In the 1990s, newly independent Azerbaijan’s diplomatic strategy was shaped largely by cooperation with the West. Driven by energy projects, first oil exports and then also natural gas exports, it led the Caspian Sea region in developing important infrastructure that guaranteed its own independence as well as that of other newly independent states.
The Baku-Tbilisi-Erzurum gas pipeline, following construction of the strategic Baku-Tbilisi-Ceyhan (BTC) oil export pipeline, became the South Caucasus Pipeline (SCP). It was the first building-block of the Southern Gas Corridor (SGC). Thanks to this development, gas produced in Azerbaijan has already reached Albania and will soon reach Italy.
The SGC represents a historic success for Azerbaijan and the European Union (EU) in regard to their common quest for new energy supply sources and routes. Over the last decade, the EU has intensified its efforts to expand the SGC, seeking to attract gas from Turkmenistan, a country known for its gigantic onshore gas fields that currently supply only Chinese and Russian markets.
The necessary link connecting Turkmen gas with existing SGC infrastructure is the Trans-Caspian Gas Pipeline (TCGP). The 180-mile long TCGP is an EU Project of Common Interest (PCI) and was supported by an EU grant in 2018.
The TCGP is a crucial link, a catalyst for potential changes that could affect the structure of the international system for decades to come. It could drive economic growth, promote regional stability, and limit both Chinese and Russian influence in Central Asia.
New American interest
The countries in the Caspian Sea region are responding to new American interest. For example, Hikmet Hajiyev, whose position is functionally equivalent to national security adviser to Azerbaijan’s president Ilham Aliyev, stated in Washington, DC in June 2019 that Azerbaijan is ready to support the TCGP by transiting Turkmen gas. Also in June, Georgia’s economy minister Natela Turnava declared her government’s support for the trans-Caspian link and the White Stream pipeline.
Remarkably, Vitaly Baylarbayov, deputy vice-president of the State Oil Company of the Azerbaijan Republic (SOCAR), speaking in a February 2020 Euractiv interview, was clear and specific about how there is room for Turkmen gas in the newly constructed SGC system, which he said could also be expanded further.
The planned TCGP would source natural gas onshore in Turkmenistan for transmission under the Caspian Sea and insertion into the SGC. Like the BTC and SCP, the TCGP would form a new investment corridor and attract interest in maritime transport and telecommunications. The TCGP would provide important opportunities for US exports of goods and services for gas transmission, related petrochemical projects, and other energy-industrial sectors.
In March 2019, President Donald Trump wrote directly to Turkmenistan’s president Gurbanguly Berdimuhamedow, saying that he personally hoped Turkmenistan would soon export gas to the West. In May of the same year, he wrote to Azerbaijan’s president Aliyev, praising his country’s cooperation with the United States to “diversify European energy routes and sources.” A few months later, in December, he signed the “Further Consolidated Appropriations Act of 2020,” which included, as its Title XX, legislation called the “European Energy Security and Diversification Act of 2019.”
This Act of Congress provides for funding from the US International Development Finance Corporation (DFC), the Trade and Development Agency (TDA), and the Countering Russian Influence Fund (CRIF). The DFC is the new agency that modernizes the Overseas Private Investment Corporation (OPIC). It can and should offer technical development, debt and equity financing, and other instruments to the TCGP.
The TDA would be able to promote US private sector participation in the pipeline, providing opportunities for the use of US exports. Finally, the Act authorizes CRIF to support other US agencies providing assistance under the Act itself.
The TCGP satisfies all project eligibility and project preference criteria for government support identified in the Act.
Like the BTC oil export pipeline twenty years ago, the TCGP is a demonstration project. The BTC and SCP, besides being of great commercial benefit, established and strengthened the independence of participating South Caucasus countries.
The TCGP would do this over a broader geographic area and with deeper implications. Beyond Turkmenistan, benefits would extend also to other Central Asian countries. Plans are on the drawing board for Kazakhstan and Uzbekistan to join Turkmenistan in subsequent trans-Caspian energy projects, connecting them strategically to the West.
Gas from Turkmenistan costs much less than gas from Siberia. As European hydrogen demand develops, carbon captured from Turkmenistan’s natural gas can be easily stored in Azerbaijan’s and Romania’s depleted hydrocarbon deposits. Capturing and storing that carbon in Azerbaijan or Romania will facilitate the production of blue hydrogen for direct piping to Europe from Azerbaijan.
Azerbaijan would welcome Turkmen gas to feed its own burgeoning petrochemical sector. But American political cover would be necessary so that Baku did not fear retaliation from Moscow. With the Convention on the Legal Status of the Caspian Sea now in force, there is no reason why Turkmen gas or blue hydrogen (which could be produced from it) cannot be delivered to the EU in sizable quantities.
The current state of the trans-Caspian project
Azerbaijan will soon begin supplying relatively modest quantities of natural gas to European markets through the SGC. But SOCAR, which is majority stakeholder and operator of the Trans-Anatolian Gas Pipeline (TANAP) running from Georgia to Greece, needs to fill the pipeline to make a profit. It cannot do this soon with Azerbaijan’s offshore gas, which may take time to develop. Turkmen gas will accomplish this.
The TCGP’s economic potential has led to its inclusion in every European Commission PCI list since 2013. However, an intensive disinformation campaign, sustained by Gazprom’s monopoly interest, raised doubts about the project’s merits. Consequently, European buyers remained largely uninterested. Western capitals never gave it proper attention or adequate support. Thus, it remained on the back burner for many years.
An implementation road map agreed in 2017, which implied initial co-funding of the project promoter company by the Georgian government and the EU, did not develop as intended. The year 2019 saw renewed attempts to implement the so-called platform connection option. This shorter, limited concept for trans-Caspian gas was based on the idea of connecting Turkmenistan’s offshore platforms to Azerbaijan’s offshore platforms. It was not a large-volume shore-to-shore pipeline nor was it an official PCI, like the full TCGP, to which the European Commission had allocated grant monies.
Turkmenistan has always refused to accept any option other than the expandable shore-to-shore TCGP. Precisely because Turkmenistan is suffering its worst economic crisis in decades, this has not changed. Because natural gas is its only marketable commodity, Turkmenistan’s government insists on taking maximum advantage of prospects to supply Europe’s markets.
Turkmenistan has always been concerned that the smaller-volume platform option would lead nowhere else, despite whatever promises might be given, which is why it has insisted on the full pipeline.
Turkmenistan would welcome the chance to export to Europe but only through a shore-to-shore pipeline connecting its integrated onshore pipeline system, including the shut-in wells in the east of the country, to Azerbaijan’s onshore system.
Constructing the TCGP does not require Turkmenistan to enter into production sharing agreements (PSAs); the abundant gas deposits in the country’s east are already developed, the pipeline for transmitting the gas to Turkmenistan’s border already exists, and the business model for constructing the TCGP does not require them.
Turkmenistan constructed the East-West Pipeline (EWP) to bring gas right up to its coast on the Caspian Sea. Turkmenistan will sell this gas there, at its border on the Caspian seacoast. The EWP is now capped, awaiting connection across the sea by way of the TCGP.
The TCGP itself will be built and operated by a pipeline company not owned by gas producers, following a standard industry business and financing model. An independent carrier will execute the technical studies leading to sales-purchase agreements between European buyers and Turkmenistan. PSAs are therefore also unnecessary for the TCGP’s construction.
In accordance with the Caspian Convention, Azerbaijan and Turkmenistan alone will make the decision to construct the pipeline. The World Bank and European Commission completed a comprehensive environmental scoping study in 2014, determining that the route is environmentally safe. Potential impacts and mitigation measures have already been identified.
Additionally, Turkmenistan’s gas is coincidentally closer to existing infrastructure than any other new source of similar proportion and benefit. Only 180 miles separate Turkmenistan’s coast from the SCP infrastructure that provides access to TANAP and the Trans-Adriatic Pipeline (TAP). Once the TCGP is built to the SGC, the projected White Stream pipeline under the Black Sea from Georgia to Romania can be constructed. It is the most direct link for Central Asian gas and blue hydrogen to European customers.
American, European, and Euro-Caspian common strategic interests
The TCGP is a strategic project for the United States, Europe, and the Caspian and South Caucasus states. It will counterbalance Chinese and Russian influence in the Caspian Sea region. It holds the promise of opening new horizons in Euro-Caspian energy development to run through mid-century.
Just as the BTC made the SCP and SGC possible, the TCGP will also signal for other trans-Caspian energy projects to go forward. The TCGP would enable countries in the region to secure greater sources of revenue independent of Russia and China.
Turkmen gas is the most economical new source of gas for Europe. Gas from Central Asia is less expensive than that from other sources, and its price remains fully independent of liquefied natural gas (LNG) prices. If Turkmenistan’s enormous gas export potential is not directed at European markets, then it would be in Russia’s best interest to purchase the Turkmen gas instead and re-export it to the growing market in China; this would be less expensive for Russia than developing its own West Siberian resources for Chinese consumption.
In fact, Gazprom has already been instructed to develop a pipeline system that could be used for facilitating these gas deliveries. These supplies would allow Moscow to compete more advantageously with American LNG exports to China. Failing to build the TCGP would thus end up diversifying China’s supply options rather than the EU’s.
Azerbaijan wants to benefit as an intermediary country that transmits Turkmen gas to European markets. Azertbaijan’s diplomatic influence has only grown over the years. Esmira Jafarova, deputy director of the Center for International Relations Analysis (Baku), recently noted convincingly that Azerbaijan may well be considered a nascent “middle power.”
TAP’s stakeholders seek new supplies for second-stage expansion in order to increase its value. This expansion would require no new construction, only installation of additional pumping capacity.
Turkmen gas fits the bill for TAP expansion. It would significantly improve energy security for many Balkan and Eastern European countries, even Ukraine, through well thought-out plans in synch with LNG imports.
The United States and the EU share a demonstrated community of interests in international energy development. The start of construction of the Baltic Pipeline from Norway to Poland, supported under the Three Seas Initiative, is just the latest example of how gas pipelines can still be implemented despite less favorable public perception of fossil fuels.
For over twenty years, Russia used spurious environmental and legal arguments as well as threats against Turkmenistan to oppose the TCGP. However, in August 2018, Russia signed the Caspian Convention along with Turkmenistan, Azerbaijan, Kazakhstan, and Iran.
The Convention codified every signatory’s right to build submarine pipelines if it so wishes. One clause specified that if two signatories, such as Turkmenistan and Azerbaijan, wish to build a pipeline between them that does not cross into a third country’s sector, no other signatory can veto the project. One would expect, given Russia’s ability to exert pressure behind the scenes, that it may do so. However, the EU, as Russia’s largest gas export market, enjoys considerable geo-economic leverage over Moscow, which, at least theoretically, the bloc could wield to help shield Azerbaijan and Turkmenistan on the TCGP. Whether the EU is prepared to confront Moscow in this way and in defense of its own economic interests, however, remains unclear.
US policy action is key
In the United States, members of Congress have criticized Georgia’s energy security policy and its failure to keep promises to maintain a level political playing-field and an independent judiciary. Georgia makes little use of opportunities that its geographical location and free trade agreement with the EU provide. Even three decades after the Soviet Union disintegrated, Georgia still relies on Russian electricity imports, and its economy remains highly dependent on Russia. It is no secret that these energy-related trade flows open the door for Russia to export political corruption as well.
The first wave of political and economic reforms in post-Soviet Georgia were accelerated through close cooperation with the West as envisioned within the framework for the East-West Energy Corridor programs in the late 1990s and early 2000s. That momentum has flagged by now. Building the TCGP today, like the BTC then, will catalyze the next, necessary wave of reforms.
The TCGP’s implementation will drive necessary energy market reform in Georgia that would significantly improve the country’s economic prospects. First, it would bring renewed US attention and influence, which would both help to ensure the reforms take hold and benefit the United States in return. Such reforms would stabilize Georgia’s economic and political situation, increasing its autonomy.
Second, it would facilitate Georgia’s industrial expansion for exports to the EU under the free trade association agreement that it already enjoys but has not fully utilized. A flow of advantageously priced gas from Turkmenistan to Georgia would kickstart new EU-export oriented industries like fertilizer production in Georgia and decrease its dependence on Russia.
If Georgia is to be not just a partner but a strategic transatlantic ally for the United States, it must be free of such malign influences. The TCGP presents an opportunity for the United States and the EU to cooperate on energy security, and not just for themselves, but for the sake of their common interests in the South Caucasus and Central Asia.
The TCGP is basically a shovel-ready project that just needs a decisive political boost: a boost that the EU cannot currently provide because it remains focused on hydrogen.
The coronavirus pandemic makes the introduction of Central Asian gas exports to the EU even more timely. The EU is set to use pandemic recovery funds to increase production of green hydrogen (from renewable energy) as well as blue hydrogen (from natural gas).
However, the cost of producing green hydrogen is still appreciably higher than for blue hydrogen. Although the EU’s objective is a full transition to green hydrogen, natural gas and blue hydrogen will still be required for many years to make the eventual green transition less expensive.
Consequently, the EU needs Caspian gas to bring down the costs of its energy transition. This is especially true for countries where energy costs remain politically sensitive. The current extremely low prices for natural gas make the pipeline’s construction even more affordable, especially since many energy infrastructure projects with less appealing economics will be delayed or even canceled.
The pandemic will decrease energy investment in general worldwide, which means serious progress on TCP will likely need to wait for a post-pandemic economic recovery. There will be a need to monitor the effects of the pandemic on investment in the TCGP, so as to reveal how soon EU buyers will be comfortable proceeding with sales-purchase agreements for Turkmen gas, facilitated by front-end engineering design and other required studies, as well as necessary environmental permits. Once the market has recovered and is ready to absorb new supplies, relatively inexpensive Central Asian gas could then be delivered by new and cost-effective pipelines, playing an important role in Europe’s post-COVID economic recovery, when environmental considerations are expected to be even more present in decision-making than before the pandemic.
It is now the ideal moment to ensure that Turkmen gas contributes to diversifying energy supplies in Europe (including Turkey and Ukraine), to cementing ties with the EU and the United States, and to increasing resilience in the Central Asian and South Caucasus countries. To facilitate this cooperation, the US Department of State should designate the TCGP as a project for support under the European Energy Security and Diversification Act of 2019.
Matthew Bryza is a senior fellow with the Atlantic Council Global Energy Center. He served as a US diplomat for over two decades, including as US ambassador to Azerbaijan and deputy assistant secretary of state for European and Eurasian affairs.
Robert M. Cutler is senior research fellow, NATO Association of Canada, and director of its Energy Security Program. He served as a US State Department speaker and specialist grantee for public diplomacy on East European and Caspian Sea region energy affairs.
Giorgi Vashakmadze is a former chief executive of the Georgian state enterprise responsible for Caspian East-West Energy Corridor projects. He served as Georgia’s representative to the Intergovernmental Implementation Commission for the BTC and SCP pipelines.
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