Southern Corridor, White Stream: the Strategic Rationale

White Stream, the proposed gas pipeline from Georgia to Romania on the seabed of the Black Sea, is intended to maximize European gas imports from Central Asia through the E.U.-initiated Southern Corridor. The Corridor grand design spans Azerbaijan, Georgia, Turkey, and –with White Stream– also a maritime route to European Union territory via the Black Sea. At its other end, the Southern Corridor is premised on a trans-Caspian link to Turkmenistan for massive European imports of Central Asian gas. In an accompanying initiative, the E.U. has created a Caspian Development Corporation, tasked with aggregating European gas purchase offers and presenting them to Central Asian producers.

One year ago E.U. officials integrated White Stream, alongside the Nabucco project and the Turkey-Greece-Italy Interconnector, in the planning work for the Southern Corridor. With a potential capacity in the range of 60 billion cubic meters (bcm) to 120 bcm per year, the Corridor is designed to transport far larger volumes of Central Asian gas than Nabucco’s capacity of 31 bcm per year could alone accommodate.

By integrating White Stream into the Corridor strategy, the E.U. has put an end to speculation about White Stream competing against Nabucco over Azerbaijani gas. At the same time, White Stream can become the answer to Turkey’s abuse of its role in the gas transit to Europe. With Ankara blocking gas transit from Azerbaijan and delaying the Nabucco project, de-monopolization of transit becomes urgent, in line with the E.U.’s diversification goals for sources and routes (EDM, October 29).

Turkey’s AKP government assumes that it holds a monopoly on the transit of Caspian gas to Europe. Ankara seems confident that it can exploit that situation, to the detriment of producer countries and consumer countries alike. Ankara refuses to conclude a European-standard agreement for gas transit from Azerbaijan to Europe. It also insists on buying up Azerbaijani gas at deeply discounted prices. Ankara’s tactics are holding up development at the multinational consortium’s Shah Deniz gas field, the designated source for the first phase of the Nabucco pipeline project. This situation in turn complicates and delays the implementation of Nabucco (EDM, October 21, 22).

The Turkish government persists with this conduct even after having signed the Nabucco inter-governmental agreement on July 13. Ankara’s behavior can only raise uncomfortable questions among potential investors and gas suppliers to the Nabucco and Southern Corridor projects. It also raises these projects’ risk profile from the standpoint of Central Asian and some Middle Eastern gas producing countries, which are weighing the chances of exporting gas to Europe through the Southern Corridor. From these countries’ perspective, and in light of Ankara’s behavior toward its close kin Azerbaijan, the Turkish gas transportation route must appear risky or unpredictable, as long as Ankara remains a transit monopolist.

White Stream’s maritime route provides an option for supplementing, if not replacing, the Turkish overland route for Azerbaijani and Central Asian gas to Europe. Complementarity, even short of replacement, can become an effective de-monopolization tool.

Azerbaijan is the irreplaceable country as a gas producer for Nabucco’s and the Corridor’s first stage. Azerbaijan will again be irreplaceable as a transit country for Central Asian gas, in those projects’ follow-up stages. The Turkish transit route, however, is not irreplaceable and White Stream can demonstrate that point.

Key to success in this strategy are the twin concepts of Big Gas and Effective Corridor, both presupposing a synergy of Nabucco and White Stream, along with other Southern Corridor components. This synergy, if achieved, would maximize pipeline capacity for Central Asian gas to Europe while ensuring a reliable, long-term transportation solution, reducing or minimizing political risks. These conditions are indispensable to gas producing countries and companies and the financial investors in the pipelines (White Stream Briefing Note, October 2009).

As E.U. planners realize, Nabucco alone cannot achieve those risk reduction goals. On the Central Asian side, the prospect of Big Gas is necessary –and almost certainly awaited there– for gas producing countries to conclude long-term supply contracts with Europe. The Central Asians would hardly risk confrontation with Russia for just a few bcm of gas to Europe that Nabucco’s second stage could annually accommodate. By contrast, in a Big Gas relationship with Europe, Central Asian producers could count on massive revenues, security of demand for their gas, and far-reaching emancipation from Russian Gazprom’s monopsony. All this could well induce Central Asian countries to view Europe as a preferred market and open their onshore gas resources for exploration and development by Western companies.

The concept of an Effective Corridor means removing transportation risks westward of the South Caucasus. Watching Ankara’s behavior, Central Asian countries and international companies can only doubt the reliability and predictability of the Turkish transit route to Europe. Even if the trans-Caspian link does materialize, gas producers cannot be certain of accessing Europe via Turkey on fair terms. Central Asian producers, European consumers, and the project companies will need diversification of the transportation routes from the South Caucasus to Europe. They must not depend on one single powerful transit country –Turkey in this case– any more than the Central Asians depend on Gazprom at present in order to access Europe.

Fulfillment of these prerequisites, relating to gas demand and transportation, is necessary for opening Western access to Central Asian gas. The Southern Corridor with its components, including White Stream, is premised on this strategy.