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Nabucco-South Stream Whose Side Is Luck On?

June, 2010

Caspian Basin is at least as important as the Middle East when natural gas resources are taken into

consideration. As seen in Chart 1, this region comes second after the Gulf region when considering the

natural gas resource that the region holds and therefore is a great economic potential with its natural gas

resources . This chart clearly stresses the strategic importance of regional cooperation for Turkey.

Chart 1: Natural Gas Production for Countries in Caspian Region (Billion cu ft)

Countries 2004 2005 2006 2007 2008

Azerbaijan 176,93 205,53 240,85 595,02 806,84

Kazakhstan 780,53 881,92 931,68 1.043,98 1.178,89

Turkmenistan 2.068,40 2.224,85 2.231,91 2.432,50 2.489,71

Russian Federation 22.386,18 23.664,58 24.222,56 24.173,12 24.377,94

TOTAL 25.412,05 26.976,88 27.627,00 28.244,62 28.853,38

Mete GOKNEL
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(35.3 cu.ft=1 cu.mt)

There are great distances between countries who produce and consume natural gas. One of the largest

importers of natural gas are USA, West European Countries and Asia Pacific Countries. On the other

hand, the largest exporters are Russian Federation, Middle East and North Africa Countries, Norway,

Mexico and Canada. England is going to be a neutral country until its current reserves are expired and will

be enlisted in the importers group according to North Sea reserves tendency to reduction. China and India,

which are displaying a fast industrial development, became two of the important importers and will raise

the competition in access to fossil fuels in near future.

The Anatolia region where the government of Republic of Turkey was established, for centuries served as

a bridge between east and west becaus of its geographical position. Because of its geographical position,

Turkey, who forms a natural energy bridge between east and west, is the most economical and reliable

passageway for taking Middle East and Caspian Basin energy resources out on international markets. This

land forms the center of Europe-Balkans-Eagean-Black Sea-Caucasia-Caspian Basin-Middle Asia-East

Mediterranean circle and holds importance on energy and security because of its central position.

The natural gas resources surrounding Anatolia can be summarized as:

- Caucasus and Caspian Basin; 57,0 trillion m3, 30% of world reserves,

- Middle East; 76 trillion m3 41% of world reserves,

Picture 1: RF-Caspian Basin-Europe Petrolleum and Natural gas Pipelines

Anatolia, named as "Fourth Main Supply Corridor" by the EU and the lands of Turkey is the most

convenient transition route for Caspian Basin and Middle East resources which hold the world's largest

natural gas reserves (Picture 2). When the transport units (pipelines) of this corridor are completed, an

amount of 80,0-100,0 billion m3/year (bcm) per year will be able to flow from east to west from the

Anatolia route.

Picture 2: Fourth Main Supply Corridor and Resources

Currently, here are the natural gas pipelines which pass and are planned to pass from Anatolian land

through Turkey;

- Russia Turkey West Natural Gas Pipeline-Active- (14,0 bcm)

- Blue Stream Natural Gas Pipeline-Active- (16,0 bcm)

- BTE/ Azerbaijan-Turkey DGBH-Active- (Shah Sea-6,6 bcm)

- Iran-Turkey DGBH-Active- (10,0 bcm)

- ITG/Turkey-Greece DGBH-Active-(currently 750,0 mmcm, plateau capacity 3,0 bcm)

- ITGI/Turkey-Greece-Italy DGBH project (3,0 bcm Greece, 8,0 bcm Italy)

- Iraq-Turkey DGBH project (16 bcm)


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- Eqypt-Turkey DGBH project (4 bcm)

- NABUCCO/ Turkey-Bulgaria-Romania-Hungary-Austria DGBH project (31,0 bcm)

- Blue Stream II DGBH project (16,0 afterwards 32,0 bcm)

- From Turkey's Black Sea exclusive economical region-EEZ-pass through South Stream DGBH project

(31,0 afterwards 63,0 bcm)

- Persian DGBH project; the pipeline which will transmit natural gas of Iran

Picture 3: NABUCCO Pipeline Project

Up to this point, for the NABUCCO project, the associate countries, especially the coordinator country

Austria and the competent body OMV did not carry on necessary studies for suppliment of resources to

pipelines and did not conduct enough lobby activities for the countries with resources.

RWE which joined as the sixth after the year 2008 operates in Turkmenistan. RWE, after negotiating with

Germany and Turkmenistan authorities in April, 2009, signed an agreement for general purposes which

allowed them to carry out researches, production and construction of the Caspian transtition pipeline in the

Caspian Sea natural gas area of 360 mi2 (932.400 Km2) and opened a RWE office in Ashkhabad in April,

2010 . However, on the date of 5 May 2010 the news were "RWE, a German company which is

negotiating natural gas suplement issue with Turkmenistan announced that they postponed the agreement

to be signed at the end of this year which was supposed to be signed in the first half of this year ."

Fourth Main Supply Corridor "Source Countries" positions can be summarized as;

- In the Caspian Basin, Turkmenistan and Uzbekistan which have large resources were left as "vacant" for

a long period, so in the framework of the agreements signed with Russian Federation (RF) and China,

current and possible new resources were assigned to these countries. The most important natural gas

resources of the project, Turkmenistan assigned almost all of its excess supply to RF until 2028 with an

agreement. On December 2007, RF signed an agreement with Turkmenistan and Kazakhstan for the

construction of a new RF natural gas pipeline with a capacity of 25,0 bcm which would cover the east

coast of Caspian Sea and connect with RF pipelines.

- 30,0 bcm of natural gas will be transfered and afterwards the capacity will be raised to 40,0 bcm.Turkmenistan-China pipeline stepped on 14 December 2009 with a capacity of 6,0 bcm and it is estimated

that the capacity will reach its full capacity by 2011. China National Petrolleum Company (CNPC), in

2008, signed production sharing agreements with Turkmenistan and Uzbekistan and gained the right of

search and produce in natural gas fields.

- Dovletabad-Serahs-Hangeran natural gas pipeline between Turkmenistan-Iran, which stepped in January

2010, has a natural gas transfer capacity of 12,0 bcm. In the first stage of transfer 6,0 bcm of natural gas

ingestion and the plateau capacity of 12,0 bcm is planned. Turkmenistan was selling 8,0 bcm natural gas to

Iran from the Krpece natural gas channel situated at the west side of the country. From both pipelines

20,0 bcm natural gas is transferred to Iran per year .

- As a result of the agreement signed between Trkmengaz and Gazprom on 22 December 2009,

Turkmenistan started to transfer 30,0 bcm natural gas to Russia.- On the other hand, Gaffney Cline & Associates-English Company reported in November 2008 that there

are 4,0-14,0 Trillion m3 of natural gas reserves in South Yolotan-Osman fields in Turkmenistan and this is

5 times bigger than the countries largest Dovletabad reserves which are the country's biggest natural gas

reserves. In 2004, same company also did evaluation studies on natural gas reserves but did not publish

any data . However, these reserves are not still fully proved .

- In the Middle East, Iran has the second largest natural gas reserves. To talk about "energy security of

supply" and "sustainability" in the geography is fooling around with ignoring such a reserve. Natural gas


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agreement with Iran presents great importance for accomplishing Nabucco and Fourth Main Supply

Corridor projects and to provide the energy Europe needs. Developing EU-Iran relations and business

connection with Iran will also flourish political relation with Iran and will provide political stability and

balance in the region. However, because of the enforcements by UN and especially the USA, prevents the

international capital to make any investments to Iran and the large resource is kept out.

- Because of the administrative and politic structure in Iraq, current situation of reserves and the obscurity

of the energy sector, the time for the international companies to start researchs and productions is also

uncertain.- Azerbaijan declared in various meetings that when they improve the "ahdeniz 2" field, forseen date2016, they would be able to transfer 8,0-11,0 bcm natural gas to the Nabucco route however, there has not

been any written promise or agreements.

- With the natural gas capacity of Egypt uncertain, established LNG condensation facility capacity and the

natural gas supplied to Syria and Jordan from the pipeline that reaches Syria from Jordan fills the current

manufacture capacity of Egypt.

As a source to Nabucco, because of the reasons showed above, except from Azerbaijan, which has limited

resources, to be able to reach the project capacity of 31 bcm, the free resources and the access route (trans

Caspian/trans Iran) should be examined and also, the resources ofTurkmenistan together with the

resources of Iran and Iraq should be used. Nabucco project cannot be initiated without the Azerbaijani gasand apart from that if Turkmenistan, Iran or/and Iraq gas are not put upon then the "Project" will be born

dead.

Another subject is the deadline program declared for Nabucco. According to the deadline program, the 1st

stage of the 1st round will step in 2014 and if Azerbaijan is the first country to receive natural gas from

this route and that Azerbaijan declared that ahdeniz 2 project will be completed in 2016 then it seems atthe first stage, the routes of BOTA A.. of Turkey will be used.

The second deficiency of the project ignored is that the connection of the pipelines to the countries was not

forseen both in the project and in the manufacturing cost (Picture 3). Even though the resources of

Caucasus, Caspian Basin, Middle East, and Gulf is enough to maintain the capacity of "Nabucco" which is31,0 bcm, it is even enough to maintain the capacity of "Fourth Main Supply Corridor" (80-100,0 bcm)

(Picture 4), the main problem here is to produce the resources and then take them to the market.

Picture 4: Nabucco Natural Gas Route Supplies

Azerbaijan Link; currently 42 inches 780 Km BTE (Baku-Tbilisi-Erzurum) route's capacity is 21-22 bcm

at maximum with additional compressors. Presently, the capacity of this route is filled because of the

agreement with Turkey that provides 6,6 bcm, and the ITGI route that supplies 11,0 bcm to Greece and

Italy. To be able to receive gas from "ahdeniz 2" field, construction of a new pipeline is needed. Turkmenistan Link; For the Trans-Caspian pipeline system, which starts from Trkmenba, a total of

1100 Km of pipeline with the 280 Km Caspian Sea transition. In a situation where the Caspian transition isnot possible, the length of Trans-Iran route is 2000 Km.

The length of the pipeline which will transfer Iran's gas to Turkish border from "South Pars" is 1800 Km.

Iraq natural gas fields connection; The length of the pipelines that will connect Al Mansuriyah,

Kahaskem-Al Ahmar, Akkas, Siba fields to Turkish border vary from 400,0 to 800,0 Km. The length of a

pipeline which will connect to the main pipeline at Ankara-Ahiboz on Turkish borders is 750-800 Km.

Because of the fact that the uncertainity of who will undertake the project and financing and how is the

lack of technical and financial prediction of the project. If the Trans-Caspian route is used to reach


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Turkmenistan gas, which is the shortest path, then the total lenght of the project would be 4500 Km and

would need a 11,0-12,0 billion Euros of investment. Where and how to find funds for a project that lacks

of planning and access to resources is the project's most important matter with the resource problem.

In order to resolve the deficiencies mentioned above Turkey has to play a more active role in the "Nabucco

Gas Pipeline International Gmbh". Turkey has to show leadership in relations with Azerbaijan,

Turkmenistan and especially with Iran.

RF Projects; RF, who does not want its regional energy resources to be left out in Nabucco and in similar

projects that will allow its resources to be used in international markets, especially on natural gas and also

wants to become the monopoly in primary energy market, is trying to prevent EU's efforts about reducing

the dependency on RF.

First of all, it enchained Turkmenistan's, which is Nabucco project's most important natural gas resource,

all gas surplus until 2028 with an agreement in 2003. Also, in December 2007, RF signed an agreement

with Turkmenistan and Kazakhstan for the construction of a new pipeline with a capacity of 25,0 bcm

which will pass through the east shore of Caspian Sea and which will be connected to the RF pipelines . In

order to connect this new pipeline, which is shown in Picture 5 with the color pink, there will be the

construction of a new pipeline with a 1700 Km of length for the connection of Aleksandrov Gay (RF) to

Turkmenistan's natural gas fields. The advantage of this route, which will switch on the current RF

pipelines after Aleksandrov Gay, is seen when the investment cost which is lower than Nabucco is

reflected to the gas price. However, this project will cause Europe to be increasingly interdependent to RF

and Gazprom, which is reaching the monopoly position as everyday passes, should not be ignored.

Picture 5: Turkmenistan-Azerbaijan-RF and Nabucco Pipeline Routes

Picture 6: South Stream Pipeline Route

In the South Stream Project, Russia will transmit its natural gas via pipeline that will reach Bulgaria fromthe bottom of the Black Sea and then with different routes to Italy and Central Europe. According to ENI

president there are two possible routes. These are South (Greece and Adriatic Sea) and North (Through

Romania and Hungary to Austria and North of Italy) routes.

Another route that supplies natural gas to Europe through Anatolia is "Blue Stream II". RF primarily

targets to transmit 16,0 bcm of natural gas and then 32 bcm of natural gas. This route will go through

Black Sea parallel to Current Blue Stream I and after reaching Turkey it will reach to Bulgaria paralel to

the current national routes.

Compared to an another project of RF "South Stream", this project more convenient both technically and

economically and the President of RF V. Putin at a visit to Italy stated that they have no concerns at allabout making this project happen and that this project will have positive contribution to RF, Italy and

Turkey. The extension of this project to Mediterranean and the construction of a LNG facility is being

planned.

EU and RF Projects; What is the Advantage?

The most important difference between Nabucco and South Stream is "possessiveness". On one hand

Nabucco is a project that belongs to the community thus having a multi- structure, on the other hand, the


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South Stream belongs only to Gazprom. Gazprom, which is generally supports the RF State policies, sees

this project as a project of prestige. Apart from the possessiveness situation of South Stream, we can name

Nabucco as abandoned because of its associates' relations with RF. All Nabucco associates have close

business connections with Gazprom, especially OMV and they all have contributions to the South Stream

Project.

However, South Stream has resource problems just like Nabucco. In order to be more economic, the

pipeline that will go through under the Black Sea, the capacity of the pipeline should not less than 30,0

bcm. The length of the Blue Stream I, which has the half of the capacity that South Stream has (16,0 bcm),

is 396 Km which 1/3 of South Stream.

Detail information on South Stream is given by Chart 2. Even though the accession to Europe markets

from Beregovaya, a city at the shore of Black Sea, is 3900 Km, the accession to the resources that will

supply the route necessitates the new investments on pipelines and natural gas fields (Picture 7).

Chart 2: South Stream Route and Distances for the Accession to Resources

Lengths of South Stream Pipelines Km

Black Sea and Adriatic Transitions 1200

Europe Routes 2700

Total 3900

Lengths of the Pipelines for the Distances for the Accession to Resources

Urengoy-Polyanskaya-Petrovsk-Frolovo Compressor 4070

Azerbaijan ahdeniz-Beregovaya 1350

Turkmenistan Yolotan/Osman Field Frolovo Compressor 3080

Yamal Field Black Sea (Beregovaya) 2 routes 3200

New Pipelines

Seas (Black Sea and Adriatic) 1000


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Land (Europe Routes) 2700

Yamal Field Black Sea 2 routes 6400

New Caspian Route 1700

Total 11800

Picture 7: Nabucco, South Stream Pipeline Routes and Accession to Resources

Picture 8: RF Natural Gas Production Chart (2001-2011)

Chart 3: Yamal Field Enhancement Plan

Years 2011 2015 2020 2025 2030

Projected Natural Gas Production, bcm 8 75-115 135-175 200-250 310-360

Yamal field's distance to Bovanenko-Ukhta is 1100 Km, with the continuation of the route to Ukhta-

Kazan-Frolovo and reaching to Black Sea requires a 3200 Km of a pipeline. For the connection of

Stokman field to the nearest pipeline in Volkhov, construction of a 600 Km of sea pipeline and a 1300 Km

of land pipeline is required. On the other hand, RF comprises the 30% of the 139,0 bcm burned gas in

2008 about the "gas flare" subject and the possibility of the addition of part of the gas to the system can

only be feasible if the pipelines are enhanced. Even this plan is not effective enough to store the capacities

of the new pipelines.

Picture 9: RF Main Natural Gas Fields and Pipelines

Picture 10: Yamal and Stokman Natural Gas Fields and Pipelines

Conclusion

In the past few years most talked projects, both the EU project Nabucco and the RF projects South Stream

and Blue Stream II have advantages and disadvantages. As known, when it comes to pipeline investments

the most important subject is the throughput agreement about the oil pipelines and when it comes to

natural gas routes the most important subject here is the gas sales agreement, which can be signed between


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either purchaser and salesman or supplier and market. These agreements is prerequisite for the

international relations, association facility, ascertain investors and recruitment of finance.

The Nabucco route -as the project- has more advantages in the fields whether it is gas supply or

expenditure than South Stream route.

Even though it is ahead when we talk about possessiveness, "South Stream" has huge problems about

resource and recruitment of high finance. However, GAZPROM has the power to overcome these

problems. Nevertheless, who would buy and at what cost they would buy natural gas from such a route

that has high investment cost is an another question that should be answered. On the other hand, the main

matter in hand about "Nabucco" is possessiveness and political position of EU.

Gazprom, to its "North Stream" project the investment of which started 9 May 2010 and has two parallel

routes, promised to provide at first stage (2012) 27,5 bcm of gas and then when the other route is complete

in 2013, promised to provide gas at full capacity which is 55,0 bcm. As it is stated before, RF and

Gazprom cannot match the gas demand even though they have enough resources, RF and Gazprom -

controls 80% of RF resources-, so it is impossible for them to produce enough gas and reach full capacity

which is 120,0 bcm in a medium term for both "North Stream" and "South Stream". Consequently,

Gazprom can be able to support "Blue Stream II" which its resources will be enough and demands lower

investment rather than "South Stream". This situation will lead natural gas resources of Azerbaijan, Iraq

and Iran to west and will enable "Nabucco Project" to be implemented even though it is not finished in

planned time.

With all these matters in mind, it is proper to say that between the pipelines which will provide gas to

Europe, "Blue Strem-2" will be the prior project and then "Nabucco" will be finalised.

Turkey's support to Blue Stream II project will in her benefit. This project with its capacity of 16 bcm, is a

project which Gazprom can provide resource, it does not have possessiveness problem and can play

leading role on Turkey's involvement in "Energy trade".

The current Iraq-Turkey petrolleum pipelines (ITP) and the Baku-Tbillis-Ceyhan (BTC) petrolleum

pipeline with which the first petrolleum loading was made from Ceyhan on 23 Temmuz 2006, the natural

gas pipeline that will be connected to Greece and Italy through anakkale Channel, transfered by the

partially effective Azerbaijan ahdeniz field (ITGI), the route that will transmit RF's gas through Anatoliato Europe which is named as Blue Stream-2, extending Blue-Stream-2 route to Mediterranean and to build

a LNG condensation facility to Ceyhan, crude oil pipeline which will be implanted between Black Sea and

Mediterranean Sea and will transmit petrolleum that originates from RF and Caspian Basin, and pipeline

projects that will allow Azerbaijan, Iraq, Iran, Turkmenistan and Qatar to connect to Europe through

Turkey means that Turkey has the chance to be a "Energy Center".

Because of the reasons explained above, Turkey should not accept the transit country role that EU is trying

inject. Government of the Republic of Turkey should accept the "actor" role keeping in mind that to its

west there is a Europe in need of natural gas and also to its east there are countries who want to appeal

foreing investors and want use their resources which really provides advantage to Turkey. Turkey, because

of its location is an "energy corridor" and also a "physical centre" where energy resources are gathered.

Anatolia provides the best appropriate transition both technically and economically in tranportation and

also Caucasus-Caspian Basin-Middle East-Gulf resources are much more than the first three corridors

(Russian Federation-North Sea and North Africa) that still provides resources for Europe. Turkey, with a

geography at this importance, is above all a "physical energy centre" and deserves to be the "commercial


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centre" between the resource owners' and purchasers' relations.

1 http://www.bsec-organization.org2 EIA-Energy Information Administration,"Country Energy Statistics,

End 2008" den derlenmitir. www.eia.doe.gov3 UPI-United Press International- 14 April 2010, Ashgabat/Turkmenistan, "RWE Opens Branch in

Turkmenistan"

4 EnerjiVadisi, "Alman RWE ile Trkmenistan gaz anlamasn erteledi", 05 Mays 2010 aramba,www.enerjivadisi.com

5 TRT Haber, "Trkmenistan'dan ran'a Doalgaz", 06 Ocak 2010, www.trt.net.tr.6 The Wall Street Journal, "Turkmenistan Gas Field Is One of World's Largest", Thursday October 16,

2008 http://online.wsj.com

7 Eurasia Energy Obsever, "Turkmenistan overestimates its gas reserves", Oct 20, 2009,

http://www.eurasia-energy-observer.com

8 Nabucco Gas Pipeline International Gmbh, Status Report Q2 2009, www.nabucco-pipeline.com

9 "Russia Signs Central Asian Pipeline Deal", Judy Dempsey, 20 Dec. 2007-Berlin, International Herald

Tribune, www.iht.com

10 EEG-East European Gas Analysis, Mikhail Korchemkin, July 2008, www.eegas.com

11 NGDC-National Geophysical Data Center, "Global Gas Flaring Report", August 2009,

www.ngdc.noaa.gov12 North Stream Capacity 55,0 bcm, South Stream Capacity 65,0

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