West looks to bypass Russia for energy


Obscure republics of the former Soviet Union have taken centre stage in the new Cold War: the struggle to secure supplies of oil and natural gas.
Last month, without much ceremony but with huge ambition, engineers in Azerbaijan opened the taps at the Shah Deniz gas field in the Caspian Sea that should in the future supply western Europe. For now, it passes through Georgia into Turkey, circumventing two conflict zones, but, crucially, by--passing Russia altogether.


Map of the gas piplines - click to enlarge
For Azerbaijan, a country of just eight million people still struggling to remove the Russian yoke, the opening represented a leap forward. For Europe and America, it was a triumph over Moscow.
Russia, emboldened by record energy prices and Vladimir Putin's muscular presidency, is using its vast resources — it sits on 25 per cent of the world's proven gas reserves — as a blunt political weapon.
Last winter it turned off the gas to Ukraine in a row over prices, leaving millions to shiver. It did the same to another former Soviet republic, Belarus, in December, shutting an oil pipeline that supplies much of south-eastern Europe.
The breaks in supply were brief but the damage to the reputation of Gazprom, the Kremlin-controlled energy giant, was long lasting. In Europe, which receives a quarter of its gas and crude oil from Russia, the dangers of relying on a narrow range of sources were brought home.
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As a riposte to Russian belligerence, the opening of the South Caucasus pipeline, which is run by BP from Shah Deniz, could not have been better, despite initial technical problems that have seen gas output stopped twice. BP also operates a parallel oil pipeline, the 1,100-mile BTC (Baku-Tblisi-Ceyhan), which came on stream last year.
"Azerbaijan has wanted for a long time to look west and this gave them the chance to realign," said Peter Davies, the chief economist at BP.
America leant considerable political backing to the project. Daniel Fried, an assistant secretary of state at the State Department, said: "It is important to develop multiple routes and non-Russian routes, but that doesn't mean anyone is going after the Russians. Russia will be a major supplier to Europe but transparency is critical."
Washington hopes that encouraging competition in markets around Russia will encourage reform there.
"We are trying to convince the Russians we mean what we say about open systems and that there is a lot of money in it. They are going to make billions of dollars, it's just a question of in what manner," said Mr Fried.

The oil pipeline from Azerbaijan to Georgia
This month the EU issued a dramatic review of energy policy, which demanded cuts in greenhouse gas emissions and stressed the need for closer ties with central Asia and the Caucasus "to facilitate the transport of Caspian energy resources to the EU".
The Caspian Sea's other -littoral states include Kazakhstan and Turkmenistan, which, thanks to the BTC and South Caucasus pipelines, now also have an opportunity to bypass their traditional master, Russia, which has often paid prices lower than those in European markets.
Both countries co-operate with US oil giants on exploration, while last Thursday, Kazakhstan and a group of international oil companies signed a memorandum of understanding on exporting oil through the BTC.
Russia has hit back at recalcitrant former satellites — Mr Putin has mentioned doubling gas prices for Azerbaijan — but his options may be limited. Norway, a major gas supplier to Britain, provides a reliable alternative and Turkey, which is keen to join the EU, has ambitions to become a mass distribution centre for gas and liquid natural gas, which is shipped principally from Algeria and Egypt.
Another proposal, the Nabucco pipeline, would begin in Turkey, receiving gas from various sources and sending it to Austria. "Diversification is the name of the game," said a spokesman for OMV, the Austrian conglomerate leading the proposal. "Everybody wants to avoid depending on one source."