For more than two decades, the European Union has drawn gas from the giant reserves of the Caspian Sea. Meanwhile, major pipeline projects have been talked about and forgotten. All the while, the bloc has become more dependent on Russian gas.
As a journalist specializing in Turkish and Caspian energy issues for 25 years, I was not surprised to see the President of the European Commission, Ursula von der Leyen, in Baku last month, desperately trying to stock up additional gas volumes. Russia, as security gurus have long predicted, is now using its stranglehold on EU supplies to try to force concessions on its war in Ukraine.
But why didn’t Brussels set up the Caspian gas supply a long time ago? It wasn’t until 2020 that small quantities finally started to flow to Europe along a so-called “southern gas corridor”. In Baku, von der Leyen secured a non-binding promise that these supplies could double to 20 billion cubic meters per year (bcm) by 2027. That’s a pittance. Compare the figure to 155 billion cubic meters, which Russia supplied last year, meeting 40% of EU demand.
Something went horribly wrong
The fundamental problem has been Brussels’ insistence that the pipelines be developed by private companies and be “commercially viable”. The EU has been unwilling to fund the necessary infrastructure, assuming that market forces would take over. Maybe that would happen in a world of perfect competition. But market forces have not been able to compete with Gazprom, a Russian monopoly that plays by its own rules.
In theory, as one EU technocrat patiently explained to me, creating a commercially viable gas pipeline project to deliver Caspian gas to Europe is simple: Europeans need to sign contracts to buy the gas , which they are willing to do. This guarantees a revenue stream and allows the banks to provide the tens of billions of dollars in financing needed to develop the fields and pipelines to deliver the gas.
Simple – but, he warned, the reverse is also true. If, like Gazprom, you have the financing, you can go ahead and build the pipelines and then secure the buyers – whose main interest is short-term supply, not long-term security. In the process, Gazprom effectively blocked the development of rival pipelines.
In short, this is how Europe missed a succession of opportunities to import gas from the Caspian and allowed itself to be blackmailed.
If Gazprom did not liberalize
The collapse of the Soviet Union in 1991 and the emergence of independent, gas-rich Caspian states coincided with the decline of Europe’s gas production and the first signs of overreliance on live in Russia.
Soviet-era deals and pipelines meant that Russia already supplied 30% of Germany’s gas in the early 1980s. Last year, Germany relied on Gazprom for more than half of the gas it consumed. With such a keen buyer, Gazprom financed its own pipelines.
By contrast, bringing Caspian gas to Europe required developing difficult offshore gas fields and building pipelines running 3,500 kilometers through several countries with only passing familiarity with democratic and commercial standards – some of which were barely on good terms.
Brussels assumed that liberalizing the Russian economy would end Gazprom’s monopoly, while a European market governed by legally enforceable contracts would ensure free competition and competitive prices. If Caspian gas were commercially viable, the mantra went, the private sector would be able to bring it to market.
The private sector has tried, but repeatedly encountered insurmountable obstacles.
A first attempt, launched in 1999 with strong support from Washington, saw American giants GE and Bechtel join forces in an ambitious project to produce more than 30 billion m3 of gas from fields in Turkmenistan, to be transported via a “Trans-Caspian pipeline” to Azerbaijan and through Georgia to Turkey.
Ankara has agreed to take half the gas and develop pipelines to transport the rest to Europe, apparently securing the project’s finances.
Yet it sank not for commercial reasons, but following the discovery of Azerbaijan’s giant Shah Deniz gas field and the failure of Baku and Ashgabat to agree on sharing the planned gas pipeline. Could European guarantees of income from gas sales have convinced the two emerging countries to agree to share a gas pipeline? We’ll never know. Brussels has shown little interest in the Trans-Caspian project. (Russia also threw cold water on the pipeline arguing that the Caspian Sea was a lake and therefore Azerbaijan and Turkmenistan needed its approval before building anything on the seabed.)
With Turkmenistan sidelined, Turkey and Georgia signed contracts in 2001 to take some of Azerbaijan’s recently discovered gas. This enabled a BP-led consortium to develop Shah Deniz and build the South Caucasus Pipeline (SCP), which eventually delivered Azerbaijani gas to eastern Turkey in 2006.
Waiting for Nabucco
The South Caucasus gas pipeline plans inspired European companies, and in 2002 Austria’s OMV formed a consortium with public gas transmission operators from Turkey, Bulgaria, Romania and Hungary to develop the plans. a 31 billion m3 “Nabucco” gas pipeline to transport gas from several Caspian sources to the European gas trading hub of Baumgarten in Austria.
The European Commission finally took an interest in it by financing half the cost of a feasibility study. But it was not until six years later with the publication of the EU’s “Second Strategic Energy Review”“In 2008, this concern about the growing dependence on Russia turned into a real policy of developing a “southern gas corridor”. declared“A Southern Gas Corridor should be developed for the supply of gas from the Caspian Sea and the Middle East, which could potentially meet a significant part of the EU’s future needs. It is one of the EU’s highest energy security priorities.”
Yet Brussels remained committed to the idea that development was a job for the private sector. He did not identify Nabucco or any other pipeline project that might do the trick.
At the same time, Nabucco faced other challenges.
Two small projects sought to transport the same Azerbaijani gas to Europe. And Gazprom had announced its own giant 63 bcm “South Stream” gas pipeline across the Black Sea to Bulgaria, which would flood the European market.
Nabucco could not find the gas to fill its capacity of 31 bcm. Planners looked at Turkmenistan, then Iran, even Iraq. But with Azerbaijan still reluctant to transit Turkmen gas, Iran hit by international sanctions and Iraq embroiled in its own endless problems, none offered hope of gas in a reasonable time. Azerbaijan’s Shah Deniz could supply less than 20 bcm, and the BP-led consortium developing the field was unwilling to hand over its gas to Nabucco unless Nabucco’s backers found other suppliers to supply it. ensure that it was commercially viable.
Had the European Union been sufficiently committed to the creation of its Southern Gas Corridor, it could have designated Nabucco as a project of “strategic importance” and secured financing to guarantee the construction of the gas pipeline.
As it happens, the Azerbaijani government tired of waiting and announced that it would fund its own 31 billion cubic meter pipeline through Turkey, dubbed the Trans-Anatolian Pipeline (TANAP), a move that effectively killed Nabucco.
Construction began in 2015. After crossing Greece, TANAP connected to what had been one of Nabucco’s rivals, the Trans-Adriatic Pipeline (TAP).
Supply from Turkey started in 2018the gas finally being transported to Italy at the end of 2020.
Related: Natural Gas Demand Exceeds Production
Twenty-one years after the first serious discussions on bringing gas from the Caspian to Europe, and 12 years after the Southern Gas Corridor became EU policy, the market had finally delivered the gas from the Caspian to European consumers.
But the southern gas corridor only transports 10 billion m3 to Europe (this year, the amount should increase to 12 billion m3). Can this be considered a success? Does this confirm Brussels’ commitment to diversifying outside of Russia?
Far from there. During the same 21-year period, Gazprom commissioned three major gas pipelines to Europe with a total capacity of more than 125 billion cubic meters.
Only the latest of these, the 55 bcm Nord Stream 2 line – partly funded by German gas companies – ran into serious obstacles, when German Chancellor Olaf Scholz finally bowed to pressure from the EU and states States and blocked the exploitation, and that only February 22, 2022two days before the arrival of Russian tanks in Ukraine.
It is possible to further increase the volume of gas from the Caspian to Europe. Turkmenistan, which has so far been effectively excluded from the southern gas corridor, has reserves of 13.6 trillion cubic meters – the fourth highest in the world. Relations with Azerbaijan have warmed up and Russia even dropped his opposition to a Trans-Caspian pipeline in 2018.
But supplying sufficient volumes to Europe to replace or significantly compete with Russian gas will require tens of billions of dollars and the voluntary cooperation of the countries through which the new pipelines will have to be built. More importantly, Brussels may have to drop its insistence on following neoliberal market rules.
Even then, such a pipeline will take years, during which Europe will remain dependent on Russia.
This raises the question of whether the huge investment required for Caspian gas could be better spent on another pressing energy issue that has increasingly occupied my time over the past two decades – namely, the development of Europe’s renewable energy resources to meet carbon reduction targets.
Failing to deliver large volumes of Caspian gas to Europe is a costly mistake. Evidence from this summer of heatwaves and wildfires suggests that failure to tackle climate change could prove even more costly.
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