Pipeline to bypass Russia pushed

The confrontation between Ukraine and Russia is helping to create an opening for another former Soviet state that wants to become a bigger gas supplier to Europe.

Azerbaijan — nestled between Russia to its north and Iran to its south — hopes its geographic and geopolitical position will help persuade the Obama administration to offer more vocal support for a $45 billion natural gas pipeline that would connect the country’s Caspian Sea drilling operations to Europe via Italy.


The so-called Southern Corridor would bypass both Russia, Europe’s major gas supplier, and Ukraine, the main route for existing pipelines carrying the fuel west. And while Washington is caught up in debates about hastening U.S. gas exports to weaken Vladimir Putin’s energy dominance, Azerbaijan maintains that its pipeline is the only shovel-ready means of giving Europe an alternative supply in the next few years.

“It is a hard-to-miss conclusion,” said Elin Suleymanov, Azerbaijan’s ambassador to the U.S. “There is no other ready-to-go step at the moment.”

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But the pipeline has its share of challenges — including the region’s always-tricky geopolitics and the risk that Russia could set out to undermine the project if it senses a threat to its interests.

Still, the pipeline has drawn interest from members of Congress and has received public backing from top officials in the State Department. Secretary of State John Kerry gave the project a brief public shoutout this month at an energy security meeting in Brussels, while the U.S. ambassador to Azerbaijan, Richard Morningstar, has been a big proponent of the pipeline since heading the Obama State Department’s special envoy for Eurasian energy.

“The United States, and specifically this administration, has put in an enormous amount of effort to see this project through and to make sure that it is in the place that it is today,” Deputy Assistant Secretary for Energy Diplomacy Amos Hochstein said Wednesday. At the earliest, the pipeline will be completed in 2018, a timetable Hochstein called “ambitious.”

Hochstein downplayed linking the project to current events. “It may be coming to the finish line at a particular moment in history, but it is something that has been worked on and planned for many, many years and still has many years to come,” he said.

It’s unquestionable, though, that the Ukraine crisis has elevated the project’s potential for catching the attention of people in the U.S. who normally don’t dwell on Western Asian energy politics.

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Suleymanov said his country isn’t looking for U.S. government assistance to build the pipeline but thinks the United States could be more vocal in championing the project. “Without U.S. leadership, things often don’t happen,” he said.

Even supporters acknowledge, though, that the pipeline initially won’t carry enough gas to make much difference.

The initial plan is for the pipeline to carry 16 billion cubic meters of natural gas annually — with 6 billion cubic meters to be used in Turkey and the rest reaching Italy and into the broader European market. In comparison, Russia contributes about 140 billion cubic meters annually to Europe, while total European Union demand is about 400 billion cubic meters a year.

“At the moment, we don’t specifically have security concerns about the pipeline and don’t see it as a confrontational factor with Russia,” Suleymanov said, taking care not to portray the project as significant enough to warrant potential alarm in Moscow. “The volume of the project is not significant enough to directly challenge the Russian rule.”

But he and other backers also say the pipeline’s symbolism — plus the potential for expanding the project — looms larger than that initial volume.

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“What’s important is the development of a route that takes non-Russian gas into a particular part of southeastern Europe that is completely dependent on Russian gas imports at this moment,” said Ed Chow, a senior fellow at the energy and national security program of the Center for Strategic and International Studies.

“Even a trickle of gas that bypasses Russia poses a threat,” said Michael Rubin, a former Defense Department staff adviser on Iran and Iraq who’s now with the American Enterprise Institute. “Make no mistake, the Azerbaijani pipeline is a threat to Vladimir Putin.”

The gas carried by the pipeline would especially help southeastern Europe, including meeting one-third of the gas needs for Bulgaria, which now gets all of its 3 billion cubic meters of gas each year from Russia. The project could also yield environmental benefits by helping Albania start replacing some of its coal use with gas.

In addition, potential exists for expanding the pipeline and tapping more into Azerbaijan’s estimated 30 trillion cubic feet of gas reserves. The project could also potentially link to a proposed Trans-Caspian pipeline that would bring gas from other former Soviet states like Turkmenistan and Kazakhstan.

Another possibility is tapping natural gas in northern Iraq, the eastern Mediterranean and perhaps Israel, which gets 40 percent of its oil from Azerbaijan. And the project could link to infrastructure north of Albania and up the Adriatic coast to Croatia, which is already integrated into a pipeline network with Hungary.

“So as you can see, the potential of additional gas coming through the Southern Gas Corridor is real and its impact can be felt in Europe,” Hochstein said. “There’s a lot of pieces to this puzzle” of helping Europe diversify its energy, he said. “But the Southern Corridor is a significant one.”

It would also circumvent Russia and Iran — both of which could have received Azerbaijan’s gas. Instead, the Southern Gas Corridor would link pipelines that would send gas on an acrobatic pathway through Georgia, Turkey, Greece, Albania and eventually to Italy. It would involve seven countries and 11 companies investing in the project and the gas reserves it would carry.

Azerbaijan “goes through all this just to be linked to Europe,” said Brenda Shaffer, a visiting researcher at Georgetown University’s Center for Eurasian, Russian and East European Studies. “The only way to keep their sovereignty is to have a strong link to the West.

“It’s a political strategy,” she added. “It’s not about just selling gas as it might be for the companies.”

BP has the biggest financial stake in the gas. The Russian oil and gas company Lukoil has a 10 percent stake in the gas fields that would supply the pipeline, an investment stemming from initial financing two decades ago.

But the project would block Russia from controlling the South Caucasus corridor — an important energy market bridge between Europe and Central Asia. And that could draw the ire of Moscow.

AEI’s Rubin, who traveled to Azerbaijan last summer, said officials there are more worried about Russia than about Iran, where relations have been cold but improving. Azerbaijani President Ilham Aliyev met last week with Iranian Supreme Leader Ayatollah Ali Khamenei in Tehran.

Last month, Azerbaijan joined a half-dozen other former Soviet states in supporting the U.N. resolution against Russia’s annexation of Crimea. The vote showcased a divided South Caucus and Central Asian region — with countries like Armenia voting against the resolution, and others like Kazakhstan and Turkmenistan abstaining or not voting at all.

Suleymanov said he doesn’t see any direct connection between the pipeline and the Ukraine crisis but believes the project can improve the stability in the region. “Nobody is immune from separatists movements,” he said.

If nothing else, the project shows how difficult it is to match action to all the rhetoric calling on Europe to lessen its dependence on Russia.

The pipeline stems from an effort by the U.S. and Europe in the mid-1990s to foster Western investment in Azerbaijan and elsewhere in the region. That’s when Lukoil and Iran’s state oil and natural gas company came on board, each taking a 10 percent financial stake in the Azerbaijani gas fields that would fuel the pipeline.

The first phase of the Shah Deniz project — providing 8 billion cubic meters of gas annually from Azerbaijan to Georgia — was completed in 2006. Much of that is used in Turkey.

The second phase was a well drilled in 2007 showing the promise of new gas reservoirs in Azerbaijan. That led last year to gas agreements signed with buyers in Italy, Greece and Bulgaria and a final investment decision to move ahead with the expansion to Italy.

In Washington, Rep. Mike Turner (R-Ohio) has been offering a nonbinding resolution since June — backed by 56 colleagues from both parties — describing the opening of the corridor as “promoting energy security of European allies.” Turner helped organize an April 11 briefing on Capitol Hill for congressional and embassy staff hosted by Rauf Mammadov, director of the U.S. office of the State Oil Company of the Azerbaijan Republic.

About 40 Democratic and Republican staff attended the meeting, as did representatives from 18 embassies, mostly from Eastern Europe and the Balkans, as well as organizations such as those promoting democracy in Eastern Europe. Organizers said the goal “was to educate a cross section of stakeholders” on additional gas sources for Europe.

The project offers a balancing act not just for Azerbaijan but also the U.S. Besides facing human rights and corruption allegations, Aliyev last year won a third term with nearly 85 percent of the vote in an election that international monitors called seriously flawed.

“Nobody’s perfect, we know this, no country is perfect,” Suleymanov said. But he said Azerbaijan compares well with other former Soviet republics, including in its economic stability. Ukraine, for instance, promised to address its corruption as part of a recent agreement to receive financial help from the International Monetary Fund.

Hochstein called Azerbaijan a “close friend and ally” to the U.S.

“Clearly things are not black and white, and we address issues of concern while we also address areas of mutual agreement and cooperation,” he said.

CLARIFICATION: A previous version of this article misstated Rauf Mammadov’s title. He is the director of the U.S. office of the State Oil Company of the Azerbaijan Republic.

CORRECTION: Corrected by: Nick Gass @ 04/17/2014 05:16 PM CORRECTION: A previous version of this article misstated Rauf Mammadov’s title. He is the director of the U.S. office of the State Oil Company of the Azerbaijan Republic.

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