Igor Korobov: "Construction of Trans-Caspian gas pipeline primarily depends on Azerbaijan's actions"

A month and a half ago, during the talks with Chancellor Angela Merkel in Berlin, Turkmen President Gurbanguly Berdimuhamedov discussed plans to sell natural gas to the EU. He assured that Ashgabat does not plan to focus only on the Asian direction, and is interested in the export of fuel to the European Union. It was perceived as Ashgabat's desire to intensify negotiations on the implementation of the Trans-Caspian gas pipeline. Researcher at the Center for Caspian Region Studies of the Free University of Berlin Igor Korobov discussed prospects of the Trans-Caspian and other pipelines in an interview with Vestnik Kavkaza.

- The topic of Turkmen gas supplies to Europe became relevant once again following recent visit of Turkmen President to Berlin. Among all the projects, the Trans-Caspian gas pipeline became a favorite. If it will be implemented, gas will be supplied to the European border via Azerbaijan, Georgia and Turkey. What are the best conditions for implementation of the Trans-Caspian gas pipeline project? What are Azerbaijan's interests in this context?

- Azerbaijan is interested in transit of Turkmen gas because transit fees could be very profitable and could complement its own gas supplies in the conditions of declining production. The status of a transit country also promises political dividends. Over the past ten years Azerbaijan has tripled its own gas production, while its consumption remained practically at the same level, which shows the export potential of Azerbaijan. However, it can't be compared to the potential of Turkmenistan, whose gas transit may rival Azerbaijani. It is likely that profit from transit of Turkmen gas will be leveled by losses from the reduction in price of Azerbaijani gas, which happens due to the competition in gas markets of Turkey and Europe. 

The construction of the Trans-Caspian gas pipeline primarily depends on Azerbaijan's actions. It can be assumed that there is an informal agreement between Azerbaijan and Russia on preventing Turkmen gas from going across the Caspian Sea. That is why Baku is not so active in this direction. In spite of statements made by officials of Azerbaijan, Baku is aware of the possible risks in relations with Russia and does not want to pursue a policy that is contrary to the position of Russia on the Caspian issue. In the short term, Azerbaijan will avoid tension in relations with Russia, which can easily be cause by incomplete implementation of the Trans-Caspian pipeline project or an attempt at its construction. In other words, Azerbaijan is not ready to sacrifice relations with Russia for the sake of this project. Iran's position on Trans-Caspian pipeline is pretty much the same as Russian, though less politicized. Iran mostly cares about economic consequences of Turkmen gas reaching not only the European market, but also Turkish. After all, over the past years Iran has successfully increased its gas export to this country. So the implementation of the Trans-Caspian gas pipeline requires simultaneous fulfillment of two conditions - economic and political. First, Azerbaijan should implement its own plans on existing gas export contracts.

- In your opinion, how long will it take for Iranian gas to reach Europe? What routes of delivery does Tehran prefer?

- Despite official statements, Iran does not consider gas pipeline projects seriously, especially in the European direction. Perhaps the only exception is Iran-Pakistan-India gas pipeline. In this context, it would be appropriate to say that Iran is learning from the mistakes of Russia, which is "tied by gas pipelines" in only one, European direction. Because of this, Russia can't maneuver depending on fluctuations in the gas markets and geopolitical disputes with traditional gas buyers. Geographically, Iran has access to open seas, main Iranian gas fields are located in the regions near the Persian Gulf, where there is already partially built LNG-infrastructure. So Iran tries to use geographic advantages. It shows that in the future, Iranian gas export will develop in the direction of LNG.

The creation of necessary LNG-infrastructure and the development of new fields require significant investments, which became problematic in conditions of low gas prices. The situation with foreign investments is becoming more and more complicated due to the fact that Iran is not ready to completely move away from practice of the so-called service contracts. It is not ready to provide a share in its own oil and gas projects to foreign companies. 

High power consumption of internal market is another major challenge for Iran. The main purpose of gas production has always been the need to meet the interests of its own domestic gas consumption. Gas for export to Turkey came from Turkmen import in Iran's gas balance. Considering all existing difficulties in the gas sector of Iran, supply to the EU is the issue of more than five, perhaps even ten.

- What is your forecast of supply and demand dynamics in the European gas market for the coming years?

- I don't expect strong dynamics of demand for gas in Europe. Most likely it will remain at the current level.  Total gas production will decline due decline of production in the UK, Norway and the Netherlands. This decline will be compensated by the increase of American and Qatari gas import. There is no certainty with the volumes of these supplies. The issue of gas prices will be determining here. A lot of hopes are associated with potential import of gas from Egypt and Israel. Despite European Commission's attempts to reduce dependence on gas import from Russia, the share of Russian gas in the EU continues to grow, and a radical reduction of it is not expected for at least a decade. 

- How realistic Turkish Stream is?

- Gazprom still has a strategic goal to bypass Europe from the south, although Turkish Stream is no longer a priority for Russia. It is no longer time for the full-scale implementation of Turkish Stream. There are still no signs of active actions on the construction of this pipeline. Unlike Nord Stream-2, Turkish Stream is not supported by the German business, which makes its implementation difficult, especially considering the fact that Russia will have to deal with politically weak EU countries, strongly dependent on Brussels, which promotes rival Southern Gas Corridor project. The implementation of initial capacity of 63 billion cubic meters of gas is no longer considered. Even capacity of 31.5 billion cubic meters, which is being discussed today, is doubtful. Its further implementation will depend on how much gas will remain in the Ukrainian transit. 

- What are the prospects of Nord Stream-2, considering the fact that some European countries try to hinder its implementation?

- The locomotive of Nord Stream-2 implementation is Germany, which took advantage of the escalation in Russian-Turkish relations around Syria and seized the initiative from Turkey, proposing to increase gas supplies via Germany. In case of successful implementation, Germany will get a huge part of EU gas import, which will turn Germany into the biggest gas hub in Europe. Turkish Stream corresponds to the strategic plans of Russia more, but if we have to choose between them, Nord Stream-2 would be a more reliable project. The protests eastern European countries are mostly politicized. They are not legally justified, therefore. They can only slow this project down, but not cancel.

- What is Ukraine's future as a transit country?

- The construction of Turkish Stream and Nord Stream-2 has not started yet, despite the fact that the completion of construction is scheduled for the end of 2019. This may indicate that the transit contract with Ukraine will be prolonged. The duration of this contract and volumes of transit are still uncertain. German Foreign Minister's statement on the fact that the implementation of Nord Stream-2 should not threaten Ukraine as a transit country was made to calm down both Ukraine and Brussels. In reality, transit via Ukraine will be significantly reduced after the commissioning of Nord Stream-2. Ukraine will still have symbolic transit volumes that will allow its gas transportation system to function without any losses for some time. Then Ukraine will gradually lose the role of a full-fledged transit country. After the implementation of bypass routes gas transportation system will no longer be needed due to objective economic reasons.