Endgame Looms on the Caspian Sea Chessboard

Much attention is currently focused on the attempts to agree terms for building a Trans-Caspian Gas Pipeline (TCGP) underneath the Caspian Sea from Turkmenistan to Azerbaijan, allowing natural gas from Turkmenistan to find a route to Europe. The European Commission (EC) was recently authorized by the EU to participate in working out the terms of the project.

To put the present situation in perspective, it is useful to recall the last time such an attempt was made. That was back in the late 1990s, when US firms first sought to construct such a pipeline. That TCGP consortium was half-owned by PSG International, and half by GE Capital and Bechtel (who later also included Royal Dutch Shell in the venture).

First as tragedy: The 1990s

While personal antagonism between Turkmenistan’s president Saparmurad Niyazov and Azerbaijan’s president Heydar Aliev did not augur well for the project, two specific developments contributed most to its failure. The first was Russia persuading Turkey to agree to build the ‘Blue Stream’ pipeline underneath the Black Sea, linking the two countries. This subtracted some Turkish demand for gas from the TCGP and in that way contributed to the latter’s failure to get off the drawing board.

The second development contributing to the first TCGP project’s failure was BP’s discovery of natural gas (instead of the oil that they were expecting) in the first phase of exploration and development of Azerbaijan’s offshore Shah Deniz deposit. This discovery was significant in that one of the points of contention between Turkmenistan and Azerbaijan at the time concerned the proportions that each would contribute to the volume of the larger TCGP pipeline. Once Baku realized that it alone could supply enough natural gas from Shah Deniz One to fill a smaller pipeline without having to negotiate any agreement with Ashgabat, it decided to go solo. The result was the construction of the South Caucasus Pipeline (SCP), which has carried Shah Deniz One natural gas into Turkey for domestic consumption ever since.

European political and social elites were unconcerned to see the first TCGP project fail a dozen years ago; they did not like the American attempt to project influence into the post-Soviet diplomatic vacuum in the South Caucasus and Central Asia. Harboring illusions of a grand bargain with Russia, these elites were concerned that such US power-projection would merely antagonize the Kremlin.

Intermission: The last decade

Over the past decade, however, a series of winter cut-offs in Russian natural gas exports to Europe led to citizens of EU member countries freezing to death. These cut-offs astounded not only the European publics who suffered but also European elites, since even at the height of the Cold War, the USSR had always honored gas purchase contracts. European illusions of a grand bargain with Russia over energy supplies or anything else began to dissipate.

The biggest indicator of the EU’s disillusionment with Russia was the EC’s decision in May 2009 in favor of its own project for a Southern Gas Corridor (SGC), which did not name the Moscow-backed “South Stream” project as a preferred option. The SGC originally named three pipelines as part of the EU’s strategic energy direction: Nabucco and two smaller European projects, the Interconnector Turkey-Greece-Italy and the Trans-Adriatic Pipeline. These three pipeline consortia have all submitted proposals to the Shah Deniz exploration and production consortium, bidding to carry the offshore gas for European distribution. The White Stream project for transiting Caspian Sea basin gas under the Black Sea to Romania was subsequently added to the SGC’s list, but it has not submitted a proposal to carry Shah Deniz Two gas.

Again as farce? The 2010s

Following this strategic decision, it was noted that the problems surrounding the TCGP were of great importance to the EU due to the pipeline being a necessary component of the Nabucco project. So, in September 2011, the European Commission was granted authority by the European Council to participate in helping Azerbaijan and Turkmenistan resolve the issues obstructing the conclusion of a TCGP agreement, as well as to assist in the preparation of the TCGP’s planning documents. While this was only one of 43 concrete actions in the EU’s new worldwide and multi-sector energy strategy, the TCGP action garnered the most attention because of its links to Nabucco.

 Moscow’s response has been to push the South Stream pipeline against the EU-endorsed Nabucco project in an attempt reminiscent of its campaign with the Blue Stream pipeline, which was successful in blocking the US-endorsed TCGP project in the 1990s. To this end, an enormous press and diplomatic initiative has sought to influence European public and elite opinion in favor of South Stream; furthermore, Gazprom has co-opted several major European energy firms into the project’s umbrella structure, as a tactic to increase the project consortium’s lobbying weight in Brussels. Yet despite Russia’s established record as an unreliable gas supplier, Gazprom and Russia have managed to create the impression of momentum behind South Stream.

The Shah Deniz consortium now has three and a half pipeline proposals among which the head of the Azerbaijan state company SOCAR says a choice will be made by the end of November. In addition to the three SGC projects mentioned above, the “half” proposal represents an irony: another element in the script from the late 1990s may intervene to foil the Russian attempt to block Caspian Sea gas from reaching Europe.

Latest moves and future prospects

 In September 2011, just before the window for pipeline consortia to propose submissions for the development of Azerbaijan’s offshore Shah Deniz Two deposit closed, BP slipped in a proposal for a pipeline that would be smaller than Nabucco: the so-called South East European Pipeline (SEEP). The SEEP would run through Turkey, with just the right diameter to carry the volume that Azerbaijan plans to export to Europe, whether Turkmenistan participates at the current stage or not.

Such a pipeline would not have to await the resolution of problems surrounding the TCGP, but would also not exclude participation in the larger TCGP at a later date. With more than just a hint of history repeating itself, the SEEP would follow the exact course of the SCP, the pipeline constructed a dozen years ago for the Shah Deniz One gas deposits. That pipeline allowed Azerbaijan to proceed with gas exports on the basis of its own offshore resources alone, with the SEEP proposal allowing for the same today.

 The Caspian Sea energy “chessboard” is much more complex than the traditional black-and-white board: There are more than two players, there is no established order for making moves and there is no guarantee that every piece is visible to every player. Furthermore, the complex nature of all this means that some players themselves become pieces on the chessboards of other players who are playing bigger games. This particular endgame is, therefore, just the beginning of the middle game on a larger Eurasian board stretching from Brussels to Beijing.