THE AZERBAIJAN MAIN EXPORT GAS PIPELINE - PROSPECT OR REALITY?

THE ANSWER TO THIS QUESTION DEPENDS ON SCALE OF FUTURE GAS-FIELD DISCOVERIES AND MARKET COST OF THE AZERI "BLUE FUEL"

Discovery of huge natural gas recourses on "Shah Deniz" field (approximately 1 billion cubic meters), the measurements connected with that and "large-scale manoeuvres developed in the Caspian Sea, as expected, have even overshadowed negotiations on exporting big Azeri oil to the Mediterranean markets.

Acknowledgement of status of Azerbaijan as one of the biggest and independent gas exporters, its orientations towards the power-intensive Turkish market have caused a necessity in having appropriate reconnaissance of the commercial interests in the Caspian region. It should be noted that the production of gas meant for export is being planned in, at last, 3 countries - Turkmenistan, Kazakhstan and Uzbekistan; Russia has already proved itself as exporter - it has started to put into practice the project (the Blue Stream Project) on exporting own gas to the Turkish market.

The realisation of the largest regional project - Trans-Caspian pipeline on the Turkmenbashi to Baku to Tbilisi to Turkey route - is under the treat as a result of developing "large-scale manoeuvres".

In 1999 Turkey and Turkmenistan signed an agreement according to which Ankara undertook to buy 16bn cubic meters of the Turkmenian gas every year. To deliver the "blue fuel" to Turkey it is supposed to build the gas pipeline on the Caspian seabed to Azerbaijan and then through Georgia to Turkey.

The agreement on construction of the Trans-Caspian gas pipeline was signed on February 19, 2000 in Ashgabad between the head of PSG Edward Smith and Saparmurad Niyazov, the President of Turkmenistan.

PSG consortium consists of GE Capital Construction and Finance Group and Bechtel Enterprises.

According to the project, the pipeline should be built for 28 months. Its length is going to be about 2,000 kilometers taking into account territory of Turkmenistan - 715 km, the Caspian seabed - 300 km, territories of Azerbaijan - 408 km, Georgia - 200 km and Turkey - 320 km. The project’s initial cost is estimated to be above $2.5bn.

It is planned to start the construction of the gas pipeline in the end-2000, in 2002 Turkey should start receiving the gas. At the first stage it is planned to pump up to 16bn cubic meters of gas a year, however, gas pipeline capacity in future will reach 30bn cubic meters. Disagreement between Baku and Ashgabad has risen after Ashgabad refused Azerbaijan to allocate a 50% quota on transportation of the Azeri gas through the Trans-Caspian gas pipeline.

Who is First?

The desire of the Caspian exporters to provide advanced net of alternative pipelines with an entrance to the growing and stable enough Turkish market is quite understandable. In addition, an aspiration of Turkey to have a number of competitive sources of the "Blue Fuel" can also be explained. In any case, a success of the Caspian exporters will depend on availability of extractable proved gas reserves and condition of present infrastructure, whereas, a success of Turkey will depend on the ability of the Turkish market to manage these quantities within next 30-40 years.

These components together could have become a pledge of successful implementation of all gas export projects, if one fact is not taken into account - the aspiration of the exporters to strengthen their positions on the Turkish market amid the first that means to get a number of advantages in terms of affecting the price formation, as well. Therefore, for both Azerbaijan and Turkmenistan it is important to once again weight their potential opportunities and select the most acceptable option for the "blue fuel" export. Within the frameworks of the Trans-Caspian project it means, first of all, to agree the export quotas given to that or other party participating in the project.

According to the experience of the bilateral Turkmenian-Azerbaijani relations for past four years, it will be hard enough to get the consensus which means that one of the parties will have to give way. Thereby, it should be noted that Baku’s position was remarkable for such stability and focused consequence of actions aimed at improving the investment climate, that Ashgabad had nothing to do except for latently admitting rightness of the Azerbaijan party.

For the official Baku the time reckoning of the dispute with Turkmenistan around the fields and determinations of the fixup value for the middle line between the sectors of both countries in the Caspian Sea started in February, 1997. At that stage, unexpectedly for many observes Saparmurad Niyazov, the President of Turkmenistan, has made a statement according to which Turkmenistan agreed with the sectorial delimitation principle in the Caspian Sea, however, it insisted on belonging "Azeri" and "Chirag" fields to Turkmenistan. "There was a smell of gunpowder in the air" of the region after the statement made by S.Niyazov.

The official Baku has quietly reacted to unexpected statement of Turkmenistan - the Ministry of Internal Affairs of the republic declared that Azerbaijan welcomed the recognition by Ashgabad of the sectorial delimitation principle in the Caspian Sea, however, it considered "Azeri", "Chirag" and "Kyapaz" as own fields. The MIA of Azerbaijan Republic stated on a readiness of the republic to hold negotiations to define the fixup value of the middle line between the sectors of both states. Thereby, the Azerbaijan party noted that "the contract of the century" on development of "Azeri", "Chirag" and "Guneshli" fields, lawfulness of which Turkmenistan prejudices, was fully law competent - the republic signed this contract proceeding from a principle of traditional separate use of the Caspian and usual practise of the Caspian states activity within own sectors. These statements are based on the fact that every Caspian country has a right to work within own sectors defined during former USSR on the basis of documents approved by the Ministry of the Oil Industry of the Soviet Union.

So, in 1970 the Ministry of Oil Industry of USSR committed "Caspmorneftegas", a manufacturing firm (presently known as SOCAR) to carry out geological exploration near the coast of Azerbaijan. Turkmenistan, and then in all water area of the Caspian Sea. "In its own exploration work "Caspmorneftegas" has crossed the 12th and 45th mile zone from the coast. Then a question was raised - bud