Turkey and Azerbaijan a step closer on Tanap

By bne IntelliNews February 13, 2012

bne -

A senior Azeri oil official claims that Turkey and Azerbaijan are set to agree to press on with a gas pipeline that aims to lessen European reliance on Russian gas. It also risks raising tension in the Caucasus.

An inter-governmental agreement on the Trans-Anatolian Pipeline Project (Tanap) is expected during a visit by Turkish Prime Minister Recep Tayyip Erdogan to Azerbaijan, Rovnaq Abdullayev, president of Azeri state oil and gas company Socar, claimed in an interview on the ANS television station on February 13, reports Bloomberg. The date of the visit has not yet been specified.

The two countries signed a memorandum of understanding to establish a consortium to build the pipeline on December 26, and said that they aim to complete all negotiations this year, with a view to launching operations by 2017. The gas will transported to Turkey via Georgia, and then enter the country's pipeline network for shipment onto Europe.

The project appears another nail in the coffin for the beleaguered Nabucco pipeline project, which has been fighting Russia's proposed South Stream pipeline for the right to provide the mainline route from the Caucasus and Central Asia to southern Europe. However, supply has been the EU's bugbear, and the 16bn cubic metres that Tanap will take from the giant Shah Deniz field will do little to help any lingering hope that the project could be resurrected.

Tanap is considered cheaper and easier to implement than Nabucco, a spokesperson for the Turkish Energy Ministry claimed in late January. Like the EU's project, the pipeline is seen as potentially lessening Europe's reliance on Russian gas. However, unlike Nabucco, Tanap will use Turkey's existing gas transmission pipelines. Nabucco's problem in negotiating with potential suppliers has always been the huge investment costs of building an entirely new pipeline. Simply put, producers didn't want to risk contracting their gas to a pipeline that may never materialize.

That stance has been enthusiastically encouraged by Moscow of course, which has said it will plough on with South Stream regardless. Russia has also been highly successful in picking off individual EU states as partners in the project, with Italy, Bulgaria, Hungary and Greece all signed up. Turkey signed a final agreement allowing it to pass through its territorial waters in December.

However, Russia is unlikely to view Azerbaijan's role in Tanap favourably, and has a lot of clout in the region. Elizabeth Stephens of political risk group Jardine Lloyd Thompson worries Tanap could raise the temperature in the Caucasus. "An escalation of tension is possible if Moscow considers Baku to be over-reaching itself and jeopardising Russian revenue streams and the political leverage it wields through its control of a substantial proportion of European energy supplies."

She suggests there is potential for Russia to push Armenia - a close ally and no friend of Baku - into provoking Azerbaijan and then using the confrontation to assert its influence over the pair of them.

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