Azerbaijan: Pumping oil and gas

Azerbaijan, with its natural resources, is vital to easing Russia's grip on the EU's energy – if new supply lines can get up and running. Mark Leftly reports from the capital, Baku, on the power plays that make this small country one of the most important in the world

Achill wind blows in from the Caspian Sea, bringing with it a faint but distinctive stench of oil. At the front of the brutalist Dom Soviet building, where once a statue of Lenin stood, the Azerbaijan flag ripples in time with each passing gust.

Baku, the capital of Azerbaijan, is booming: gross domestic product growth was more than 9 per cent last year; the hundreds of big, shiny commercial and residential buildings under construction are a result of its oil and gas wealth. Prince Andrew has visited the city often over the past six years, as he tries to promote British business interests in the region.

The capital is also at the centre of one of the most important geopolitical issues of modern times, the security of the European Union's energy supplies. Azerbaijan, with the BP-led Shah Deniz-2 field, is expected to be the major natural-gas supplier to the Nabucco pipeline, which will run 3,300km from Erzurum, Turkey, to Austria.

Nabucco is strategically vital as it will ease Russia's grip on the supply of natural gas into Europe. More than half of the EU's gas supply comes from Russia, Norway and Algeria. The need for alternative supplies intensified in 2009, when Gazprom, Russia's state energy company, cut off the gas to Ukraine on New Year's Day, following a row over price.

However, the Nabucco project, which is due to start construction next year and deliver gas three years later, is besieged by problems over cost projections, transit issues and even war.



In the Minister's lair

Natiq Aliyev, Azerbaijan's Industry and Energy Minister, stands by his country's flag in his ludicrously vast office in the Dom Soviet, now also known as Government House. He immediately sets out the EU's difficulties: "Europe's reserves of gas and oil in the North Sea especially have declined. Maybe in 10, 20 years if Europe has no more significant discoveries, the current reserves will be over."

The EU wants Nabucco, which has six shareholders including Germany's RWE and Hungary's Mol, to provide 31bn cubic metres of gas. It is estimated that the Shah Deniz field can only provide about a quarter of this amount.

The success of the pipeline, then, will be based on the participation of other gas-rich countries. "I think in a few years, when the Iran and Iraq situation is more stable politically, we will be able to implement the Nabucco project very speedily," says Aliyev, who is clear that the current timetable cannot be met.

"I don't think construction will be in one or two years. Countries like Iraq, Iran and Turkmenistan need to join this project." The project website admits that it would like to source gas from Iran "at a later point in time", while "it remains to be seen if also gas from Iraq will be linked with the Nabucco pipeline system".

Richard Morningstar, the US State Department's special envoy for Eurasian energy, seemed to rule out Iran's potential involvement last year, the argument over the Middle Eastern state's nuclear programme still too fierce. Iraq's prime minister, Nouri al-Maliki, has expressed interest in supplying gas.

One big hurdle was cleared last year when an intergovernmental agreement was signed in Ankara between Turkey and EU member states. The Turkish parliament recently ratified the document, which provides a legal framework for the construction and operation of the pipeline.

"It was a positive step ... not the last step," argues Aliyev. "We don't know yet who the territory [on which the pipeline runs] belongs to – are they government territories, the private sector's?" Aliyev points to the complexity of land negotiations for the shorter Baku-Tbilisi-Ceyhan pipeline. There were more than 1,000 landowners, including farmers and government bodies, involved in Azerbaijan alone.

There have also been disagreements between Azerbaijan and Turkey, some of which are politically motivated. Turkey's relations with Armenia have started to thaw, angering an Azerbaijan that is still formally at war with its neighbour over the disputed (and Armenian controlled) Nagorno-Karabakh region.

More directly, there is still some dispute over how much it will cost Azerbaijan to transit gas through Turkey. Taner Yildiz, Turkey's Energy Minister, did say earlier this month that his government had offered Azerbaijan transit fees at lower than market price, though the government in Baku remains unconvinced.

"How are we going to supply Nabucco if we have no right of transit in Turkey?" asks Aliyev, rhetorically.

Socar to go

Elshad Nassirov, the vice-president of the State Oil Company of Azerbaijan (Socar), is also a senior official of the country's football federation.

He smiles that it was his decision to commission the 3.5 metre bronze statue of Tofik Bakhramov, the Azerbaijani linesman who allowed Geoff Hurst's dubious second goal in the 1966 World Cup final, which now stands outside the national stadium.

The statue was partly a humorous gesture, built when England were drawn in the same 2006 World Cup qualifying group as Azerbaijan. However, this sense of humour has brought Nassirov all sorts of problems.

He joked at a conference last year that Azerbaijan could always send its gas east to China if the EU did not want it. Technically, this would require only a 180km pipeline across the Caspian Sea to Turkmenistan. But Nassirov insists that he was simply teasing his audience and not making a veiled threat. "For us, the priority is the European market," he says. "The very best thing about the European market is that it is a free market price, not dependent on a decision in Brussels."

Nassirov giggles that he didn't expect his joke to "ignite so many furious responses". However, the misinterpretation of his aside only goes to show just how worried European states are about where they get their gas from.

He points out that there are options for the EU besides Nabucco: the 520km Trans Adriatic pipeline, connecting Greece and Italy, and the $2.8bn Turkey-Greece-Italy scheme.

"They are cheaper, that's the positive side," says Nassirov. "The negative side is that they lack the EU support of Nabucco and their markets are not as diverse as Nabucco."

The EU does seem committed to the Nabucco project, but it will have to ensure Azerbaijan's support if it is to be more than a dry, empty pipeline.

Once again, this small country of nine million people finds itself one of the most important places on Earth. Truly the mecca of the energy industry, it was in Baku that the world's first oil well was drilled in 1848.

The second oil boom of the post-Soviet period has already given the country extraordinary wealth, the state oil fund having nearly $11bn of assets.

And now Azerbaijan is gaining political might, Baku's decisions are affecting the energy security of almost an entire continent.

Suggested Topics
News
The Banksy image in Folkestone before it was vandalised
people
Life and Style
tech

Sales of the tablet are set to fall again, say analysts

Sport
football West Brom vs Man Utd match report: Blind grabs point, but away form a problem for Van Gaal
Arts and Entertainment
Gotham is coming to UK shores this autumn
tvGotham, episode 2, review
PROMOTED VIDEO
News
i100
Arts and Entertainment
Bloom Time: Mira Sorvino
tvMira Sorvino on leaving movie roles for 'The Intruders'
News
First woman: Valentina Tereshkova
peopleNASA guinea pig Kate Greene thinks it might fly
News
Brian Harvey turned up at Downing Street today demanding to speak to the Prime Minister
news

Met Police confirm there was a 'minor disturbance' and that no-one was arrested

Arts and Entertainment
George Lucas poses with a group of Star Wars-inspired Disney characters at Disney's Hollywood Studios in 2010
films

George Lucas criticises the major Hollywood film studios

Voices
Chris Grayling, Justice Secretary: 'There are pressures which we are facing but there is not a crisis'
voices

Does Chris Grayling realise what a vague concept he is dealing with?

News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
A street vendor in Mexico City sells Dorilocos, which are topped with carrot, jimaca, cucumber, peanuts, pork rinds, spices and hot sauce
food + drink

Trend which requires crisps, a fork and a strong stomach is sweeping Mexico's streets

Life and Style
The charity Sands reports that 11 babies are stillborn everyday in the UK
lifeEleven babies are stillborn every day in the UK, yet no one speaks about this silent tragedy
News
Blackpool is expected to become one of the first places to introduce the Government’s controversial new Public Space Protection Orders (PSPOs)
news

Parties threaten resort's image as a family destination

Life and Style
Northern soul mecca the Wigan Casino
fashionGone are the punks, casuals, new romantics, ravers, skaters, crusties. Now all kids look the same
Life and Style
gaming

I Am Bread could actually be a challenging and nuanced title

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Customer Service Executive / Inbound Customer Service Agent

£18 - 23k + Benefits: Guru Careers: We are seeking a Customer Service Executiv...

ASP.NET Web Developer / .NET Developer

£60 - 65k + Benefits: Guru Careers: We are seeking a ASP.NET Web Developer / ....

Operational Risk Manager - Asset Management

£60,000 - £80,000: Saxton Leigh: Our client is an leading Asset Manager based...

Project Coordinator - 12 month contract

£27000 - £32000 Per Annum: Clearwater People Solutions Ltd: Our large charity ...

Day In a Page

Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Ranked seventh in world’s best tourist cities - not London, or Edinburgh, but Salisbury

Salisbury ranked seventh in world’s best tourist cities

The city is home to one of the four surviving copies of the Magna Carta, along with the world’s oldest mechanical clock
Let's talk about loss

We need to talk about loss

Secrecy and silence surround stillbirth
Will there be an all-female mission to Mars?

Will there be an all-female mission to Mars?

Women may be better suited to space travel than men are
Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

'They poured water on, then electrified me...'

If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
James Wharton: The former Guard now fighting discrimination against gay soldiers

The former Guard now fighting discrimination against gay soldiers

Life after the Army has brought new battles for the LGBT activist James Wharton
Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

Panic over Ebola threatens to infect the midterms

Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
Premier League coaches join the RSC to swap the tricks of their trades

Darling, you were fabulous! But offside...

Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

How to dress with authority

Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

New book on Ian Curtis sheds fresh light on the life of the late singer

'Joy Division were making art... Ian was for real' says author Jon Savage
Sean Harris: A rare interview with British acting's secret weapon

Sean Harris: A rare interview with British acting's secret weapon

The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

Tim Minchin interview

For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
Boris Johnson's boozing won't win the puritan vote

Boris's boozing won't win the puritan vote

Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

Tim Wheeler: Alzheimer's, memories and my dad

Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album