Caspian: Presidential Summit To Explore Gas Options

(AFP) Gurbanguly Berdymukhammedov was expected to arrive in Baku for the first visit by a sitting Turkmen president since 1996, highlighting recent fence mending between two capitals that had almost no contact just a few years ago.

Berdymukhammedov's meeting with Azerbaijani President Ilham Aliyev is being regarded as a major event.

The main topic on the agenda is energy export routes for supplies of Caspian Basin natural gas, which guarantees that many interested parties will be watching to see what these two Caspian states plan to do with their valuable gas resources.

Specifically, their talks are expected to focus on the Nabucco project and trans-Caspian pipeline -- routes that could export tens of billions of dollars' worth of gas to the heart of Europe and lessen dependence on supplies from Russia.

Negotiations about such a route started more than a decade ago, but there has been little progress because Baku and Ashgabat have suffered the worst bilateral ties of the five Caspian countries, which include Russia, Iran, and Kazakhstan. That situation was due in part to poor personal ties between the late former presidents of both countries, Saparmurat Niyazov in Turkmenistan and Ilham Aliev's father, Heydar Aliyev, in Azerbaijan.

Both men were "if you like, remnants of the Soviet Union, [who] couldn't stand each other," says John MacLeod, a senior editor at the London-based Institute for War and Peace Reporting (IWPR). "Aliyev was a very strong character, and Niyazov was...an eccentric, to say the least. And that personal animosity made an already difficult relationship even worse -- to the point where there was effectively no diplomatic relationship between the two countries."

The coming talks will take up the topic of ownership of several gas and oil fields in the Caspian Sea that each country continues to claim as its own. The fields have been a major point of contention between the two countries for years, and the frosty ties between the two former leaders only aggravated the issue.

'Making Things Better'

Chary Ihaniyazov, a former Turkmen diplomat now living in Germany, tells RFE/RL's Turkmen Service that the time has come for the two countries to resolve the ownership issue of the Caspian fields.

"Understand that that discussion is not about some petty monetary sum -- the talks are about billions [of dollars] because we are talking about oil deposits," Ihaniyazov says. "And if we cannot resolve the questions [of ownership] today, tomorrow it will be even more difficult to resolve them."

Nonetheless, leadership changes in both countries have at least made the possibility of resolving these issues realistic. Berdymukhammedov, who returns home on May 20, took over after Niyazov's death in late 2006. And Aliyev, the Azerbaijani president since 2003, has shown that problems of the past can be forgotten and resolved.

"In the course of this year, 2008, that diplomatic activity has been stepped up so there have been numerous meetings of economic commissions, ministers, and deputy ministers of those countries, and diplomatic relations in terms of the presence of embassies has been fully restored," MacLeod says. "Azerbaijan owed Turkmenistan some money for fuel supplies from the early '90s. That's now been sorted out, there's going to be some sort of repayment. They're talking about an investment protection arrangement, which will be signed during this forthcoming visit. But more important than that, there is a kind of common agreement, unspoken agreement to make things better."

The current price of natural gas on world markets provides an economic incentive to a Turkmen-Azerbaijani partnership. The likelihood that price will continue to increase makes the business of selling gas a lucrative proposition. The problem is Turkmenistan is not connected to many gas-export pipelines.

Most pipelines carrying Turkmen gas belong to Russia's Gazprom.

Iran has a relatively modest pipeline connection with Turkmenistan and China is funding the construction of long pipeline to carry Turkmen gas via Kazakhstan to China that optimistically will start operation in 2009.

Going West?

Westward gas exports would require a pipeline spanning the Caspian Sea to connect Azerbaijan and Turkmenistan.

"And of course, it would be a good export route for Turkmenistan through Azerbaijan, of course, and through the southern Caucasus I would say, to the Western world -- the route through the Caspian Sea, through the southern Caucasus and Turkey and the Black Sea basin to Europe," says Azer Hasret, an Azerbaijani political analyst.

That route could dovetail with Nabucco, a proposed pipeline backed by the European Union that would take Caspian gas from the Caucasus all the way to Austria.

Nabucco "presupposes that Caspian and Middle Eastern gas could be pumped through Turkey and the Balkans to Central Europe," says Jennifer DeLay, a consultant for Newsbase, which publishes the "FSU Oil & Gas Monitor." "In order for that happen, though, there had to be a way of getting the gas from the Caspian to Turkey. For Azerbaijan that was easy -- they already had a pipeline plan in place: the South Caucasus Pipeline for Shah Deniz gas. Turkmenistan, however, did not have a direct connection."

While the Turkmen and Azerbaijani presidents' talks could raise prospects for a trans-Caspian pipeline, the project's history points up some of the pitfalls of doing business in the region, including dealing with the whims of leaders like Niyazov.

"It was originally a project that Turkmenistan was mostly involved in, and they put together a deal with Shell and Bechtel and they were planning to build a pipeline across the Caspian that was supposed to go to Baku; and there it would hook up with another gas pipeline that the Azerbaijanis were planning to build," DeLay says. "The pipeline deal ended up getting derailed in 2000. Shell backed out because basically they got into a dispute with Turkmenistan's former president, Niyazov, over the terms of the deal. Niyazov essentially decided that Shell wasn't offering enough money and began changing the terms of the deal and asking them for more money. Shell said, 'We don't think this is worth it,' and they backed out."

A new pipeline plan would be of interest to many international businesses, so the potential for investment is high. But as DeLay notes, the European Union supports the pipeline project for more than economic reasons.

"The European Union has been very concerned recently about overdependence on Russian gas and a few supply interruptions that happened in 2006-07 have heightened that concern," DeLay says. "The buzzword in Brussels therefore has been 'supply diversification,' and they are looking for ways to reduce their dependence on any one supplier -- Russia, in particular. Nabucco and other projects that offer access to Caspian gas are therefore seen as a way to meet that goal of diversification."

Turkmenistan has already pledged to supply Europe with some 10 billion cubic meters of gas next year. But a trans-Caspian pipeline route connected to the proposed Nabucco pipeline could greatly augment those gas exports to Europe.

RFE/RL's Turkmen and Azerbaijani services contributed to this report