It’s all about energy

Cooperation with the Caspian region on energy issues is recognized by the European Commission to be at the top of the EU’s political priorities.1 Fundamental is to deepen cooperation because ever more important is energy for the EU’s fundamental needs, growth and competitiveness. Right immediately after the enlargements waves, the European Commission recognized the importance to frame the development of the energy policy not only with new states but also and especially with neighbor countries and partner countries outside of the EU perimeter.[1] [2] Against this background it was explained that the EU had a ‘specific interest’ in the extensive oil and gas reserves of the Caspian basin. Accordingly, it was fundamental to facilitate the transportation of Caspian resources towards Europe either through Russia or other transit routes. In particular, it was reported, to ensure ‘safe’ and ‘secure’ export routes would answer EU’s energy security needs as well as promote the social, political and economic development of the Caspian region.[3]

Following a global trend, it is especially gas (of which the Caspian basin is particularly reach) to witness the most relevant increase in demand, something which renders the ‘struggle’ for its achievement harsh and political in nature given the rigidity characterizing its market.[4] Thus, explains an author, “Linking together producers and consumers over the long-term, the gas market normally requires a wider entente between the two sides, which entails a higher degree of political entente and consequently a greater role for policy makers and so-called energy diplomacy”[5]. Also, key is to come to terms with Caspian states given the chronic turbulence characterizing the Middle East and North Africa and the declining EU domestic production.[6] The Caspian region is full of already known and still untapped energy-related resources, especially if Azerbaijan, Kazakhstan and Turkmenistan are considered.[7] If relations with Azerbaijan are already well on track, the Commission recognizes that relations with Kazakhstan and Turkmenistan should be enhanced.[8] This is all the more important given that the two countries rank especially high respectively in oil and gas reserves. And yet, as of today, the EU has not even a delegation in Turkmenistan.

Table 9.1 - Major Caspian oil and natural gas export routes to European markets

Pipeline

Content

Transit route. Origin-destination

Baku-Tbilisi-Ceyhan (BTC)

Crude oil

Kazakhstan-Azerbaijan-Georgia-Turkey

Caspian Pipeline Consortium (CPC)

Crude oil

Kazakhstan-Russia

Uzen-Atyrau-Samara

Crude oil

Kazakhstan-Russia

Baku-Novorossiysk (Northern Route Export Pipeline)

Crude oil

Azerbaijan-Russia

Central Asia Center gas pipeline system (CAC)

Natural gas

Turkmenistan-Uzbekistan-Kazakhstan-Russia

Baku-Tbilisi-Erzurum (BTE, South Caucasus Pipeline)

Natural gas

Azerbaijan-Georgia-Turkey

Source: EIA 2013, own adaptation.

The regional background of cooperation talks is represented by the ‘Baku Initiative’. Held in 2004 and gathering the twelve countries of the Black Sea and the Caspian basin plus the European Commission, the Ministerial Conference that set the bases of the Baku Initiative was mainly aimed to deepen the integration of energy markets. The energy chapter was not only to promote cooperation on the hydrocarbon sector, but also on electricity, energy efficiency and renewable energy sectors. As a follow up to this meeting, four Working Groups of experts have been created. The Initiative was supported by INOGATE, the Interstate Oil and Gas to Europe programme funded until 2006 under the TACIS programme and aimed to promote energy cooperation[9] between the European Union, the littoral states of the Black and Caspian Seas and their neighbouring countries through a technical assistance programme. The 2nd Energy Ministerial Conference held in Astana (Kazakhstan) in 2006 convened the littoral states of the Black and Caspian Sea (the Republic of Azerbaijan, Georgia, the Republic of Kazakhstan, the Republic of Moldova, the Republic of Turkey, Ukraine, the Republic of Armenia, the Republic of Belarus, the Kyrgyz Republic, the Republic of Tajikistan, the Republic of Uzbekistan and the EU Presidency, the European Commission, the EU Member States, the EU acceding countries, the EIB, the EBRD, the World Bank and Russia as observer. The conference concluded the process that, starting from the Baku Initative in 2004, has determined an enlargement of the INOGATE scope and objectives. In this Conference a Road map, enlisting short-medium and long term objectives for enhancing energy cooperation was established in line with the ENPI regional strategy for Eastern Europe 2007-2010.

Table 9.2 - Energy Road Map: objectives

a

Converging of energy markets on the basis of the EU internal energy market principles taking into account the particularities of the Partner Countries.

b

Enhancing energy security by addressing the issues of energy exports/imports, supply diversification, energy transit and energy demand.

c

Supporting sustainable energy development, including the development of energy efficiency, renewable energy sources and demand side management.

d

Attracting investment towards energy projects of common and regional interest.

Source: Ministerial Declaration 2006.

Given that a stable and predictable flow of energy resources is a common interest of both the European Union and of the Caspian states[10] cooperation dialogue has opened on various tables and has concerned 1) the promotion of the sustainable development of energy resources, included the implementation on international agreements on transport, air and maritime safety; 2) the diversification of energy supply routes; 3) the development and advancement of new energy resources and 4) the exchange of policy, regulatory and technical know-how to improve energy efficiency. Let’s explore each of these chapters.

The first issue is about the actual exploitation of energy resources in the region. Indeed, last years have seen a real misuse of energy resources, something which has greatly contributed to an amplification of environmental challenges. Against this background, the Caspian Sea Environmental Convention, of which Kazakhstan and Turkmenistan are members, provides a framework for discussion where the Caspian Sea and the close river waters protection are seriously taken into account. A project on ‘maritime safety’ was financed between 2009-2011 with 3.5 million euro to support the development of common security management, maritime safety and ship pollution prevention for the Caspian and the Black Sea - SASEPOL.11 The trade-off between growth exigencies and sustainable development is sensitive in emerging countries, and indeed one difficult to agree on. Given the likely environmental impact determined by the exploitation of energy resources and the objectives the EU has set for itself in its 2020 growth strategy, a particular emphasis has been put on environmental issues “no energy infrastructure project can escape an impact assessment to the highest environmental standards”.[11] [12]

As far as the second issue is concerned, of particular interest for the EU has been the creation of a ‘Southern energy corridor’ where the idea of a trans-Caspian gas link was embodied. A mandate by the Council to the European Commission has been authorized to negotiate this project, “Not many people are aware that this is the first time the European Union has proposed a treaty in support of an infrastructure project. This demonstrates how important this project and co-operation with the region is for the European Union and all of its 27 EU Member States”.[3] In this sense, the Caspian would contribute to EU’s energy security through the provision of additional supply routes.[14] In the 2008 Second Energy Strategic review it is strongly emphasized that the development of the Southern gas corridor is “one of the EU’s highest energy security priorities”; in this sense, work should be organized so as to “rapidly securing firm commitments for the supply of gas and the construction of pipelines necessary for all stages of its development”.[15] Not only that; as Commissioner for Energy Oettinger has explained, the European Union is strongly convinced that the pipelines would improve stability and prosperity in the region.[16] Throughout time, the European Union has supported various pipeline projects connecting the Caspian region to Europe such as the Nabuc- co and other regional projects crossing the Caspian.[3] In 2011 the TANAP (Trans-Anatolian gas pipeline project) agreement has been signed, bringing natural gas from the Caspian directly to the European Union. Together with the World Bank and the European Investment Bank, the European Commission has decided to establish a mechanism for the purchase of the Caspian gas, with a special focus on deliveries from Turkmenistan, the so-called ‘Caspian Development Corporation’,[18] although this project looks still rather fuzzy.

An issue strongly related to the delivery of energy resources towards the Union has to do with the transport systems, their interoperability, their efficiency and their development. That of transportation figures as a regional issue and the European Union pays a particular attention to encouraging regional integration on the matter. In this sense, the role of TRACECA (Transport Corridor Europe-Caucasus-Asia), a transport cooperation programme between the EU and partners countries in Eastern Europe, the Southern Caucasus and Central Asia, is of particular relevance to encourage cooperation in the region; to attract (also private) investments for specific projects; to link the corridor with the trans-European networks (TENs) and to increase partners’ capability to access to European and other markets.[19] TENs, an EU device for the funding of transport investments, has placed the Caspian Sea within the Central and South-eastern transnational axes of interest individuated for the Union, connecting the EU with the Caspian and this latter with adjacent regions for the enhancement of overall trade, traffic and exchanges.

As far as the third issue mentioned is concerned, there is not something specific referring to the Caspian basin. Instead, the fourth issue is of particular relevance for the European Union: lacking the instruments commonly employed to approximate other states’ legislation and tools (included statistical standards and methods, European Community 2007) to its own standards, dialogue has especially been attempted with non-member states in this domain. Specifically, it has been explained that the integration of neighbouring countries in the EU market and the enhancement of proximity among societies would only be achieved through “compatible and interconnected” infrastructures and “approximated regulatory environments”.[20] Technical assistance for the implementation of the recommendations agreed upon in the ‘Baku initiative’ has been offered.[21] The European Union has also put a particular emphasis on the modernization and the further development of energy infrastructural projects, especially as far as gas delivery is concerned. As seen above, the support of the private sector in this direction has been deemed fundamental.[22] Assistance in this domain is supposed to advance the progressive integration of the region’s energy market and the convergence of regional policies on the matter.[23]

All these insightful elements notwithstanding, one wonders whether the “political nature of energy security policies”, as Carlo Frappi puts it,[24] has been really investigated. As a matter of fact, the EU has admonished that it must demonstrate to be prepared to deal with the Caspian region on a long term basis both on the political and the economic level.[25] If that holds true for energy it is even more so for other issue areas under debate today, such as transport and environmental issues where institutional harmonization is even more stringent and yet more difficult to impose. Even though the EU recognizes the geo-economic importance of the region, this seems to have not led to the framing of an overall regional policy, not even on energy issues. Ultimately, this limitation calls into question the complicated relationship the EU has to manage with two of the players in the region, Russia and Iran which (although for different reasons) inevitably complicates the breadth and reach of the regional cooperation. The complicate relation with Iran seems to be a major impediment: as a matter of fact, the Commission seems to implicitly recognize that, given the fact that political conditions are not yet ripe to envisage forms of energy cooperation between the EU and the country, difficult is to conceive a regional strategy towards the Caspian.[26] Not only that. Strong bilateral relations between Russia, Iran and single EU member states downplay the potential impact of a regional coordinated approach.

The lack of a political clout is partly to be attributed also to the scarce attention some of the states in the basin pay to EU’s dynamics and a preference for traditional although consolidated channels of cooperation. In fact, if exception is made for Azerbaijan, which, thanks to its geographical position is much more inclined to talk with Europe, Kazakhstan and Turkmenistan see probably of less interest an overall cooperation with the EU and even less so to be involved in an EU’s regional strategy on energy. More to that, legal issues regarding both off-shore deposits and more in general the regional development of the energy sector have complicated the realization of the TransCaspian corridor and have suggested the poor support the states of the region show for regional initiatives in general. This pushes to reflect on a further limit to overall regional cooperation in different domains, that is, the lack of an overall agreement on a legal definition of ‘the Caspian’,[27] discussed elsewhere in this book.

For the time being and given political difficulties, the Union seems to insist on the promotion of cooperation tables at various levels and through different instruments. The idea is to create a ‘partnership’ with all countries engaged in particular through the development of bilateral relationship, hoping that this will increasingly promote regional integration among the partners and pave the way for a possible regional dialogue.[28]

  • [1] European Commission, The Caspian region and Central Asia, Country file, Market Observatory for Energy,March 2010.
  • [2] European Commission, On the development of energy policy for the enlarged European Union, its neighbours and partner countries, COM(2003) 262final/2, Bruxelles, 26 May 2003.
  • [3] Ibid.
  • [4] ExxonMobile, The Outlook for Energy: a View to 2040, 2012, available at http://corporate.exxonmobil.com/en/energy/energy-outlook.
  • [5] C. Frappi, “EU Energy security policy and Azerbaijan", in C. Frappi, G. Pashayeva, (eds.), The EU and eastern partnership: common framework or wider opportunity? EU-Azerbaijani perspectives on cooperation, Milano, Egea, 2013, p. 48.
  • [6] 5 International Energy Agency, Worl Energy Outlook 2013, OECD/IEA, Paris, 2013, p. 55.
  • [7] Azerbaijan, Kazakhstan and Turkmenistan jointly posses a share of 2.2% and 10.5% of ttal oil and gas worldproved reserves. BP, Statistical Review of World Energy, Pureprint Group Limited, London, June 2013, pp. 6,20.
  • [8] European Commission, Regional Strategy Paper for Assistance to Central Asia for the period 2007-2013,2007; European Commission, “An EU Energy Security and Solidarity Action Plan”, Second Strategic EnergyReview, cOm(2008) 781 final, Bruxelles, 13 November 2008.
  • [9] Areas of cooperation include oil and gas, electricity, renewable energy and energy efficiency. For more on theprogramme see http://www.inogate.org/index.php?option=com_content&view=article&id=46&Itemid=72&lang=en.
  • [10] European Commission (2010).
  • [11] Delegation of the EU to Ukraine (2010), TRACECA, “EU Co-operation News”, no. 50, 22 April 2010.
  • [12] G.H. Oettinger, Remarks of European Commissioner for Energy, VI Kazenergy Eurasian Forum, Astana, 4October 2011, p. 3.
  • [13] Ibid.
  • [14] European Community (2007).
  • [15] European Commission (2008), p. 4.
  • [16] G. Oettinger, (2011).
  • [17] Ibid.
  • [18] IHS CERA, Caspian Development Corporation, Final Implementation Report, Cambridge, December 2010.
  • [19] Delegation of the EU to Ukraine (2010).
  • [20] European Commission, Extension of the major European trans-European transport axes to the neighbouringcountries. Guidelines for transport in Europe and neighbouring regions, COM(2007) 32 final, Bruxelles, 31January 2007.
  • [21] European Community 2007.
  • [22] Council of the European Union 2012b.
  • [23] European Commission, (2007a).
  • [24] C. Frappi, (2013), p. 44
  • [25] European Commission, On security of energy supply and international cooperation -"The EU Energy Policy:Engaging with Partners beyond Our Borders”, COM(2011) 539 final, Bruxelles, 7 Sptember 2011.
  • [26] European Commission, (2008).
  • [27] EIA, Overview of oil and natural gas in the Caspian Sea region, US Energy Information Administration, 26August 2013.
  • [28] European Commission, (2008).
 
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