PLAYING CATCH-UP WITH RUSSIA ON CASPIAN ENERGY TRANSIT

U.S. government officials are fanning out to the Caspian region after the signing of Russia’s monopolistic agreements on energy transit with three Central Asian countries and Austria in May (see EDM, May 14, 16, 17, 29, 31). Those agreements, mostly of intent, would kill the Western-favored energy transit projects if Russia follows up with the signing of binding agreements by September as planned.

The U.S. government seems intent on forestalling an outcome that would cement Russia’s monopoly for the long term. The European Union, however, does not display a sense of urgency. The EU’s German Presidency is doubly distracted by the EU-Russia summit just held with continuing fallout and the G-8 summit that Germany is hosting in its concurrent capacity as G-8 chairman. Certain European Commission officials publicly renounce trans-Caspian pipelines in explicit deference to Russia (whether such officials are mandated to speak publicly in this vein is uncertain, however).

Last week, U.S. Vice President Richard Cheney’s Deputy Assistant for National Security Affairs, Joseph Wood, and U.S. Principal Deputy Assistant Secretary of State Steven Mann rushed to Azerbaijan and Turkmenistan, respectively, for talks with those countries’ presidents and top energy officials on energy transit projects westward (see EDM, June 5). This week, U.S. Assistant Secretary of State Richard Boucher visited Kazakhstan and Deputy Assistant Secretary Matt Bryza visited Azerbaijan, as part of efforts to re-launch those projects.

Judging from Kazakhstan’s communiqués, Boucher could not persuade that country’s leadership to join the proposed trans-Caspian gas pipeline. The communiqués did not mention that subject — nor the proposed oil transport system westward — on the otherwise very broad agenda of discussions in Astana. The Kazakh communiqués did, however, say that the Russia-Kazakhstan-Turkmenistan agreements on energy transit, signed last month, were discussed with Boucher — apparently a Kazakh demurral.

Boucher was received by Senate Speaker Kasymzhomart Tokayev, Prime Minister Karim Masimov, the newly appointed Secretary of State Kanat Saudabayev (holder of the fourth position in the state hierarchy and ambassador to the United States until last month), and Minister of Foreign Affairs Marat Tazhin (who was in Washington last month without a mandate to discuss energy in any depth, at the very moment when Kazakhstan was signing the agreements with Russia). President Nursultan Nazarbayev does not seem to have received Boucher, unlike the other presidents who did receive the visiting U.S. officials (Khabar TV, Interfax, June 5, 6).

In Baku, Bryza made the case for the trans-Caspian and Nabucco pipeline projects in a keynote speech at the Caspian Oil and Gas 2007 event. Bryza demonstrated that Turkmen gas reaching Europe through Russia costs approximately 50% more to transport, compared with the Turkmen gas that could reach Europe via the Caspian Sea-South Caucasus-Turkey route (which Russia blocks). Similarly, gas that Russia wants to sell in Europe through a prolonged Blue Stream pipeline (Blue Stream-2) via the Black Sea-Turkey-Europe route would cost 20% more than gas coming from Azerbaijan through the South Caucasus pipeline (Baku-Tbilisi-Erzurum) pipeline via Turkey to Europe.

Bryza underscored the fact that Turkmenistan’s vast reserves of gas could supply both the trans-Caspian and the Nabucco projects (a fact that the U.S. government generally was until recently reluctant to acknowledge for political reasons, giving Russia free rein on Turkmen gas). In addition, Azerbaijan’s output is projected to rise to at least 15 billion cubic meters of gas annually by 2015 for export from the Shah Deniz field alone. Bryza was received (as Wood had been the preceding week) by President Ilham Aliyev, Industry and Energy Minister Natig Aliyev, and Economic Development Minister Haidar Babayev for discussions on “Nabucco as a central issue” (Turan, Day.az, June 6). However, the both of those projects depend on whether Gazprom and allied Russian companies grab new field development contracts in Turkmenistan. This could well happen under the agreements of intent signed in May, unless Western offers reverse that intent on the Turkmen side through clear commercial offers.

In Turkmenistan, in the wake of Mann’s visit, President Gurbanguly Berdimukhamedov declared that Turkmenistan is considering various export routes for its gas (apart from the existing Russian routes) including Turkmenistan-China, Turkmenistan-Afghanistan-Pakistan-India, and Turkmenistan-Caspian Sea-Europe, listing them in this order (TV Altyn Asyr, June 5).

This repeats almost verbatim his statement when signing the agreements with Russia in May that would — if they become contracts — not only reinforce, but also expand Gazprom’s control over Turkmen gas. He puts the trans-Caspian project in the last place on the list, below options that are clearly unrealistic. Apparently intimidated by the Kremlin without countervailing support from the West, Berdimukhamedov is paying minimal lip service to diversification.

Following these assessment visits top-level involvement is necessary on the part of U.S. and EU officials with their Central Asian counterparts, if the Western-backed projects are to be salvaged until September, when Russian President Vladimir Putin has scheduled the curtain to fall.