Energy Issues of the Caspian

Some have viewed recent Russian energy infrastructure announcements in Central Asia and the Black Sea and a Turkish-Iranian agreement on energy production and transit as part of a new “Great Game,” pitting the United States and Europe against Russia or Iran for control of the Caspian Sea region’s vast oil and gas reserves. Like the Cold War, however, the United States believes that the “Great Game” is a relic of the past.

America’s aim in this region remains unchanged: to ensure reliable, long-term flows of oil and natural gas from the Caspian region to European and global markets. Reliability requires sustained investment and diversified supplies and routes – a point emphasized by G8 leaders when they “strongly reaffirmed” the St. Petersburg Global Energy Security Principles at the Heiligendamm Summit. These principles include commitments to open, transparent, and competitive energy markets. The United States is working with our friends in Europe and the Caspian region toward these goals, including a pledge between the U.S and EC at this year’s U.S.-EU Summit to increase diversification of oil and gas supplies and transit routes .

Supporting these efforts, I have led U.S. delegations to Kazakhstan, Turkmenistan, Azerbaijan, Georgia, and Turkey, and to an International Energy Agency conference, on new sources and routes of natural gas and oil supplies across the Caspian. It is clear that both energy consumers and producers in Eurasia strongly desire increased diversification. Russia’s reputation for reliability has been tarnished by gas disruptions and explosions that cut supplies to Ukraine, Azerbaijan, Belarus, Georgia, and Armenia. Iran meanwhile, has defied the international community and United Nations with its continued pursuit of a nuclear weapons capability and has been a notoriously unreliable energy supplier. Caspian producers recognize that it is in their economic security interests to diversify their gas sales beyond one or two partners.

This desire for increased diversification has heralded the next phase of Caspian energy development, building on over a decade of U.S. support for public-private partnerships that resulted in several world-class projects. Last summer saw the opening of the Baku-Tbilisi-Ceyhan (BTC) pipeline, which links oil fields in the South Caspian with Turkey’s port of Ceyhan. BTC set a new standard for energy transport, providing a commercially viable and environmentally sound way for Caspian oil to reach global markets free from monopoly pressure and geographic chokepoints. Paralleling BTC is the South Caucasus Gas Pipeline (SCGP), which will pump gas from Azerbaijan’s Shah Deniz field to Georgia and Turkey.

Future Caspian development will include projects to expand the SCGP, boost gas production in Azerbaijan, and support cross-Caspian oil and gas flows. To aid these efforts, Azerbaijani Foreign Minister Mammadyarov and I recently presided over the signing of a $1.7 million U.S.-funded feasibility study to examine cross-Caspian oil and gas export options. Turkey and Greece are finishing the first phase of the Turkey-Greece-Italy pipeline, which will bring Azerbaijani gas to Greece and eventually to Italy. Investors from across Europe are working with the European Commission to develop the “Nabucco” pipeline, which would transport gas from the Caspian region across Turkey and the Eastern Balkans to Vienna.

As the nations of Eurasia consider energy development, lessons emerge from the past decade of Caspian experience. First, regional cooperation is essential. Azerbaijan, Georgia, and Turkey have set an admirable example in building common infrastructure to strengthen energy security. Second, producers, consumers, and transit countries all benefit from competition and multiple export options, which reduce transit costs and increase price competition. Third, transparency matters, and is a strong antidote against corruption, which stifles economic growth. Western firms have helped increase the transparency of Eurasian energy development, a welcome break from opaque methods of the past.

This is the vision we share with European and Caspian countries: reaping the benefits of more open competition so Eurasian energy markets can function efficiently, enhance diversification, drive economic growth, and help ensure the sovereignty and independence of the countries in the region. The United States will continue its strong partnership with nations of the region to make this vision a reality.