EU, Azerbaijan sign deal on gas supplies

BAKU – Azerbaijan and the European Union signed a deal Thursday that commits the Caspian country to supply Europe with "substantial volumes of gas" to implement the planned Southern Corridor of pipelines bypassing Russia, the EU said.

The EU-Azerbaijan declaration was signed in Baku by President Ilham Aliyev and European Commission President Jose Manuel Barroso.

A press release from the EU office in Baku said Barroso hailed the signing as a "major breakthrough" for the Southern Corridor, which includes the European-backed Nabucco project to reduce Europe's dependence on Russian energy.

“This new supply route will enhance the energy security of European consumers and businesses,” Barroso added.

Currently, several pipeline projects are competing to create the Southern Corridor. The EU has thrown its weight behind Nabucco, a 3,300-kilometer pipeline proposed by a consortium of firms led by Germany's RWE that could pump up to 31 billion cubic meters of gas a year from Baku all the way to Austria.

But in recent months, the 27-country bloc appears to have softened its position on what pipeline to support.

"For the EU it's decisive that a European project and a European firm gets awarded this contract," said Marlene Holzner, spokeswoman for EU Energy Commissioner Gunther Oettinger, who is in Baku with Barroso.

In its statement, the EU said that Azerbaijan will decide in the next months which project would get the award for Phase 2 of developing the huge Shahdaniz offshore field. The bloc hopes to have a commitment by March, the month a 200 million euro support package the EU has promised Nabucco expires if there's no investment decision. The EU's package would only cover a fraction of the pipeline's estimated 7.9 billion euro cost.

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In addition to Nabucco, there are a number of smaller pipeline projects. ITGI - backed by Italy's Edison, Greek gas company Depa and Turkey's Botas - would take gas from Turkey's border to southern Italy, while the Trans Adriatic Pipeline - proposed by Switzerland's EGL, Norway's Statoil and German E.ON AG - plans to go from Greece, across Albania and the Adriatic Sea to Italy.

Both ITGI and TAP would rely on Turkey's existing pipelines to get the Azerbaijani gas to EU markets.

Many energy experts have long questioned the feasibility of Nabucco, arguing that there is not enough gas in the Shahdaniz field to make the project commercially viable in the coming years and that getting gas from Turkmenistan or Iraq - two other potential suppliers for Nabucco - will be difficult.

"We do not see enough gas available for a pipeline as big as Nabucco before 2020," said Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies. "The small projects seem to me to be more the right size for what can be done this decade."

According to the institute's estimates, until at least 2018, Shahdaniz II would be able to ship a maximum of about 10 billion cubic meters of gas to Europe - less than a third of Nabucco's full capacity.

For the question whether the Southern Corridor will actually become a reality anytime soon, Thursday's agreement "is not really groundbreaking," claimed Alexandros Petersen, a Eurasia expert at the Atlantic Council is Washington. "The real story is what project of the Southern Corridor the Azerbaijanis are going to pick."

Moscow's disputes with Ukraine and Belarus have in the past cut off supplies to Central and Western Europe, making European policymakers keen to develop alternative routes to get their gas. Currently, the EU receives about 40 percent of its natural gas from Russia.