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
people
Arts and Entertainment
Joel Edgerton, John Turturro and Christian Bale in Exodus: Gods and Kings
film Ridley Scott reveals truth behind casting decisions of Exodus
News
people
Sport
footballArsenal 2 Borussia Dortmund 0: And they can still top the group
PROMOTED VIDEO
Arts and Entertainment
An unseen image of Kurt Cobain at home featured in the film 'Kurt Cobain: Montage of Heck'
filmThe singers widow and former bandmates have approved project
News
Andy Murray with his girlfriend of nine years, Kim Sears who he has got engaged to
peopleWimbledon champion announces engagement to girlfriend Kim Sears
Arts and Entertainment
Jake Quickenden and Edwina Currie are joining the I'm A Celebrity...Get Me Out Of Here! camp
tv
Arts and Entertainment
George Mpanga has been shortlisted for the Critics’ Choice prize
music
News
Albert Camus (left) and Jean-Paul Sartre fell out in 1952 and did not speak again before Camus’s death
people
Arts and Entertainment
Roisin, James and Sanjay in the boardroom
tvReview: This week's failing project manager had to go
News
ebooksNow available in paperback
News
Ed Miliband visiting the Holocaust museum in Jerusalem. The Labour leader has spoken more openly of his heritage recently
newsAttacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But are the barbs more sinister?
Arts and Entertainment
'Felfie' (2014) by Alison Jackson
photographyNew exhibition shows how female creatives are changing the way women are portrayed in advertising
News
i100
Life and Style
Fright night: the board game dates back to at least 1890
life
Environment
The vaquita is being killed by fishermen trying to catch the totoaba fish, which is prized in China
environmentJust 97 of the 'world's cutest' sea mammals remain
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

Langley James : IT Support; Helpdesk, VMware; Manchester, £18k

£16000 - £18000 per annum: Langley James : IT Support; Helpdesk, VMware; Manch...

h2 Recruit Ltd: Business Development Manager - HRO - £70k+ ote

£35000 - £450000 per annum + £3k car, £70k ote: h2 Recruit Ltd: Do you want to...

Citifocus Ltd: Newly Qualified Accountants - Risk Mgmt

£Attractive Package: Citifocus Ltd: Prestigious financial institution seeks to...

Citifocus Ltd: Operational Risk Analyst

£Negotiable: Citifocus Ltd: Experienced operational risk professional with ban...

Day In a Page

Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

Sol Campbell cries foul at Labour's mansion tax

The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

Sarkozy returns

The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
Is the criticism of Ed Miliband a coded form of anti-Semitism?

Is the criticism of Miliband anti-Semitic?

Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

Ouija boards are the must-have festive gift

Simon Usborne explores the appeal - and mysteries - of a century-old parlour game
There's a Good Girl exhibition: How female creatives are changing the way women are portrayed in advertising

In pictures: There's a Good Girl exhibition

The new exhibition reveals how female creatives are changing the way women are portrayed in advertising
UK firm Biscuiteers is giving cookies a makeover - from advent calendars to doll's houses

UK firm Biscuiteers is giving cookies a makeover

It worked with cupcakes, doughnuts and macarons so no wonder someone decided to revamp the humble biscuit
Can SkySaga capture the Minecraft magic?

Can SkySaga capture the Minecraft magic?

It's no surprise that the building game born in Sweden in 2009 and now played by millions, has imitators keen to construct their own mega money-spinner
The King's School is way ahead of the pack when it comes to using the latest classroom technology

Staying connected: The King's School

The school in Cambridgeshire is ahead of the pack when it comes to using the latest classroom technology. Richard Garner discovers how teachers and pupils stay connected
Christmas 2014: 23 best women's perfumes

Festively fragrant: the best women's perfumes

Give a loved one a luxe fragrance this year or treat yourself to a sensual pick-me-up
Arsenal vs Borussia Dortmund: Alex Oxlade-Chamberlain celebrates century with trademark display of speed and intuition

Arsenal vs Borussia Dortmund

The Ox celebrates century with trademark display of speed and intuition
Billy Joe Saunders vs Chris Eubank Jnr: When two worlds collide

When two worlds collide

Traveller Billy Joe Saunders did not have a pampered public-school upbringing - unlike Saturday’s opponent Chris Eubank Jnr
Homeless Veterans Christmas Appeal: Drifting and forgotten - turning lives around for ex-soldiers

Homeless Veterans Christmas Appeal: Turning lives around for ex-soldiers

Our partner charities help veterans on the brink – and get them back on their feet
Putin’s far-right ambition: Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU

Putin’s far-right ambition

Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU
Tove Jansson's Moominland: What was the inspiration for Finland's most famous family?

Escape to Moominland

What was the inspiration for Finland's most famous family?