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Borut Grgic, senior fellow at Atlantic Council and founding director of Institute for Strategic Studies: Azerbaijan’s gas is a source of direct competition

17 June 2010 11:15 (UTC +04:00)

Washington. Isabel Levine â€“ APA. APAâ€™s Washington correspondentâ€™s interview with Borut Grgic, senior fellow at the Washington DC based Atlantic Council and the founding director of the Institute for Strategic Studies

- Azerbaijan and Turkey have recently signed a package of agreements on gas supplies to Turkey. How would you comment on this agreement? Do you think that all the problems and concerns about Nabucco project will be solved?

- This is an important breakthrough for Azerbaijan and for Europe’s Southern energy corridor. For one, Azerbaijan managed to increase the price Turkey is paying for gas, secure new gas contracts with Turkey and agree on a transit fee turkey will charge. This enables Azeri gas to be bought and sold on the European market even if Nabucco is not built. Now that we know the price of Turkish transit, Azerbaijan can sell its gas to Balkan countries through the Turkey-Greece interconnector. These are all interesting markets for Azerbaijan, as their energy needs are rapidly expanding with economic growth, and they are increasing gas consumption as they begin to switch out of coal in line with EU commitments. Once present on the market with gas, Azerbaijani state oil and gas company, SOCAR will also have opportunities to enter the Balkan downstream market. These countries will eventually become part of the EU common market, which means SOCAR will have assets on the EU market. And it’s worth noting that these assets are still much cheaper than on the central or western EU markets. So it’s a deal for SOCAR either way.

- Russian Prime-minister Vladimir Putin said that there is no competition between the Azerbaijani and Russian supplies to Turkey. Is it really true or Russia may worry about enhancing of Azerbaijanâ€™s role as a gas supplier?

- When you have two suppliers, which supply the same good, there’s competition by default. But as long as Turkish energy market keeps expanding in line with Turkey’s growing economy, there’s ample room for both suppliers. The question is also weather Russia can supply more gas to Turkey. The answer is probably yes. And therefore, Azerbaijan’s gas is a source of direct competition. But then again, Turkey has a strategic and inherent interest in diversifying its gas intake. Turkey is already over dependent on Russia, so Ankara is keen to receive gas from Azerbaijan as this is in line with its energy security strategy. From the perspective of Turkey, diverse supply of gas is also good for price - it helps drive down the price closer to the market price. Finally, Turkey is also investing in LNG facilities, so in the future; it will also be able to buy gas from the spot market.

- US have always been pointing out that Turkey and Azerbaijan should encourage Turkmenistan to be involved into European gas supplying projects. What do you believe Turkey and Azerbaijan can do in this situation?

- The best Turkey and Azerbaijan can do is realize gas flow from Azerbaijan through Turkey to Europe. Once AZ gas is sold on the European market and Turkey shows it to be a reliable transit rout, Turkmenistan will soften its position and the trans-Caspian interconnector (or a commercially sound alternative) will be built.