Advertisement

Europe fails to tap Caspian Sea's surging gas supplies

05 September 2013
European countries are losing out to China in their quest to source natural gas from the Central Asian states.

Moving away from dependence on Russia and Middle East hydrocarbons was a key energy objective of European countries in the 1990s, and the oil and natural gas resources along the Caspian Sea was seen as a vital alternative.

Instead, European oil dependence on Russia and the Middle East has grown from 75% in 2000 to 84% by 2010. In addition, EU reliance on gas imports has also risen from 49% to 62% during the period.

EU countries such as Austria, Bulgaria, the Czech Republic, Estonia, Finland, Latvia, Lithuania, Poland, and Slovakia all depend on Russia for over 60% of their gas imports. In addition, countries aspiring to be EU members such as Moldova, Turkey, and Ukraine rely on Russia for over 65% of their imports.

Central Asia is estimated to hold more than 11% of world proven gas reserves, primarily in Turkmenistan, which has lagged behind Kazakhstan and Azerbaijan in attracting outside investments.

The region currently produces less than 5% of global gas supply, so there is tremendous growth prospect.

But while China has moved swiftly to source supplies from Central Asian states of Turkmenistan, Kazakhstan and Azerbaijan, Europe has been distracted by a crippling economic recession.

"European gas demand is likely to continue to struggle for the next five years, facing competition from cheaper coal and the promotion of renewables, while also suffering due to poor economic performance," said the Economist Intelligence Unit in a new report.

"As a result, the sense of urgency in opening up the Caspian region's gas supply to European customers--while still viewed as important--has somewhat dissipated. Nevertheless, it is still important for south-east European states, where dependence on gas from Russia is the strongest."



US OBJECTIVES

The United States is keen to position Central Asia as a viable alternative to Russia, but it also has greater designs for the region to meet its geopolitical strategic objectives.

In the east, the US is keen to increase trade ties between Central Asia and the South Asian states of Afghanistan, Pakistan and India.

In the south, the United States believes the rise of Central Asian states as a steady source of hydrocarbons will further weaken Iran as the two often compete for the same set for customers.

In addition, some Central Asian states depend on Iran to access markets, and greater ties to their east and west will further reduce their dependence on Tehran.

Meanwhile, the big prize is to reduce Russian energy exports to the European Union.

SIGNIFICANT OIL PRODUCER

With the help of Western investments, Central Asia and the Caucasus today produce around 3.5% of global oil supply and hold around 2.5% of the world's known proven reserves in oil (or four times that of Norway and the United Kingdom combined), according to Edward C. Chow, senior fellow, Energy and National Security Program at the Center for Strategic and International Studies.

"Another way of looking at this is to say the region produces around 8.5% of non-OPEC oil and holds around 9.5% of non-OPEC oil reserves," Chow told a US government committee on foreign affairs. "In other words, oil production in Central Asia has added significantly to global supply and will continue to do so in the future."


A report presented by US government officials to the Committee on Foreign Relations headed by John Kerry, states that the development of a Southern Corridor to link the Caspian to Europe with oil and natural gas pipelines was a key US strategy to reduce European dependence on Russia. The first stage was achieved with the completion of the Baku-Tblisi-Ceyhan (BTC) oil pipeline from Azerbaijan to a Turkish Mediterranean port and the South Caucasus Gas Pipeline (SCP) from Azerbaijan to Turkey.

"The next phase of the Southern Corridor would advance several US and NATO foreign policy objectives: it would further isolate Iran, assist in cultivating partners in the Caucasus and Central Asia and bolster their sovereign independence, and perhaps most importantly, curtail Russia's energy leverage over European NATO allies," the report noted.

The development of new pipelines such as the Trans Adriatic Pipeline (TAP), that transports natural gas from Azerbaijan's massive Shah Deniz field, and Trans-Anatolian Pipeline (TAP) between Azerbaijan and Turkey, are all vital cogs to raise the profile of Central Asian resources at the expense of Russian and some Middle Eastern supplies.

STRENGTHENING TIES

The US report recommends forging closer ties with countries like Azerbaijan, Kazakhstan, and NATO partners EU and Turkey to hasten developments on this front.

Among these include a recommendation for Azerbaijan to use its pipelines to transport Turkmenistan gas to other nations.

"Turkey should secure contracts to purchase natural gas from Turkmenistan and gain the support of Azerbaijan and private energy companies to allow this gas to transit Azerbaijani energy infrastructure," the report recommended.

Azerbaijan has been reluctant to serve as a conduit to Turkmenistan natural gas, but the US nudge may help change its mind.

Indeed, the United States sees Turkmenistan as a major player in the great Caspian natural gas chess game.

"By virtue of geography and geology, Turkmenistan would be the anchor of trans-Caspian energy trade, but it is not the only player. Kazakhstan is already a participant in the Southern Corridor, shipping oil across the Caspian by barge to Baku to connect to the BTC [Baku-Tblisi-Ceyhan] oil pipeline."

The pipeline could also allow Kazakhstan to monetize its largely underdeveloped 1.9 trillion cubic meters of natural gas reserves.

But progress on all these fronts has been slow. The EIU estimates that a mere 16 billion cubic meters of natural gas will flow from Central Asia to Turkey and Europe by the end of the decade - a fraction of the 585 billion cubic meters the region is expected to consume by 2020.

"By the end of this decade Shah Deniz gas will be flowing to European markets.

Advertisement
Despite changed dynamics regarding European gas supply the opening up of the

Southern Gas Corridor remains a useful energy security objective," said the EIU. "The challenge for the next decade is to expand its capacity so it can make a greater impact on securing Europe's gas supply needs."

© alifarabia.com 2013

Advertisement

Most Popular

In the last 24 hours

Advertisement

People In The News

Advertisement