The National Interest: A New Energy Partner for Europe

The energy security of America's European allies is set to receive a boost by an agreement made thousands of kilometers away in the Caspian.

The Shah Deniz consortium, responsible for one of the world’s largest natural gas fields in Azerbaijan, will soon announce that its partners, including BP, Statoil and Total, are buying into the main Trans-Anatolian Pipeline (TANAP) planned to bring gas to the European Union through Turkey. This non-Russian gas, not flowing through dispute-prone Ukraine, will ensure diversification of routes and supply. The direct beneficiaries will be consumers in southern and central Europe who suffered the most during Russian gas cut-offs in winters past.

Why is this particular agreement so important? It ensures that the gas will get to consumers. For more than a decade, gas distributors in central and southern Europe knew that immense gas reserves were to be found in Azerbaijan that could offset the market-dominance held by Moscow’s Gazprom. The problem was how to bring the gas to market. Who would pay for the transit infrastructure? What companies would be willing to contend with Turkey as a transit country that wanted much of the gas for itself? Who would dare take on Russia, which sought to undermine any projects that threatened its stranglehold on captive European markets?

The plan on the table for more than a decade was Nabucco. Named after a grand Verdi opera, the equally grand pipeline project was supposed to bring 30 billion cubic meters (bcm) a year to Austria’s Baumgarten natural gas terminal. But Shah Deniz in Azerbaijan did not anticipate ever having that much gas to spare, and Nabucco as proposed was impossibly expensive and included a number of pygmy investors that could never realistically fund the project. Thus, the gas in Azerbaijan stayed put, and distributors in Europe focused on the temporary stopgap of building interconnector pipelines amongst themselves to mitigate against Russian gas cut-offs.

Finally, Azerbaijan itself came up with a solution. Instead of waiting for European companies to build an export route, Azerbaijan’s state energy company, SOCAR, decided it would finance and operate its own pipeline through Turkey to southeastern Europe. The Trans-Anatolian Pipeline proposal was much more realistic. At 16 bcm a year, it aligned with Shah Deniz production estimates and crucially did not break the bank. It is now well on its way to beginning construction, with a commissioning date announced for 2018. This is farther than Nabucco ever got in over ten years.

The upcoming announcement of BP, Statoil and Total buying into TANAP together with SOCAR and Turkish state companies BOTAS and TPAO will signal that there is no turning back on the project. TANAP may still partner with the Nabucco team in connecting with a smaller version called Nabucco West in central Europe. But, the days of European consumers waiting for a connection to Azerbaijan are over.

The holders of the gas are now set to bring it to market as well, an extraordinary, if not entirely unexpected, breakthrough for the region. This is just one aspect of SOCAR’s blooming as a major energy player, with plans for refineries in Turkey and maybe Italy, retail operations in Western Europe and international offices as far flung as Washington, DC. In fact, Azerbaijan was best placed to realize the connection between its gas and the people who need it in Europe. Speaking the same language and with much history of collaboration, Azerbaijani decision makers turned out to be much more savvy negotiators with Turkey than European companies. The transit deal between the two countries includes concessions of which even supermajors like BP could only dream. SOCAR will control 51 percent of the dedicated transit pipeline within Turkey, with Turkish companies at a combined 20 percent or less.

Some feared Russian interference. But Moscow has very little leverage over Azerbaijan. As a gas producer, it is subjected to offers of money from Gazprom, not threats of cut-offs. In fact, as TANAP is underway, Russia will be leaving its only military facility on Azerbaijani territory: the radar station at Gabala. Moscow’s own competing pipeline proposal, Southstream, is quickly losing steam amongst European investors and EU transit states.

Sometimes European energy security is best left to those outside of the EU who not only have the gas to provide diversification, but the money and political will to make it happen. TANAP also highlights that in Azerbaijan, Europe now has a new strategic energy partner, not just a source of resources.