ASSA-Irada,
4, March 2008

Baku and Ankara are facing differences over the price for Azerbaijani gas to be exported to world markets through Turkey.

Turkey is seeking concessions on the price for gas produced from the country's major offshore gas-condensate field Shahdaniz to be transported via the NABUCCO pipeline, a route crossing Turkish territory and the Balkans and by-passing Russia.

US Deputy Assistant Secretary of State Matthew Bryza who arrived in Azerbaijan Tuesday said Baku and Ankara should iron out the discrepancies.

He added, however, that two models were applied across Europe with regard to setting transit fees and both countries' positions were fair.

A Turkish energy executive said Azerbaijan has yet to decide whether or not Shahdaniz gas will be exported via NABUCCO.

The director of Turkish BOTAS company's overseas projects, Emre Engur, said Azerbaijani state oil company SOCAR and other Shahdaniz project partners have yet to pass a specific decision.

"Where will the gas go - to Europe, elsewhere - or will it be used within Azerbaijan? This definitely has to be decided. If it is taken to European markets, Turkish territory will be used. In that case, we certainly want to secure reasonable profits for ourselves," Engur said.

At the same time, the BOTAS executive said no trade talks were under way at this point. He said, however, that if Azerbaijan uses the NABUCCO pipeline, it should make concessions to Turkey on the sales price.

"Europe is 3,000 kilometers away from Azerbaijan, while Turkey is just 700-800 kilometers away. Buying gas for European prices is unacceptable for us," Engur said. Analyst Ilham Shaban said Turkey's stance was understandable. "This country is merely defending its national interests and seeking a good fee for the transit of Azerbaijan's gas through its territory."

Azerbaijan is not inclined to elaborate on the issue. SOCAR said the country had already stated its plans concerning the NABUCCO project on the level of its political leadership and "had no intention to speculate on technical matters".

Shaban said the United States' worries over the NABUCCO project that emerged in the past weeks were reasonable, as Russia had already developed the rival South Stream project to take Central Asian and Russian gas to European markets.

"The NABUCCO project is under a threat and it could come off the agenda altogether if some more time is lost," the analyst said.

The West-backed NABUCCO project envisions building a $6 billion, 3,300-km pipeline by 2012 to pump gas from the Caspian region and Central Asia to Europe. NABUCCO aims to help European countries diversify supplies of energy and reduce dependence on Russian gas.

The Shahdaniz field launched production in 2006. The field holds estimated reserves of 1.2 trillion cubic meters of gas. The resources are used both to meet domestic demand and for exports. The parties to the Shahdaniz Production Sharing Agreement are: BP (operator - 25.5%), Statoil (25.5%), Azerbaijan's state oil company SOCAR (10%), Russian giant LUKoil (10%), NICO (10%), Total (10%), and TPAO (9%).