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US analyst Borut Grgic: â€œI think none of the options for providing gas to EU countries best meet Azerbaijan’s long-term interestsâ€

17 October 2011 09:39 (UTC +04:00)

- Azerbaijan and its international supporters are looking forward for the Eurovision Song Contest, which is going to be held in Baku. What role can this event play in Azerbaijanâ€™s path to Europe?

- Eurovision offers an opportunity for Azerbaijan to showcase itself to Europe. The musical contest draws the second biggest media following in Europe, the Euro Cup is the only pan-European event that does better. After Eurovision 2012 is over, Europe will know Azerbaijan. Now, it is up to Azerbaijan to prepare itself the best it can, and leave a good impression in the eyes and minds of the Europeans.

- What should be done to increase the EU role in Azerbaijan, for its citizens, as well as in terms of the Nagorno-Karabakh settlement process?

- I’ve said it before and I’ll say it again, Europe should assume ownership over the Nagorno-Karabakh conflict. By virtue of its relationship with both Azerbaijan and Armenia, Europe has the tools necessary to bring about a final resolution. It can use incentives such as visa facilitation and cooperation in education, social cohesion, economy etc. in order to extract a peace deal. It can also provide an interim administration and security force for NK. The question is political will - does Europe have the will to get engaged and assume this kind of responsibility? The second question is why should it? This second question we can answer, because the South Caucasus is a part of Europe and our bridge to the Caspian energy and to Central Asia. It is the issue of political will that I am not sure is there.

- As for the energy projects, Azerbaijan is actively building a policy to provide gas to EU countries but there are negotiations on several projects, such as Nabucco, Trans-Adriatic pipeline or Interconnector Turkey-Greece-Italy. Which one would Azerbaijan choose?

- I think none of the options best meet Azerbaijan’s long-term interests. You have to look at gas in two ways: as a purely commercial good which you sell at a profit, and as a tool for forging strong political relationships. Azerbaijan has significant natural gas deposits, and clearly, it will be able to sell to Europe a lot more gas than the 10 bcm presently earmarked to be sold from Shah Deniz. As such, Azeri strategy should really be two-fold. Phase one is about sending the Shah Deniz gas to South Eastern Europe. This gives Baku significant tie-in into the political processes of EU member states like Bulgaria, Romania and even Hungary, and increases Azerbaijan’s strategic relationship with the Balkan countries. The fact is, AZ with its gas can lock-up the SEE energy market. This means there will be long-term potential to set prices and keep the political dialogue going. Azerbaijan can use its natural gas in SEE to buy political insurance policy in a way. These countries will promote and advance Azerbaijan’s interest in the EU. To help it meet the phase one objectives, Baku should consider the new BP proposal SEEP. This is the project that ensures maximum Azeri gas delivery and exposure in SEE. And in phase two, Azerbaijan should build the liquefaction facility in Georgia. This will give it access to the Ukrainian market, Romanian (provided these two build re-gasification facilities), and to the natural gas spot market that is likely to grow in relevance over time.

- Although for years the giant Nabucco project has dominated the debate about building a crucial gas pipeline from the Caspian region to the EU, there’s still nothing concrete to show for the project. How would you explain why that happens?

- I don’t think there’s much support in the EU for Nabucco anymore, at least not for Nabucco as originally planed. The project’s cost estimates are ballooning and it’s still unclear where the gas would come from. Second, what Nabucco is offering is not necessarily what the suppliers are wiling to pay for. There’s a real disconnect between Nabucco’s sophisticated design (which also makes it so expensive) and the needs of the suppliers, which for now is getting the Shah Deniz gas out to the market. Even Commissioner Oettinger, has pointed out to the problem of cost associated with the Nabucco project, and is distancing himself from it.

- The closer the EU and Azerbaijan get, the unhappier Russia gets, and its officials even openly stated the Eastern Partnership program is against their interests. IS there a possibility that Russiaâ€™s position will delay the implementation of the projects or affect them anyhow negatively?

- It is hard to say what part of the Eastern Partnership Russia objects too. I don’t know frankly that Russia is a position to object to how Azerbaijan and the EU structure its relationship. What it can do, is increase its own cooperation with Azerbaijan and the other 5 countries of the Eastern Partnership group. If this partnership can be based on transparent and equal footing, which has a significant economic component to it, then I think everyone wins. But if Russia’s idea of cooperation is based on dictate, then this is not a relationship that is of value to Azerbaijan or any other country of the Eastern Partnership group. It is fundamental however, to separate Azerbaijan’s relationship with the EU and its relationship with Russia. The two are not necessarily related and they do not have to be mutually exclusive either.