Why Europe Didn’t Ramp Up Caspian Fuel Imports Sooner

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For over 20 years, the European Union has sought fuel from the Caspian Sea’s big reserves. Throughout that point, grand pipeline tasks have been mooted and forgotten. All of the whereas, the bloc has grown extra depending on Russian fuel.

As a journalist who has spent the previous 25 years specializing in Turkish and Caspian vitality points, I used to be not shocked to see the president of the European Fee, Ursula von der Leyen, in Baku last month desperately trying to source further volumes of fuel. Russia, as safety professionals have lengthy predicted, is now utilizing its provide stranglehold on the EU to attempt to drive concessions over its struggle in Ukraine.

However why didn’t Brussels have Caspian fuel provides in place way back? It was solely in 2020 that small portions lastly started flowing to Europe alongside a so-called “Southern Fuel Hall.” In Baku, von der Leyen secured a non-binding promise that these provides may double to twenty billion cubic meters per yr (bcm) by 2027. That’s a pittance. Evaluate the determine to 155 bcm, which is what Russia equipped final yr, assembly 40 p.c of EU demand.

One thing went horribly incorrect

The basis drawback has been Brussels’ insistence that pipelines be developed by non-public corporations and be “commercially viable.” The EU has not been keen to underwrite the required infrastructure, assuming that market forces would take the lead. Perhaps that will occur in a world of excellent competitors. However market forces have been unable to compete with Gazprom, a Russian monopoly that performs by its personal guidelines.

In principle, as one EU technocrat patiently defined to me, making a commercially viable pipeline undertaking to hold Caspian fuel to Europe is straightforward: You want Europeans to signal contracts to purchase the fuel, which they’re keen to do. This ensures a income stream and permits banks to supply the tens of billions of {dollars} in financing wanted to develop the fields and the pipelines to ship the fuel.

Easy – however, he cautioned, the converse can also be true. If like Gazprom, you will have the finance, you may go forward and construct the pipelines after which safe the consumers – whose major curiosity is short-term provide, not long-term safety. Within the course of, Gazprom has successfully blocked the event of rival pipelines.

Which, in brief, is how Europe has missed a succession of alternatives to import fuel from the Caspian and allowed itself to be blackmailed.

If Gazprom solely liberalized

The collapse of the Soviet Union in 1991 and the emergence of unbiased, gas-rich Caspian states coincided with the decline of Europe’s personal fuel manufacturing and the primary warnings of over-dependence on Russia.

Soviet-era agreements and pipelines meant Russia already equipped 30 p.c of Germany’s fuel by the early Nineteen Eighties. Final yr, Germany relied on Gazprom for greater than half the fuel it consumed. With such an keen purchaser, Gazprom funded its own pipelines.

In opposition to that, bringing Caspian fuel to Europe required creating tough offshore fuel fields and constructing pipelines working 3,500 kilometers by a number of international locations with solely a passing familiarity with democratic and business norms – a few of which have been barely on talking phrases.

Brussels assumed the liberalization of the Russian financial system would finish Gazprom’s monopoly, whereas a European market ruled by legally enforceable contracts would guarantee free competitors and aggressive pricing. If Caspian fuel was commercially viable, the mantra went, the non-public sector would have the ability to deliver it to market.

The non-public sector did strive, however repeatedly got here up towards insurmountable obstacles.

A primary try, launched in 1999 with sturdy assist from Washington, noticed U.S. giants GE and Bechtel accomplice in an formidable undertaking to supply over 30 bcm of fuel from fields in Turkmenistan, to be transited through a “Trans-Caspian Pipeline” to Azerbaijan and on by Georgia to Turkey.

Ankara agreed to take half the fuel, and to develop pipelines to transit the remainder to Europe, apparently securing the undertaking’s funds.

But it foundered not on business grounds however following the invention of Azerbaijan’s personal big Shah Deniz fuel area, and the failure of Baku and Ashgabat to agree on sharing the deliberate pipeline. May European ensures of revenue from fuel gross sales have persuaded the 2 rising states to conform to share a pipeline? We’ll by no means know. Brussels confirmed little curiosity within the Trans-Caspian undertaking. (Russia additionally threw chilly water on the pipeline by arguing that the Caspian Sea was a lake, and that subsequently Azerbaijan and Turkmenistan wanted its approval earlier than constructing something throughout the seabed.)

With Turkmenistan sidelined, in 2001 Turkey and Georgia signed contracts to take among the newly found Azerbaijani fuel. That allowed a BP-led consortium to develop Shah Deniz and construct the South Caucasus Pipeline (SCP), which lastly delivered Azerbaijani fuel to japanese Turkey in 2006.

Ready for Nabucco

Plans for the South Caucasus Pipeline impressed European corporations and in 2002 Austria’s OMV fashioned a consortium with the state fuel transmission operators of Turkey, Bulgaria, Romania and Hungary to develop blueprints for a 31 bcm “Nabucco” pipeline to hold fuel from a number of Caspian sources to Europe’s Baumgarten fuel buying and selling hub in Austria.

The European Fee lastly took an curiosity, funding half the price of a feasibility research. Nevertheless it was solely six years later with the publication of the EU’s “Second Strategic Energy Review” in 2008 that concern over rising dependence on Russia developed into precise coverage for improvement of a “Southern Fuel Hall.” The evaluate stated: “A southern fuel hall should be developed for the availability of fuel from Caspian and Center Japanese sources, which may doubtlessly provide a major a part of the EU’s future wants. This is likely one of the EU’s highest vitality safety priorities.”

Nonetheless, Brussels remained wedded to the concept that improvement was a job for the non-public sector. It did not determine Nabucco or some other pipeline undertaking that would match the invoice.

On the similar time Nabucco was dealing with different challenges.

Two smaller tasks have been angling to hold the identical Azerbaijani fuel to Europe. And Gazprom had introduced its personal big 63 bcm “South Stream” pipeline throughout the Black Sea to Bulgaria, which might swamp the European market.

Nabucco couldn’t discover the fuel to fill its 31 bcm capability. Planners checked out Turkmenistan, then Iran, even Iraq. However with Azerbaijan nonetheless unwilling to transit Turkmen fuel, Iran hit by worldwide sanctions, and Iraq embroiled in its personal interminable issues, none supplied any hope of fuel inside a workable timeline. Azerbaijan’s Shah Deniz may provide lower than 20 bcm, and the BP-led consortium creating the sphere was unwilling to commit its fuel to Nabucco until Nabucco’s backers discovered different suppliers to make sure it was commercially viable.

Had the European Union been sufficiently dedicated to creating its Southern Fuel Hall, it may have designated Nabucco a undertaking of “strategic significance” and assured funding, guaranteeing the pipeline was constructed.

Within the occasion, the Azerbaijani authorities bored with ready and introduced that it might fund its personal 31 bcm pipeline throughout Turkey, dubbed the Trans Anatolian Pipeline (TANAP), a transfer which successfully killed Nabucco.

Building started in 2015. After crossing into Greece, TANAP related with what had been one in all Nabucco’s rivals, the Trans-Adriatic Pipeline (TAP).

Supply to Turkey began in 2018, with fuel lastly flowing to Italy on the finish of 2020.

Related: Natural Gas Demand Outpaces Production

Twenty-one years after the primary severe discuss of shifting Caspian fuel to Europe, and 12 years after the Southern Fuel Hall turn into EU coverage, the market had lastly delivered Caspian fuel to European customers.

However the Southern Fuel Hall carries simply 10 bcm to Europe (this yr the quantity is slated to rise to 12 bcm). May that be seen as successful? Does it affirm Brussels’ dedication to diversifying away from Russia?

Removed from it. The identical 21-year interval noticed Gazprom fee three main fuel pipelines to Europe with a complete capability of over 125 bcm.

Solely the final of those, the 55 bcm Nord Stream 2 line – partly financed by German fuel corporations – encountered any severe obstacles, when German Chancellor Olaf Scholz lastly bowed to EU and U.S. stress and blocked operation, and that solely on February 22, 2022, two days earlier than Russian tanks rolled into Ukraine.

Costly errors

Additional rising the quantity of Caspian fuel to Europe is feasible. Turkmenistan, which has so far been successfully frozen out of the Southern Fuel Hall, boasts reserves of 13.6 trillion cubic meters – the fourth-highest on this planet. Relations with Azerbaijan have warmed and Russia even dropped its opposition to a Trans-Caspian pipeline in 2018.

However delivering adequate volumes to Europe to exchange or meaningfully compete with Russian fuel will take many tens of billions of {dollars} and the keen cooperation of nations by which the brand new pipelines must be constructed. Extra importantly, Brussels might must jettison its insistence it play by neoliberal market guidelines.

Even then, such a pipeline will take years, throughout which period Europe will stay depending on Russia.

This raises the query of whether or not the big funding required for Caspian fuel could be higher spent on one other urgent vitality subject that has more and more occupied my time over the previous 20 years – specifically, creating Europe’s renewable vitality assets to satisfy carbon discount targets.

Failing to appreciate the supply of serious volumes of Caspian fuel to Europe is proving an costly mistake. The proof of this summer time of heatwaves and wildfires suggests failure to deal with local weather change might show dearer nonetheless.

By Eurasianet.org

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