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Interview by European Center for Energy Security Analysis (ECESA) Pt. 2.

LNG Industry,

As you know, Europeans with an interest in energy affairs get very excited when discussing the source of the gas they will be using in 5 - 10 years. We would like then to hear the view of an informed and independent outsider on this.

Question: You seem to be one of the few analysts who take the White Stream option seriously. You say it is the project most likely to have unhindered development. While it is true that White Stream does not have enemy, it does not seem to have powerful friends either. Who do you think is ready to back White Stream?

Answer: The EU backs White Stream. An EU-funded study in the Trans-European Networks (TEN) framework has demonstrated White Stream’s feasibility from the standpoint of market, economic, commercial, technical, and legal considerations. The EU officially includes White Stream in its “Southern Corridor” strategy for Caspian Sea energy. White Stream’s first stage calls for only 8 billion m3/yr and can be developed using gas from Azerbaijan alone. Turkmenistan and Kazakhstan also wish to participate in White Stream although they have not taken public steps in this direction. The reason why they have not taken such steps is that they do not wish to offend Russia for small increments of exports to Europe. What is necessary is a strategic energy alliance between the EU and these countries together, on a larger scale: a motivated tectonic shift in the geo-economic space, that will give these countries of Central Asia not only the necessary rhetorical assurances but also a practical timeline that is realised in stages, building confidence through step-by-step progress towards the agreed yet open-ended mutually beneficial goals.

Question: It is clear that with Nabucco and the emergence of Iraq as a major oil and gas producer, Turkey will become a regional energy hub and this is raising eyebrows in American conservative circles and increasingly so among Europeans who oppose Turkeys accession to the EU. How do you think this will play out? Is there a correlation between this and projects like White Stream or the recent Azerbaijan-Georgia-Romania LNG venture, which could decrease Europe’s dependence on Turkey?

Answer: These connections made at the political level have relatively little to do with current energy questions. Recall that Turkey declined to join the European Energy Community. The current problem in Turkey, rather than these long-term hypothetical considerations, is the potentially very anti-democratic constitutional reforms that appear set to be put to popular referendum. I have addressed this topic at slightly greater length in another article on “EU Uncritical of Turkish Constitution Plan” That having been said, White Stream and other trans-Black Sea projects are good sense and have little to do with “cutting off” Turkey. Rather, they seek to decrease Europe’s dependence on Turkey as a transit country; however, Europe does not treat Russia in the same manner. One can only conclude that the EU willfully blinds itself to the energy alliance between Ankara and Moscow now in effect.

Question: Let us move east to the Caucasus and Central Asia. Recently, two major events unhinged the former Soviet space (the Moscow bombings and the coup in Kyrgyzstan). Are they likely to affect regional energy developments? Could an escalation of violence in North Caucasus get to the point where it affects oil and gas exploration in the Russian Caspian Sea sector or the pipelines connecting Russia with Georgia, Armenia or Azerbaijan? If so, what would be the most likely effect? Could Kyrgyz political situation trigger instability in its resource-rich neighbors?

Answer: These two events are unlikely to affect regional energy developments. Violence in the North Caucasus will affect the Russian Caspian Sea sector exploration only if it threatens the integrity of Dagestan as a subject of the Russian Federation; Moscow is unlikely to permit this to occur. The situation in Kyrgyzstan has no implications for energy issues on the Eurasian scale.

Question: How is Russia reacting to China’s expanding influence in Central Asia? Are those two major regional players going to compete for the control of Central Asian natural resources or should we expect an entente between the two? What could the consequences for Europe be in either case?

Answer: The earlier apparent “entente” between Russia and China gives way to greater apparent competition, but the prospect of a bilateral co-operation, which would run counter to the interests of third parties, is not excluded. Notwithstanding this, the consequences for Europe are potentially positive, if Europe knows how to draw benefit from the situation and is able to do so. In particular, the major energy exporters in Central Asia and the South Caucasus wish to diversify their exports. They seek political “cover” from Europe to do so, in order not to antagonise Russia and China, on whom they must also depend. It follows that Europe must take bold, strategic, and public steps, going beyond mere declarations, in order to realise its energy security interests in Central Eurasia. An example would be to create the Caspian Development Corporation, proposed by the European Commission in its 2nd Strategic Energy Review, with a real and effective institutional design that would not only make it the pro-active intermediator between Central Asian supply and European demand that it is intended to be, but also give it the means and authority to expand the scope of its own responsibilities in keeping with the dynamic development of events.

Question: It is almost cliché to underscore the growing strength of China in Central Asia and point at the People’s Republic as the most likely winner of the Great Game in the long run. Is this plausible or are the capabilities of Beijing in the region being overstated?

Answer: China is one of the few “players” in the “game” that has the political capacity to think in long-term strategic perspective about energy matters. Its ability to define its interests and act in favour of their realisation should not be underestimated.

Author: Robert Cutler

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