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Research Report

The Caspian Sea and Southern Gas Corridor: A View from Russia

Bud Coote
Copyright Date: Apr. 1, 2017
Published by: Atlantic Council
Pages: 31
OPEN ACCESS
https://www.jstor.org/stable/resrep03709
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Table of Contents

  1. (pp. 4-4)

    This report seeks to identify how Russia’s approaches to the Southern Gas Corridor and Caspian Sea division provide lessons for how to influence Russia’s behavior toward more competitive, rather than monopolistic, practices. The analysis begins and ends with Russian objectives and policies in the Caspian Sea, which are integral to the development of the Southern Gas Corridor. First, the lack of a coordinated Russian policy on the division of the Caspian Sea in the wake of the breakup of the Soviet Union allowed the new littoral countries—Azerbaijan, Kazakhstan, and Turkmenistan—to begin independent oil and gas development projects. Currently,...

  2. (pp. 5-6)

    The genesis of both southern gas corridors dates back to the breakup of the former Soviet Union in 1991, which created new countries independently producing and exporting oil and gas in competition with Russia and each other. This genesis predates Putin’s rise to power as prime minister of Russia in 1999 and again during 2008 to 2012 and as president from 1999 to 2008 and from 2012 to the present, which probably helps explain how Azerbaijan succeeded in establishing oil and gas development projects in the Caspian Sea and export routes to the Black Sea and Turkey.

    After gaining the...

  3. (pp. 7-8)

    As soon as the Shah Deniz contract was signed in 1996, Russia began its efforts to protect its dominance of the Turkish gas market through a series of measures intended to block, co-opt, or compete with the anticipated gas export corridor from Azerbaijan to Turkey. The first of these measures began in 1997, when Russia signed an initial agreement with Turkey to deliver future gas via the Blue Stream gas pipeline, which would link Russia directly with eastern Turkey by laying two pipes under the Black Sea. The move was closely tied to progress on Azerbaijan’s offshore Shah Deniz gasfield...

  4. (pp. 9-9)

    Concerns with growing competition for gas markets in Central and Southern Europe in general and the formation of the Nabucco pipeline consortium in 2002 coupled with continuing progress on Azerbaijan’s plans to deliver Shah Deniz Phase 1 gas to Georgia and Turkey in particular led Moscow to propose an expansion and extension of the Blue Stream pipeline in the same year.14 In August 2005, even before the official inauguration of Blue Stream 1, Vladimir Putin and Turkish President Recep Tayyip Erdogan agreed on Blue Stream 2 and announced a decision to extend Blue Stream 1 to southeastern Europe. Blue Stream...

  5. (pp. 9-10)

    At about the same time Russia was working on a Blue Stream 2 pipeline option to bring more gas to Turkey and southwestern Europe, Moscow saw an opportunity to acquire control of Georgia’s main gas pipeline system in 2003. Georgia’s gas debts were building and Russia offered an attractive debt-for-equity swap in the energy sector.16 At around that time, Gazprom took over the supply of Russian gas to Georgia from Russian oil and gas company Itera. Gazprom was particularly interested in Georgia’s high pressure gas transmission pipelines, which are major trunklines that run north-south and east-west and make up the...

  6. (pp. 11-11)

    The stakes for Russia to counter the Southern Corridor were raised substantially by announcements in 2002 and 2003 that three new projects—the Nabucco gas pipeline, the Interconnector Turkey-Greece-Italy (ITGI) gas pipeline, and the Trans Adriatic Pipeline (TAP)—all planned to import gas to Europe through Turkey from the Caspian Sea and possibly Iran. All of these projects were touted by backers as key to boosting Europe’s energy security by diversifying natural gas sources. Each of these pipelines threatened to expose Russia to unwanted gas market competition in Eastern and Southern Europe, and possibly as far as Germany.

    Of the...

  7. (pp. 12-12)

    Russia’s four-day interruption of gas supplies to Ukraine in January 2006 caused a surge in Europe’s political resolve to diversify its natural gas supplies and breathed new life into the still fledgling pipeline projects vying to bring Caspian gas to Europe. After the flow of gas resumed, then EC Energy Commissioner Andris Piebalgs said the commission would reexamine dependence on Russian gas and reevaluate Europe’s energy security.29 Of course, the episode also reinforced Russia’s motivation to bypass Ukraine as a gas transit state.

    By this time, drilling in Azerbaijan’s Shah Deniz offshore gasfield and construction of the South Caucasus Pipeline...

  8. (pp. 13-13)

    In May 2007, then Prime Minister Putin signed an agreement Moscow had negotiated with Turkmenistan and Kazakhstan to upgrade the extensive Central Asia-Center pipeline system that sends Central Asian gas to Russia and add a new pipeline along the Caspian shore to ship gas from western Turkmenistan to Russia. This was followed in February 2008 by a similar deal with Uzbekistan. At the time, the deal seemed to be a coup for Moscow, ensuring that most Central Asian gas would continue to be shipped northward to Russia instead of westward across the Caspian Sea or eastward to China. In particular,...

  9. (pp. 14-16)

    Moscow apparently believes that the EU-backed Southern Gas Corridor is a reality it will have to deal with, and currently is focusing on competing by establishing its own corridor. TAP and the Trans Anatolian Pipeline (TANAP) have been added to the Southern Gas Corridor, and enough facts on the ground have been established to provide credibility and confidence that the project will be completed. These facts include backing by major companies, the EU, the United States, and other governments; signed purchase contracts and other financial backing; major construction progress on the TANAP and TAP pipelines; and expansion of the capacity...

  10. (pp. 17-18)

    Russia’s position on the division of the Caspian Sea has evolved over time into one that allows both the exploitation of oil and gas resources in its own sector and Moscow to flex its military superiority and stymie projects that would allow Central Asian gas producers to compete with Russia in the European gas market.

    The first phase of Russia’s strategy on the legal status of the Caspian Sea was to separate the division of the seabed into national sectors for the purpose of subsea resource exploitation from the division of the sea into national boundaries. Beginning in the early...

  11. (pp. 19-21)

    A series of summits involving all five heads of state of the littoral countries has not done much to advance a consensus on the legal status of the Caspian Sea. In fact, Russian and Iranian comfort with the status quo has led both to block progress, armed with the two major agreements thus far. These are the shared interest in the environmental aspects of the Caspian Sea and the principle that a consensus among all five littoral countries is needed for any decision to be made on the legal status of the sea.

    The first Caspian Sea summit took place...

  12. (pp. 22-22)

    Turkmenistan’s approach to its claim of a national sector in the Caspian Sea is unorthodox by global standards and unlike that of any other littoral state. Judging from the outer perimeter of the offshore blocks that Turkmenistan has offered for exploration and development bids, Ashgabat’s approach to delineating a median line consists of measuring the equidistant point from land along successive lines of latitude. The conventional approach is to measure the equidistant point from the closest point of land, regardless of latitude or longitude. For Turkmenistan, this alternative provides the benefit of considerably reducing the influence of Azerbaijan’s Apsheron Peninsula....

  13. (pp. 23-23)

    Moscow has turned the Caspian Sea into another frozen conflict by establishing a military presence that overwhelms those of the other littoral and former Soviet states—Azerbaijan, Kazakhstan, and Turkmenistan—and enables Moscow to call the shots on major decisions.61 One such decision is whether any of the littoral states can build a trans-Caspian pipeline. Russia strongly opposes such a pipeline, which most importantly could allow Turkmenistan and possibly Kazakhstan to join Azerbaijan in sending gas to Europe through the Southern Corridor. Iran also opposes such a project, largely to support its claim to a greater share of the Caspian...

  14. (pp. 24-25)

    Russia has employed a series of preemptive actions and countermeasures to block, co-opt, or compete with the Southern Gas Corridor to deliver Caspian gas to Europe since the mid-1990s. This follows a pattern that characterizes Russia’s reactions to every major export-related transportation initiative involving producing and transit countries in the Caspian region since the breakup of the Soviet Union, including such projects as the Caspian Pipeline Consortium project, Baku-Tbilisi-Ceyhan oil pipeline, Kazakhstan-China oil pipeline, and Turkmenistan-China gas pipelines.

    In cases in which Russia has failed to block or co-opt non-Russian projects, Moscow has turned to more competitive behavior. This result...