Our Analytics 28 february — 17:03

Why does Trump need Azerbaijani gas? (Our analysis)



A few days ago, the international community has learnt the answer to the question of how America sees the expansion of Russian natural gas to Europe. It was found that just as under Barack Obama this view is sharply negative.

The US intends to pursue a policy that implies the maximum limit of Russian natural gas deliveries to the Old World countries.

However, experts say that although positions of the new and old US administrations coincide, there is some difference: Barack Obama's gas standoff with Russia was a matter of politics and ideology, while for a businessman to the core Donald Trump it is a question of economic benefits to America.

Corridor to Europe

While experts were thinking and wondering what was coming after, the US Deputy Assistant Secretary of State for Energy Diplomacy, Robin Dunnigan set a new American riddle: Donald Trump's government will continue to support the gas project 'Southern Gas Corridor' designed to reduce Europe's dependence on Russian natural gas supplies.

Dunnigan at talks with President of Azerbaijan Ilham Aliyev

The main interested party is here in Azerbaijan, and it was not by chance that the statement by senior US administration official has been released by the press service of Azerbaijani President Ilham Aliyev, at the meeting with whom, in fact, Ms Dunnigan has marked the position of her country.

It is worth recalling that the 'Southern Gas Corridor' (SGC) will run for 3 thousand kilometres from Baku to the south of Italy. It will bring together several gas pipelines (Baku-Tbilisi-Erzurum gas pipeline, Trans-Anatolian and Trans-Adriatic pipelines) intended for supply of natural gas from the Caspian region to Europe bypassing Russia. First of all we are talking about the Azerbaijani gas from the field Shahdeniz-2.

Baku intends to supply Europe with 10 billion cubic metres of gas per year. But in the long term other suppliers will be connected to SGC, the most likely of which is considered Iran with its largest in the world (according to BP estimated) natural gas reserves.

'Our goal is to begin to supply the first gas to the markets in the next year, and if there are no artificial delays in some partner countries, we will complete this project (SGC) by 2020,' said Azerbaijani leader Ilham Aliyev.

Total project costs of SGC, including investments in the development of the second phase of Shahdeniz, are estimated at about $40 billion. It is clear that Azerbaijan alone will not pull such costs. Previously, its support for Southern Gas Corridor was expressed by the European Commission: Vice-President of this organisation Maroš Šefčovič called the project crucial for energy security of Europe.

Ilham Aliyev and Maroš Šefčovič

Now, the new US administration throught the lips of Robin Dunnigan clearly expresses it support for the project too. Washington has assured Baku in her person that it attaches special importance to the SGC project and intends to continue to provide full support.

To date, the implementation of this ambitious project involves Azerbaijan, Georgia, Turkey, Greece, Albania, Bulgaria, Croatia, Italy, USA, UK, as well as international financial institutions such as the World Bank, the European Bank for Reconstruction and Development, European Investment Bank, the International finance Corporation. This is a mighty force!

The game against Russia

We should mention, that the very same Robin Dunnigan took care of the energy security of the Old World countries under Barack Obama too. In particular, in February 2015, against the background of another Russian-Ukrainian energy conflict over winter supplies, she stressed the importance of diversification of energy supplies to Europe.

The tension in Russian-Ukrainian gas relations for the past many years raises stakeholders' concerns about the stability of the transit of Russian natural gas through Ukrainian territory. As Ms Dunnigan said, Russia may remain the main supplier of gas to the EU, but it needs to deliver fuel on a competitive basis.

The campaign against the domination of the Russian gas continues for several years. The United States under President Obama was trying to offer an alternative to Russian gas to Europe, which was to be fuel from Iran. To do this was envisaged the unrealised Nabucco gas pipeline, for which the resource base were to be the Iranian deposits. The SGC project, which, incidentally, also involves the subsequent expansion due to supplies from Iran, is much more realistic, and, apparently, Brussels and Washington stake on it now. Anyway, this project is developing, it has shareholders, who have already invested in the construction.

At the same time, the White House in conjunction with the EU leadership has made considerable efforts to torpedo the new Russian gas pipeline projects. Bulgaria banned all works on the Russian 'South Stream' precisely after a visit of an American delegation. Meanwhile, the 'South Stream' is nothing else but a pipe-rival to the aforementioned Nabucco, and Moscow was forced to give it up in late 2014 due to the European Commission demands. Washington and Brussels are now again trying to interfere with Russian pipe laying, in particular the Nord Stream 2. But it is one thing to disturb the Russian projects, and the other to lobby pipelines of the third countries.

Many experts in Moscow believe that Donald Trump's America will not play the role of a lobbyist of Azerbaijani or, for example, Iranian gas at the European market. USA under pragmatist Trump will not so much fight against Russia, as with all its forces try to develop exports to the EU of its own gas.

Last year, America has indeed begun to supply liquefied natural gas (LNG) to Europe, and is consistently increasing the volumes. In particular, over the past month and a half, four tankers with fuel from the United States have arrived in Europe: three shipments have been purchased by Spain, one by Portugal. For comparison: in the past year, the United States sent to Europe only three tankers in all 12 months.

Baku is a winner

However, Russia is not very worried about all of these energy-political situations. The reality is that in 2016 the Russian Gazprom delivered to the EU and Turkey nearly 180 billion cubic metres of natural gas. This is an absolute export record, which has been established under conditions of fierce political confrontation between Moscow and the West.

For now Moscow can afford to look at gas competitors on the European market from above. When will America establish its energy supplies to Europe on a permanent basis... Iranian gas in general may be fail to reach the Old World... SGC is a real project, but even when it comes to full capacity, it will be able to deliver to Europe 18 times less natural gas than Gazprom's pipelines.

In addition, for now the Russian gas have a significant competitive advantage - price. Despite the fact that the American gas production cost is lower than that of Russia, it is necessary to take into account the costs of liquefaction, transportation and regasification. With all these markups currently supplies from Russia are approximately 20% cheaper than from the US.

But in any case, Moscow is already feeling stress about its supplies of natural gas to Europe. Whereas Baku is in any case an obvious winner. After all, due to geopolitical confrontation between Russia and the West, Azerbaijan has received powerful allies to promote its gas projects in Europe - both political and financial. And today there is no doubt that these projects will be realised, whatever they think about it in Moscow.

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