Azerbaijan and Turkey are close to resolving a two-year gas-pricing dispute that has soured relations between the two strategic partners and which has stalled development of the Nabucco pipeline.
A comprehensive package that sets the purchase price and transit fees for shipping Azerbaijani gas to Europe via Turkey is expected to be signed on May 16 during Turkish Prime Minister Recip Tayyip Erdogan’s visit to Baku. Experts from Turkey’s state-run BOTAS Petroleum Pipeline Corporation have been working with representatives of SOCAR (the State Oil Company of the Azerbaijani Republic) on the final draft of the agreement for the past few days. The sides signed a protocol agreement on April 26. [For background see EurasiaNet’s archive].
A senior SOCAR executive told EurasiaNet.org that under the terms of the pending agreement, Turkey will purchase and provide transit for Azerbaijani gas from the sprawling Shah Deniz field, but will not sell it to European buyers, as Ankara previously stipulated. Instead, Azerbaijan itself will sell its gas to European buyers. The transit tariff for gas from the large-scale phase of the Shah Deniz project, which starts in 2016, will be about $2.00-$2.50 per 1,000 kilometers, said the executive, who asked not to be named.
Meanwhile, Turkey has agreed to pay about $250 per 1,000 cubic meters (tcm) of gas to Azerbaijan for the current Phase 1 of the Shah Deniz project – more than double the current rate of $120/tcm. Baku had earlier sought at least $300/tcm.
Turkey will pay Azerbaijan a one-time compensation payment for the difference in the price of gas supplied to Turkey since April 2008 and the new price of $250 per 1,000 cubic meters. The compensation will amount to roughly $1.2 billion, the source said.
Turkey’s Shah Deniz purchase volumes will continue at a maximum of 6.3 billion cubic meters (bcm) of gas per year until 2016. After 2016, when Phase 2 of the project kicks in with production levels up to 16 bcm per year, Turkey will buy about 4-5 bcm of Shah Deniz gas per year. The price has yet to be determined for those purchases, the SOCAR source said.
Baku will start commercial negotiations with potential gas buyers in Europe once the agreement with Turkey is signed, SOCAR President Rovnag Abdullayev told a May 11 news conference. He expressed confidence that Shah Deniz’s Phase 2 “will be implemented.” Doubts had been earlier expressed that the price squabble with Turkey could stall development of Phase 2.
Azerbaijani President Ilham Aliyev in April expressed support for the so-called South Corridor, which includes the Nabucco pipeline, the Turkey-Greece-Italy and Trans-Adriatic pipelines, but noted that action was contingent on completion of the talks with Turkey. The corridor, he said, will ensure Azerbaijani access to “reliable and long-term markets.”
With matters now squared with Turkey, Baku has gotten a green light to pursue those markets aggressively, energy expert Ilham Shaban noted. The fact that Azerbaijan will do its own sales pitch for gas transported via Turkey to Europe provides fresh incentive.
“Now Baku is keen to supply up to 5 billion cubic meters from Phase 2 to Turkey and 7-9 bcm [out of annual supplies of 16 bcm] to the European market,” said Shaban, the head of Baku’s Center for Oil Research. Already, 98 percent of Azerbaijani oil is exported to the West, making such mega-gas deals a neat fit for that export strategy, he added.
The European Union is ready to welcome the gas. European Commission Energy Commissioner Gunter Ottinger asserted that “this agreement paves the way for strategic distribution of gas which is the basis of ‘South Corridor’ and ensures Turkey’s and EU’s energy security. This deal will allow Azerbaijan to enforce its position as the EU’s leading partner in the Caucasus and Caspian region,” Ottinger said in a statement posted on the European Commission’s website.
Ali Hasanov, head of the presidential administration’s political department, went even further on May 5 and stated that Azerbaijan is ready to supply half of its produced gas to the Nabucco pipeline. “Azerbaijan attaches high importance to the Nabucco project,” the Turan news agency quoted Hasanov as saying.
One Baku-based political analyst, Rauf Mirgadirov, political columnist of the Russian-language daily Zerkalo (The Mirror), believes that Ankara insisting on the link between rapprochement with Armenia and concessions on the Nagorno-Karabakh conflict “restored the trust between Azerbaijan and Turkey and made agreement on the gas issues easier.” [For background see EurasiaNet’s archive].
Shahin Abbasov is a freelance correspondent based in Baku. He is also a board member of the Open Society Institute Assistance Foundation-Azerbaijan.
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