At the Ends of the Earth … and in the Middle of the Energy Wars
WHY YOU SHOULD CARE
In the 21st century, energy equals security — and Baku could help Europe on both fronts.
There aren’t many places Ed Chow could fly to that would be farther from his Washington D.C. base than that nearly impossible-to-spell, ex-Soviet Union satellite Azerbaijan. Indeed, its ancient walled-city capital of Baku, with flat expanses far from most commercial hubs or route to an ocean, can really feel like the ends of the earth. But as if he were some frequent-flier junkie, Chow has made the 15-hour haul dozens of times for the same reason so many foreign business and political bigwigs have: its ridiculous amounts of energy resources.
“They’ve been part of the backbone of the Soviet oil and gas industry for an awfully long time,” says Chow, a former Chevron executive who is now an energy analyst.
But Azerbaijan has a problem that is fast becoming one for a growing number of European countries starving for gas. With no ocean in sight or any obvious transport options, the country can’t move its gas out very easily. And just to make it more of a full-blown crisis for this nation of two million, it now has Putin breathing down its neck, with a not-too-subtle threat to build a competing pipeline. Call it one of the greatest, if not the most expensive, races to build a pipeline across two continents.
This international game of petro-politics started with a series of gas pipelines that are being built and financed by BP along with a consortium of global energy heavyweights. Collectively, they’ve already spent $8 billion just to develop the project’s first phase, and BP says around $28 billion in capital investment will be required to produce and transport gas to the Georgia-Turkey border in future phases.
Few know it, but Azerbaijan has a rich history as one of the world’s oldest oil producers.
If all goes as planned, gas from Azerbaijan’s Shah Deniz — a deep-water field with more than 1 trillion cubic meters of gas reserves (that’s roughly the size of Manhattan) — will be flowing to Greece, Albania and Italy by 2019. But a few months ago, while announcing plans to scrap a rival pipeline, Moscow also declared it was considering an alternative project into southern Europe through Turkey, with offers of discounted prices to Ankara. It wasn’t exactly the news Azerbaijan wanted to hear.
Analysts like Leslie Palti-Guzman of the risk analysis firm Eurasia Group say the cheap Russian gas could prompt Turkey to slow-walk or even halt the construction of the rival Azeri project. As of now, however, Putin’s announcement seems like “more of a ploy than a real project,” says Chow, a senior fellow on energy and national security at the Center for Strategic and International Studies. But that “doesn’t mean it couldn’t become a real project” in the future, he adds.
Few know it, but Azerbaijan has a rich history as one of the world’s oldest oil producers. The country is home to the world’s first oil field, drilled in 1846, and the first offshore oil field, completed in 1951. In recent years, the country has been averaging close to a million barrels of oil pumped per day. That and the country’s cooperation with the West in the war against Afghanistan have attracted a host of bold-faced names to Baku — Tony Blair just signed on to help rally support for the country and its pipeline — despite its dismal human rights record. In 1994, BP discovered what’s now known as the Shah Deniz gas field, the British energy behemoth’s biggest find since Alaska’s Prudhoe Bay back in the ’60s. But getting the gas west to Europe was difficult. The only pipelines went north to Russia, hardly ideal for a country looking to get out from under the thumb of its former Soviet overlord.
Hence the long-running and pricey effort to snake a series of gas pipelines from Baku across Turkey’s Anatolian peninsula, the Aegean and Adriatic Seas and all the way to the boot of Italy. For Azerbaijan, the gas exports are a much-needed way to secure its energy-driven economy as its oil production begins to wane, and Europe is its only real export market for gas, says Chow. Europe, of course, has been trying for years to suss out other sources of gas aside from Russia, a task that got more urgent after a feud over Ukraine exploded early in 2014.The U.S’s. own energy boom, meanwhile doesn’t help, since the gas can’t ready reach there.
The political significance of the pipeline is even bigger.
When completed, the pipeline is slated to carry roughly 16 billion cubic meters of gas per year. That’s not much compared to the 160 bcm Russia pumps to Europe via Ukraine, Belarus and Germany. But the political significance of the pipeline is important, since for years Russia had been in talks with the European Union to build a pipeline along a similar route, which Palti-Guzman suggests was aimed at competing with the “Southern Gas Corridor” that Azerbaijan is using. As it tries to move things along, Azerbaijan will need to tread carefully with its big neighbor to the north. “They don’t want to threaten their big brother, in a way,” says Palti-Guzman. Let the gas games begin.