increase in next decade, despite a
potential shortage of the gas on the domestic market. In order to
secure supplies, in recent months the leading European states and their
government-supported energy companies - a frequently underestimated
force in European energy politics - concluded bilateral deals with
Russia's Gazprom on long-term energy supplies. The deal between the
Russian and French gas monopolies, Gazprom and Gaz de France (GdF)
on the supply of Russian gas is the latest in a row of bilateral
deals between Gazprom and major European consumer states. The deal
establishes Gazprom's strong position in a major market and guarantees
GdF sizeable supplies of gas for 24 years in return for giving the
Russian company a slice of the French distribution market. Earlier,
Gazprom concluded similar deals with German and Italian companies.
These bilateral agreements weakened potential for EU's common strategy
towards Russian energy, and regarding energy security in general. On
the contrary, it strengthened Gazprom's position tremendously. Gazprom
has very clear strategy: to obtain strong dominance over natural gas
supply and distribution networks in Europe. So far, implementation
of this strategy is brilliant. By obtaining control over the transit
infrastructure in transit countries, Russia limits access to markets
for other potential suppliers, and by obtaining the distribution
business, it limits the ability of importing countries to conclude
long-term gas purchase agreements with other producers. Without those
agreements, the development of new transportation infrastructure is
commercially impossible.
IMPLICATIONS: There is enough gas in the neighborhood of Europe;
but the problem is delivery infrastructure. The particular problem
is delivery to Central and Eastern European states, where access to
gas supplies from Northern Europe, Algeria or Central Asia is limited.
The existing pipeline network connects those states only to Russian
gas sources, and - only through Gazprom pipelines - to Central Asian
gas. The potential to get access to Azerbaijani gas through Turkey via
the so-called Nabucco pipeline, stretching from Turkey to Austria's
Baumgarten terminal via Bulgaria, Romania and Hungary is still present,
although Russia is trying hard to close the only remaining window
for alternative gas by supplying additional volumes to Turkey via
the Blue Stream pipeline. This would effectively flood the market,
thus preventing the entry of Caspian gas into the link from Turkey
to Austria.
Despite that effort, the recent history of disruptions in supply,
and the rising price of Russian gas elsewhere in the region pushes
Central and Eastern European states to seek alternative supplies based
on commercially viable solutions. In this context, the development
of transportation infrastructure connecting Central Asia to Central
Europe is the key to resolving this problem. The aggregate demand of
the Central and Eastern European countries for import exceeds 100
billion cubic meters, and may well grow in the future. A long-term
purchase agreement with Caspian, in the first place Azerbaijani but
in the longer term also Central Asian producers, could initiate the
development of the basic infrastructure, which consequently could
evolve into a strategic supply line for Eastern Europe.
The South Caucasus Pipeline connecting the Azerbaijani Shah-Deniz
natural gas field to Turkey via Georgia, and then to South-East and
Central Europe, is the key priority. Shah-Deniz will produce up to
30 bcm, a significant amount, but one that could be compounded by
Kazakhstani or Turkmenistani resources to generate the volume needed
to make large-scale pipeline construction commercially viable.
In this sense, the South Caucasus pipeline could be connected to the
Georgian Black Sea cost, and then through an underwater pipeline to the
western shores of the Black Sea, from where additional inter-connectors
could transport gas to Central and Eastern Europe via existing pipeline
networks. There are two options to end the pipeline: One in Ukraine,
and another in Romania. Both options can co-exist and complement
each other.
The destinations may look too distant and economically not viable.
But the case of the North Stream pipeline may set a positive
precedent. North Stream is a planned 1200-kilometre-long off-shore
natural gas pipeline stretching through the Baltic Sea, from Vyborg,
Russia to Greifswald, Germany. It will have two on-shore connections
from Geifswald to the south and west of Germany with a total length
of 850 km, and one 917-kilometre-long on-shore connection to bring
gas from the Russian system to Vyborg. The commercial viability of
the North Stream is not in question for Western European companies,
given the significant quantities involved.
The undersea pipeline in the Black Sea would be shorter, and requires
less additional infrastructure to be connected to markets. Over the
years, Azerbaijan and Georgia proved to be a reliable supplier and
transit country, respectively, while NATO and EU member Romania could
use existing pipeline network to connect natural gas to consumer
countries. Technical and environmental challenges also seem much
less problematic.
A more remote option would be to develop liquefaction facilities on
the Georgian Black Sea shore, and to ship LNG to Romania and Bulgaria,
where it could be degasified and fed into the pipeline system. A fleet
of LNG tankers may build a strong and reliable energy connection
between the two shores of the Black Sea. Developing technology and
the reduction of infrastructure cost may support this solution.
CONCLUSIONS: It would be natural for the EU to lead the process of
developing the Caspian-European Natural Gas Bridge. This is a unique
chance to show leadership and prove that the EU is capable of securing
alternative energy supply for Europe by working with producer, transit
and consumer countries. The United States would also benefit from
committing resources and assisting countries of Eastern Europe to
sign long term supply contracts with Caspian producers, which will
be the basis for the development of the gas fields and transport
infrastructure. This will cement the relationship between the Black
Sea/Caspian region and the EU and would help their Euro-Atlantic
integration. In case the EU is passive and fails to organize itself to
support a Caspian-Black Sea energy bridge, the U.S. may help interested
Eastern European states to form a Consortium of Gas Importing States
to lead the infrastructure development.
AUTHOR'S BIO: Mamuka Tsereteli is the Executive Director of the
America-Georgia Business Council. He also teaches at George Washington
and American Universities in Washington D.C.
From: Emil Lazarian | Ararat NewsPress
By Mamuka Tsereteli
Central Asia-Caucasus Analyst, DC
Jan 24 2007
http://www.cacianalyst.org/view_article.php? articleid=4682
Developments in 2006 and notably the recent Russian-Belarusian crisis
proved that energy is consolidating its position as Europe's long-term
security challenge. Different countries are facing different types
of challenges, however. With diversified supplies of natural gas and
access to alternative energy resources, leading European states feel
less vulnerable to potential Russian pressure.
Unlike France, Germany or Italy, East European states have no
alternative to Russian gas, while Gazprom's constant problems with
transit countries and producers in Central Asia make them increasingly
vulnerable. Eastern Europe hence needs alternative supply of natural
gas. This demand could support long-term purchase contracts with
Caspian suppliers via the Black Sea, making the development of new
transportation infrastructure possible.
BACKGROUND: After gaining full control over Armenia's pipeline network
and the Moldovan distribution network, as well as partial control
over the Belarusian transit pipelines, Russia's State-controlled
gas monopoly, Gazprom, is getting closer to its ultimate goal to
control all pipelines connecting the former Soviet Union's states
to other markets and potential suppliers. The same strategy is now
being applied to Europe.
Russia is the primary source for imported natural gas in most European
states, and its role is set to increase in next decade, despite a
potential shortage of the gas on the domestic market. In order to
secure supplies, in recent months the leading European states and their
government-supported energy companies - a frequently underestimated
force in European energy politics - concluded bilateral deals with
Russia's Gazprom on long-term energy supplies. The deal between the
Russian and French gas monopolies, Gazprom and Gaz de France (GdF)
on the supply of Russian gas is the latest in a row of bilateral
deals between Gazprom and major European consumer states. The deal
establishes Gazprom's strong position in a major market and guarantees
GdF sizeable supplies of gas for 24 years in return for giving the
Russian company a slice of the French distribution market. Earlier,
Gazprom concluded similar deals with German and Italian companies.
These bilateral agreements weakened potential for EU's common strategy
towards Russian energy, and regarding energy security in general. On
the contrary, it strengthened Gazprom's position tremendously. Gazprom
has very clear strategy: to obtain strong dominance over natural gas
supply and distribution networks in Europe. So far, implementation
of this strategy is brilliant. By obtaining control over the transit
infrastructure in transit countries, Russia limits access to markets
for other potential suppliers, and by obtaining the distribution
business, it limits the ability of importing countries to conclude
long-term gas purchase agreements with other producers. Without those
agreements, the development of new transportation infrastructure is
commercially impossible.
IMPLICATIONS: There is enough gas in the neighborhood of Europe;
but the problem is delivery infrastructure. The particular problem
is delivery to Central and Eastern European states, where access to
gas supplies from Northern Europe, Algeria or Central Asia is limited.
The existing pipeline network connects those states only to Russian
gas sources, and - only through Gazprom pipelines - to Central Asian
gas. The potential to get access to Azerbaijani gas through Turkey via
the so-called Nabucco pipeline, stretching from Turkey to Austria's
Baumgarten terminal via Bulgaria, Romania and Hungary is still present,
although Russia is trying hard to close the only remaining window
for alternative gas by supplying additional volumes to Turkey via
the Blue Stream pipeline. This would effectively flood the market,
thus preventing the entry of Caspian gas into the link from Turkey
to Austria.
Despite that effort, the recent history of disruptions in supply,
and the rising price of Russian gas elsewhere in the region pushes
Central and Eastern European states to seek alternative supplies based
on commercially viable solutions. In this context, the development
of transportation infrastructure connecting Central Asia to Central
Europe is the key to resolving this problem. The aggregate demand of
the Central and Eastern European countries for import exceeds 100
billion cubic meters, and may well grow in the future. A long-term
purchase agreement with Caspian, in the first place Azerbaijani but
in the longer term also Central Asian producers, could initiate the
development of the basic infrastructure, which consequently could
evolve into a strategic supply line for Eastern Europe.
The South Caucasus Pipeline connecting the Azerbaijani Shah-Deniz
natural gas field to Turkey via Georgia, and then to South-East and
Central Europe, is the key priority. Shah-Deniz will produce up to
30 bcm, a significant amount, but one that could be compounded by
Kazakhstani or Turkmenistani resources to generate the volume needed
to make large-scale pipeline construction commercially viable.
In this sense, the South Caucasus pipeline could be connected to the
Georgian Black Sea cost, and then through an underwater pipeline to the
western shores of the Black Sea, from where additional inter-connectors
could transport gas to Central and Eastern Europe via existing pipeline
networks. There are two options to end the pipeline: One in Ukraine,
and another in Romania. Both options can co-exist and complement
each other.
The destinations may look too distant and economically not viable.
But the case of the North Stream pipeline may set a positive
precedent. North Stream is a planned 1200-kilometre-long off-shore
natural gas pipeline stretching through the Baltic Sea, from Vyborg,
Russia to Greifswald, Germany. It will have two on-shore connections
from Geifswald to the south and west of Germany with a total length
of 850 km, and one 917-kilometre-long on-shore connection to bring
gas from the Russian system to Vyborg. The commercial viability of
the North Stream is not in question for Western European companies,
given the significant quantities involved.
The undersea pipeline in the Black Sea would be shorter, and requires
less additional infrastructure to be connected to markets. Over the
years, Azerbaijan and Georgia proved to be a reliable supplier and
transit country, respectively, while NATO and EU member Romania could
use existing pipeline network to connect natural gas to consumer
countries. Technical and environmental challenges also seem much
less problematic.
A more remote option would be to develop liquefaction facilities on
the Georgian Black Sea shore, and to ship LNG to Romania and Bulgaria,
where it could be degasified and fed into the pipeline system. A fleet
of LNG tankers may build a strong and reliable energy connection
between the two shores of the Black Sea. Developing technology and
the reduction of infrastructure cost may support this solution.
CONCLUSIONS: It would be natural for the EU to lead the process of
developing the Caspian-European Natural Gas Bridge. This is a unique
chance to show leadership and prove that the EU is capable of securing
alternative energy supply for Europe by working with producer, transit
and consumer countries. The United States would also benefit from
committing resources and assisting countries of Eastern Europe to
sign long term supply contracts with Caspian producers, which will
be the basis for the development of the gas fields and transport
infrastructure. This will cement the relationship between the Black
Sea/Caspian region and the EU and would help their Euro-Atlantic
integration. In case the EU is passive and fails to organize itself to
support a Caspian-Black Sea energy bridge, the U.S. may help interested
Eastern European states to form a Consortium of Gas Importing States
to lead the infrastructure development.
AUTHOR'S BIO: Mamuka Tsereteli is the Executive Director of the
America-Georgia Business Council. He also teaches at George Washington
and American Universities in Washington D.C.
From: Emil Lazarian | Ararat NewsPress