by Anthony Livanios
We have entered this year the most critical stage of the Southern Gas Corridor. The Final Investment Decision (FID) of the Shah Deniz consortium is expected before the end of 2013. The choice between the preferred gas pipeline route, namely the Trans Adriatic Pipeline (TAP) or the Nabucco West will be determined this year. How effective is the US foreign economic policy vis-a-vis the Southern Corridor? Is there a need for the United States to be more decisive in the opening of the Southern Corridor? What does the production and transportation of Caspian natural gas to the West mean for the US strategic interests? There is no doubt that the competition for the oil and gas resources in Eurasia is of strategic interest to the United States. Today, the new Great Game in Eurasia is the competition between Russia, China, and the United States for the oil and gas. All US oil majors have invested heavily in Eurasia, thus contributing to the energy security and economic development of the United States. The European Union with Germany, France and the United Kingdom have devoted their foreign and energy policies during the last decade to developing the oil and gas resources of the Caspian region. For Europe, in particular, the import of Caspian gas and in the first stage, natural gas that will be produced from the Azerbaijani giant gas field Shah Deniz, is vital for the strengthening of the European energy security. For the European Union the opening of the Southern Gas Corridor is of top strategic interest, as it will make Europe less dependent on Russian gas.Russia, after the end of Cold War, exercises its foreign policy by using natural gas as a weapon to promote its national interests. For Russia the control of the gas resources in Eurasia is the number one national security objective. This policy has transformed Russia from a Super-Power that was in the Cold War years to a Super-Petrostate that is today. Russia is seeking to boycott most policies of the European Union and the United States in the region. Especially on the Southern Corridor Russia has already started the construction of South Stream with the objective to render the other pipelines that will transfer the Shah Deniz gas obsolete.
China is competing for the ownership and control of the Eurasian gas resources in order to feed its rapid economic development. According to the forecasts of the International Energy Agency(IEA), between today and 2035 China will have the fastest growing economy, with annual average growth of 6,7%. Over this projection period as a whole, China will account for a quarter of the global gas demand. Today only 10% of residential households have access to natural gas, well below the global average of 40%. The IEA’s projection for China’s demand for gas from 200 bcm that is approximately today, will rise to 500 bcm in 2035. China’s objectives for the Caspian gas are different than those of Russia. While Russia is playing power politics, China needs gas for its development. On the other hand the United States and the European Union need gas to keep their economies most competitive in the world.
The United States need to be more active today. The success story of the Baku-Tbilisi-Ceyhan(BTC) oil pipeline needs to be repeated today with the Southern Gas Corridor. Right after the end of the Cold War the Clinton Administration set as a policy priority the construction of the BTC oil pipeline. The challenges that Heydar Aliev, the greatest leader of modern Azerbaijan, had to face were extraordinary. He was able, with the support of the United States, to overcome all difficulties and – against all odds – to make the BTC pipeline a reality. After 9/11 the United States focused most of its efforts to the war on terrorism, thus putting less weight on the foreign economic policy of the Eurasian oil and gas resources. The European Union since then has been leading the efforts for the opening of the Southern Corridor. There is no doubt that Brussels, London, Paris and Berlin have been successful in creating the necessary geopolitical alliances for the Southern Corridor. However, Washington needs, now, at the most critical stage of the Southern Corridor, to intensify its efforts. The Shah Deniz FID cannot be delayed any longer. There are risks relating to delays, as Russia and China both are exploiting the inability of the Western countries to act decisively to construct the necessary gas infrastructure and to import the Caspian gas to Europe.
Over the next months there will be a harsh geopolitical and commercial competition among the countries, the oil majors and the pipeline consortia. The risks are many: South Stream is a serious risk to the Southern Corridor. Russia is ahead of the game. The longer the Western countries and oil majors are delaying to take the FID in the Shah Deniz, Russia will be gaining ground. Gazprom is already re-negotiating and signing new gas supply contracts with the vulnerable South Eastern European countries. The most recent achievement of Russia was the new gas supply contract between Gazprom and Bulgaria and the decision of Bulgaria to give the green light to the South Stream pipeline. Bulgaria has a geopolitical position of strategic importance, as it is one of the only two entry points of the Azerbaijani gas into the European Union. Moreover, today Bulgaria is importing 100% of its gas from Russia. Another risk relating to the development of the Southern Corridor is the poisonous disagreements within the Shah Deniz consortium in Azerbaijan. The most worrisome is the quarrel between the State Oil Company of Azerbaijan (SOCAR) and BP. The disagreement between the two companies became public last Fall, after a statement of Azerbaijani President Ilham Aliyev who criticized severely BP for its performance at the Azeri-Chirag-Guneshli oil field.
Neither the United States nor the European Union can afford any longer a delay in the opening of the Southern Corridor. The United Kingdom, France, and Germany in tandem with the European Commission are implementing a decisive foreign economic policy. Sometimes it seems to them that the United States is absent from the Caspian. A similar concern about the United States is also heard in Azerbaijan and other Eurasian countries. Azerbaijan needs the United States to counter-balance the threat of Russia. Gazprom and President Putin are pushing SOCAR and President Aliyev to import the gas from the Shah Deniz. Russia’s policy priority is to import as much gas as possible from the Caspian and then export it to Europe or to China. Only the United States together with the strong EU countries can counterbalance this policy. The war in Georgia has made many Caspian countries feel insecure. And most of the Eurasian countries know Russia better than the Europeans and Americans , since they have been part of the Soviet Union for almost a century.
It is imperative for the US to be more decisive in the Caspian region for the opening of the Southern Corridor. The European Union will only welcome the more active involvement of the US in Caspian. The EU and the US are sharing a common agenda in Eurasia today. The US has a successful track record with the realization of the BTC oil pipeline. Very often Caspian oil men explain that the successful implementation of the BTC oil pipeline was the result of the active foreign policy of the United States. As we are entering the Golden Age of gas, according to the famous study of the IEA, the United States needs to exercise a more decisive policy in Eurasia. President Obama took his Oath for a second term a few days ago in Washington having mounting challenges that are relating to the US economy. Although there are vast new gas deposits, in the form of shale gas in the United States, the Obama Administration needs now to be more active in the development of the gas resources in Eurasia. Natural gas will be the key driver to the economic growth of the United States, and its results are already tangible to the American economy. The US energy boom could add up to three percentage points to US GDP over the next decade, according to the US Department of Energy, in addition to three million direct and indirect jobs, most of which are paying high wages.
A decisive US foreign economic policy in Eurasia with the opening of the Southern Corridor will lead to the strengthening of the energy security and to the development of the economy for both Europe and America. This is among the top challenges of President’s Obama second term.
Anthony Livanios is the CEO of Energy Stream CMG GmbH, an international oil and gas advisory firm based in Frankfurt, Germany and Washington, DC.