Since energy resources were first used as a political weapon back in the 1980s until now, energy security issues have been high on the political agenda in major capitals around the world. The resolving of those issues in particular became of paramount priority for European consumers of Russian natural gas, including those sharing the Black Sea shores.
Various diversification projects have been discussed in this regard: the almost forgotten White Stream, the politically motivated South Stream and the nicely crafted but still theoretical Nabucco pipeline. All of them were designed to carry Russian or Caspian gas through on-shore or underwater pipelines from east to west and yet all of them are still on paper, although for different reasons.
In recent months quite unexpected developments have taken place around the Black Sea. First, meeting in Baku in September of last year, Azerbaijani President Ilham Aliyev, Georgian President Mikheil Saakashvili and Romanian President Traian Basescu as well as Hungarian Prime Minister Viktor Orban announced the launching of a liquefied natural gas (LNG) project. Designated as the Azerbaijan-Georgia-Romania Interconnector (AGRI), and linking up with Hungary, it is to become the first-ever LNG project in the Black Sea.
Second, in December 2010 the government of Ukraine adopted a list of national projects and set its implementation as a priority. Number one among them is the construction of a re-gasification terminal near our major Black Sea port of Odessa.
Third, the most unexpected news came from Russia just now; there, as the Russian government announced on March 9, during the working meeting of Prime Minister Vladimir Putin with Energy Minister Sergei Shmatko, Mr. Putin suggested that the South Stream gas pipeline could be replaced with an LNG project with a terminal built on Russian territory. After a long battle against all odds for the South Stream, this is a real surprise.
To build an LNG terminal as well as a re-gasification one is an expensive enterprise with a price tag of somewhere between 1 and 2 billion euros. It is necessary to thoroughly consider where you get the gas, how you transfer it to consumers and who will pay for all of it. On the consumer side the initial idea that Qatar may supply some of the LNG sought by Ukraine, Romania and Hungary (and Bulgaria, by the way) is vanishing in view of the clear Turkish position that the congested Bosporus is not an option for LNG tankers moving back and forth.
So, gas must come from within the Black Sea borders. Azerbaijan is the number one option as a supplier and until recently it has been the only one. The AGRI project envisages five steps: transporting Azerbaijani gas by an existing pipeline westward across Georgia to the Black Sea port of Kulevi (an oil terminal owned by Azerbaijan); liquefying the gas at Kulevi; shipping the liquefied product by small tankers to Romania’s port of Constanta; re-gasifying and delivering the product into Romania’s pipeline system, partly for that country’s consumption; and delivering the remainder to Hungary for that country’s use, as well as for consumption in Austria and farther in the EU territory. Looks nice, but now that Russia has come to the picture with little doubts, Gazprom is completely able to build its own LNG plant. Even as an initial step, the idea of such a terminal can harm the development of the AGRI project and undermine the whole concept of gas supply diversification.
There is one more piece to this puzzle: Nothing can happen in the Black Sea without Turkey. So, it is reasonable to suggest that Turkey may explore the possibility of participating in the development of the LNG market within the Black Sea. It could be done in two ways. First, since Turkey is a key country for the Nabucco pipeline, which was given priority status by the EU, and has a commitment from Turkmenistan to supply gas for Nabucco, Turkey could consider delivering gas from the Nabucco route to the Black Sea shore, say in Trabzon or Samsun, and built its own LNG terminal there. But that would require a firm commitment from suppliers -- Azerbaijan and Turkmenistan -- to provide sufficient volumes of gas. Another option is to use gas from northern Iraq, delivering it to the Black Sea, to Samsun, with the same option to liquefy it there.
The question of whether all of these LNG projects around the Black Sea will become a reality is a very interesting one. Energy security for the littoral states depends on the existence of different suppliers of gas. The recent anti-monopoly legislation adopted by the European Commission (“unbundling”) creates problems for Gazprom owning and operating pipelines on EU territory, so it may seriously consider the LNG option. Re-gasification terminals make sense if there is enough gas; that means both participants from AGRI countries and Turkish companies have to think quickly.
And the best way to proceed is to work together -- LNG business in the Black Sea is much safer than underwater pipelines as well as a passage through the Bosporus. Caspian gas is of great demand in Europe, Ukraine included.