Energy Cooperation between the EU, South Caucasus and Central Asia in the Context of the Gas Crisis

By Khalisa Huseynova. Originally published on 10 January 2022 by CBAP (Centrum pro bezpečnostní analýzy a prevenci)

Russia’s war against Ukraine has forced the EU to rethink its gas supply chain and develop a new strategy for the long run. Among others, the Trans-Caspian Gas Pipeline provides a new alternative for the European energy market.

The project itself is structured as a natural eastward extension of the Southern Gas Corridor (SGC). The project was suggested by the USA in 1996. In 1999, during the Economic Co-operation and Development meeting organised in Istanbul, Turkey, Georgia, Azerbaijan, and Turkmenistan signed several agreements concerning the construction of the Trans-Caspian Pipeline. Yet, over the years, the same project has not been implemented due to numerous factors – among others, the unresolved legal status of the Caspian Sea, which remained under constant pressure from Russia and Iran (Socor 2006). Despite the interest in the resources of the strategic region, its effective use has been unattainable so far because of this being the already existing Soviet infrastructure in the region. Kazakh oil and gas exports from Central Asia are carried out only through Russia, which has led to an increase in their dependence on Russian energy sources. For this reason, it is important to implement relevant infrastructure projects and establish a strategic partnership between the countries of the Caspian region, which will increase their capabilities and geopolitical importance (Badridze 2014).

One of the major factors that can help the EU with its gas crisis is the amount of Turkmen gas to export. Turkmenistan has the fourth-largest gas reserves at 19.5 trillion cubic meters and 10% of the global total ( Socor 2006). The approximate capacity of the pipeline is 30 billion cubic meters (1.1 trillion cubic feet) of natural gas per year at an estimated cost of US$5 billion (BBN Newsletter 2007). Additionally, it is important to note that Trans-Caspian Gas Pipeline is a crucial part of the Southern Gas Corridor project, and SGC (Southern Gas Corridor) is already functioning. Moreover, this strategic project is also needed to construct the Trans-Caspian pipeline to flow gas from Turkmenistan to Azerbaijan and from there to the EU. This crucial technical detail shows that modest gas exports can be transported relatively quickly ( Dunmore 2011). Another benefit of the Trans-Caspian Gas Pipeline is the fact that gas from Turkmenistan will be exported directly to Southeastern Europe, where Russia has built new pipelines to discourage competitors. It is also important to indicate that with the opening of the Trans-Caspian Gas Pipeline, Turkmenistan will be less dependent on China and Russia, as only these two countries are the main partners for exporting Turkmen gas, and will open new market capabilities for Turkmenistan.

Over the past years, significant steps have been made towards the realization of the project, such as the signing of the Convention on the Legal Status of the Caspian Sea by the leaders of 5 Caspian countries. On January 28th, 2021, the presidents of Azerbaijan and Turkmenistan signed the Memorandum of understanding, where the main object of conflict was an oil and gas field, which formerly was known as “Kapaz” in Azerbaijan and “Serdar” in Turkmenistan, and after the agreement was symbolically renamed as “Dostlug” or “Dostluk, namely, “friendship“ (Darius 2021).

Although there have been major steps taken toward the implementation of the Trans-Caspian Pipeline, there are also clear challenges to its production and one of the biggest ones: is the need for major funding from alternative sources, as the European Investment Bank will not be able to finance the fossil fuel projects from the end of 2021, taking into consideration the European Green Deal, which is set to shape the EU as CO2-free zone in the coming 30 years.

Overall, the Trans-Caspian Project is quite a promising project as it is an extension of SGC. Although there is a significant challenge in the funding frame, as it needs more investments from alternative sources, the European Investment Bank will not be able to finance the fossil fuel projects.

Conclusion

South Caucasian countries, Azerbaijan and Georgia, have already established themselves as reliable energy partners with the EU. Azerbaijan has already started to export its gas to the European countries via the Southern Gas Corridor (SGC) and is focused on increasing the amount of exported gas in the coming years, according to the agreement. If, before, Georgia was a regional transit country, now the country has the opportunity to play an important role in European energy markets.

The cooperation between the EU and the South Caucasus depends on to what extent the EU countries are willing to play a more active role in this process or develop and be guided by a common energy policy outside the Union. Supporting the Caspian energy projects will likely deepen relations between the region’s countries and accelerate the integration into the EU energy market.

As mentioned, the initial phase of the SGC project had a limited amount of exported gas. However, this project can turn out to be a full gas provider for Greece and Bulgaria while helping to significantly minimize both countries’ dependence on Russian gas. Last, this project would impact the gasification process of the Western Balkan countries by increasing the amount of exported gas after the mid-2020s, thereby minimizing its weak side.

With its highest amount of gas reserves, Turkmenistan would most likely change the situation with the EU’s dependence on Russian gas. Among its main benefits are the speed of the construction process and the direct gas export to Eastern European countries, where Russia is building new pipelines. This initiative seems quite feasible, as the recent agreement between Iran, Turkmenistan and Azerbaijan on a gas swap deal was signed on November 28th, 2021.

To conclude, it is important to indicate that the whole situation with the gas crisis in the EU region can be partially resolved via these two projects in the coming years.

References

1) Badridze, Giorgi. 2014. Regional cooperation and the future of the Caspian region. Tbilisi: Georgian Foundation for Strategic and International Studies

2) Darius Regenhardt «Agreement between Azerbaijan and Turkmenistan paves the way for Trans Caspian Pipeline».Novastan.org. 23 February 2021

3) Dunmore, Charlie (2011-09-12). „EU opens talks on Caspian gas pipeline Commission“. Reuters.p.25-26

4) „EU approves giant Transcaspian pipeline project“ (PDF). BBN Newsletter. 2006-05-20Archived from the original (PDF) on 2007-09-29. Retrieved 2007-05-20.

5) Socor, Vladimir (2006-01-24). „Interest Rebounds in Trans-Caspian Pipeline for Turkmen Gas“.Eurasia Daily Monitor. The Jamestown Foundation. Retrieved 2007-05-20.p/.35

6) Socor, Vladimir (2006-01-24). „Interest Rebounds in Trans-Caspian Pipeline for Turkmen Gas“. Eurasia Daily Monitor. The Jamestown Foundation. Retrieved 2007-05. 20.p/.36-37

7) Strategic and International Studies. https://www.gfsis.org/files/library/opinionpapers/30expert-opinion-geo.pdf.