Azerbaijani negotiations with Turkey ran into problems over disputes about the amount of gas and the price at which the 8 billion cubic metres of gas for the first phase of Nabucco from Azerbaijan’s new Shah Deniz II gas development would go to Turkey. 127
The relationship between Turkey and Azerbaijan is complicated. Ironically, at the heart Turkish-Azerbaijani relations is another country, Armenia. At the core of Azerbaijani foreign policy is the frozen conflict of Nagorno-Karabakh, a landlocked mountainous region that both Armenia and Azerbaijan claim. The land lies in the territory of Azerbaijan, but has an ethnic Armenian majority, backed by neighboring Armenia. A brief war fought from 1988 to 1994 ended with a truce that froze the dispute. After Turkey announced plans to normalize relations with Armenia, the Azerbaijani-Turkish relation cooled, as Azerbaijan resents that the Turkish Armenian border was opened before a solution to the dispute was found.128
However, for other reasons including Turkey's refusal to recognize the massacre of Armenians in the Ottoman Empire in 1915 as a genocide relations between Armenia and Turkey have not yet been normalized completely. Turkey officially recognized the Republic of Armenia on 24 December 1991. Till now Turkey refuses to establish diplomatic relations with the Republic of Armenia. Though, on October 10, 2009 in Zurich the Ministers of Foreign Affairs of the two countries signed the “Protocol on the establishment of diplomatic relations between the Republic of Armenia and the Republic of Turkey” and “Protocol on development of relations between of the Republic of Armenia and the Republic of Turkey” Armenia has argued that Turkey has refused to normalize relations linking the ratification of the Protocols in the Grand National Assembly of Turkey to the settlement of the Nagorno-Karabakh issue.129
Baku has a strategic interest in getting access to the European gas market while Turkey wants to become a European gas hub. If the Nabucco project had worked out, it would have connected the EU directly to Azerbaijani gas. Moreover, investment is likely to flow in. However, again, Azerbaijan has subordinated economic interest to political interests. There are other arguments on the prizing of the gas, since Turkey already buys around 6 bcm of gas from the Shah Deniz I field cheaply and sells half of that to Greece for a much higher price. Azerbaijan wants more for the gas, but this is not at the core of the dispute.130.
This does not mean the relationship is completely frozen. Following a December 2011 contract between Turkey and Azerbaijan,the Azerbaijani-Turkish Trans-Anatolia Pipeline Project (TANAP), which will be 2,400 miles long with an estimated construction cost of $5 billion, and transport natural gas from Azerbaijan's Shah Deniz II fields in the Caspian Sea across Turkey was started. TANAP suggested that Nabucco continue -– in a shortened form –- its way from the Turkish-Bulgarian border into the Baumgarten continental hub near Vienna. The larger Nabucco project is now known as "Nabucco-West." Shah Deniz shareholders, including such big players as BP and Norway's Statoil, promote Nabucco-West be linked to the planned TANAP and apparently so does Turkey. Even as such negotiations have continued, Azerbaijan has opened negotiations with both Russia and Iran..131
Again Turkish policy must be seen in terms of the energy politics of the area. The key distinction is between the supply-side countries and the transit countries. Turkey's major fear as a transit country is that the proposed Nabucco pipeline taking gas from Azerbaijan to Austria will become a potential flashpoint. In fact, many of the negotiations with Turkey have centered around this key point. Thus, the Nabucco project came to an end in Baku. The reasons are quite obvious.
The Nabucco pipeline was to the advantage of Europe. Turkey did not have a major stake in it. Co operating with Azerbaijan, a supply-side country, was to the advantage of both. Although the TANAP and TAP pipelines will reduce Europe’s dependence on Russian supplies of gas, its capacity of 10 billion cubic metres of gas per year is only around one third of the amount Nabucco was to have carried. This equates to just 1 percent of Europe’s total demand. And while Nabucco was a joint European project, Turkey and Azerbaijan are behind TANAP and TAP.
The decision to abandon Nabucco was not taken in Brussels, but in Baku. According to reports in the Russian media, the Shah-Deniz II consortium invited representatives of the Nabucco and TAP projects to the Azerbaijani embassy in Budapest, where the decision in favour of TAP was announced132. It is important to note that in this consortium, BP has the biggest shares followed by TPAO and SOCAR; in many regional projects BP has taken leading role, and it is important to know that Azerbaijani government has a special relationship with BP. SOCAR is state company that carries out Azerbaijan’s energy policy in practice. Its role in regional projects cannot be seen different from Azerbaijan’s national interest.
Another element is the complexity of the regimes involved. Pipelines are expensive and are easy to block. Azerbaijan has a long standing relationship with Turkey, and yet, it was did not hesitate to freeze the relationship when a core issue the Nagorno-Karabakh issue came up. Turkey too plays a game of competing alliances. It has signed up for the Russian backed South Stream project, in spite of the fact that it too is a rival to the Nabucco pipeline.133
This strategy was evident in the case of the Nabucco pipeline. The United States and Azerbaijan signed a MoU in March 2007 calling for discussions on the proposed TGI pipeline and the EU backed Nabucco gas pipeline. The Americans argued that this pipeline would be more economical then routes through Russia, and in August 2007 the U.S. Trade Development Administration granted Azerbaijan 1.7 million to fund feasibility studies that would look into the viability of an oil and gas pipeline across the Caspian sea that would link to the BTC pipeline and the SCP. However, as this chapter has shown, the Nabucco pipeline however began to be delayed as Russia began to propose other pipelines that would reduce the effectiveness of the Nabucco pipeline. It also raised questions about the feasibility of supplies. Here Azerbaijan's strategy can be seen at work. Azerbaijani gas would be required for both pipeline. However, in case of excess capacity the only other source would be Iranian gas, which would then strenghten Iranian and Azerbaijani relations. However, in case this does not work out Azerbaijan also hinted at the existence of gas reserves off the Capsian sea. The US supported this. IN March 2008 Deputy Assistant Secretary Matthew J. Bryza said that „“we now believe that as an official U.S. Government view “Azerbaijan has enough gas to fill TGI, to launch Nabucco, and perhaps even to fill Nabucco,“134
This provoked a reaction from Russia. In May 2007 President Putin signed an agreement with the presidents of Turkmenistan and Kazakhistan to transport gas from Turkmen and Kazakh gas to Russia, in reaction to the Nabucco pipeline from Turkey to Austria.135
Thus, the EU and the United States were supporting two gas pipelines, one from Turkey to Greece and Italy, called TGI, and the second from Turkey across Bulgaria, Romania, and Hungary and into Austria, known as Nabucco. Access to Azerbaijani gas supplies is particularly important. If the upstream investment in the Shah Deniz field can be accelerated, significant quantities of gas could flow from Azerbaijan to Europe in a very short time.
The expectation was for Azerbaijan to start sending small volumes of gas to Greece by the end of 2008, and within a decade, Azerbaijan could ex-port one-third of the amount that Russia currently sends to Europe. At the core of this was the diversification of gas pipelines. The TGI and the Nabucco pipelines were examples of Azerbaijan reaching out to the West. The Russian reaction, which included an attempt to agree that Gazprom would supply the Nabucco pipeline, shows how successful the strategy of diversification of gas supplies had become. Azerbaijan had the support of the EU, the United States, and Russia was trying to take conciliatory measures. The Russian attempt was opposed by the West.136 When the South Stream announced, Putin visited his counterparts in countries along the Nabucco route.137 Russia also lobbied Hungary to terminate the pipeline on its territory rather than in Austria as the original Nabucco project had envisaged. As Hungary recieved 77 percent of its gas imports and 97 percent of its oil imports from Russia it was easier to put pressure on Hungary.
Azerbaijan's playing off rivals against each other was evident in the case of Nabucco project. The Nabucco project is dead, but not Azerbaijan's influence in it. For this it is key to understand the distinction that Azerbaijan makes. The Nabucco as a pan European project is dead, but it lives on in a limited form. Thus, Azerbaijan's Shah Deniz II gas producers consortium will continue to supply gas to the Nabucco project now known as the Nabucco-West project. Moreover, Azerbaijan has also supported alternative pipelines in tune with its strategy to use its gas and energy sources as leverage in international relations. Following a December 2011 contract between Turkey and Azerbaijan, a new rival for Nabucco emerged: the Azerbaijani-Turkish Trans-Anatolia Pipeline Project (TANAP). The proposed TANAP would be 2,400 miles long with an estimated construction cost of $5 billion. It is expected to transit natural gas from Azerbaijan's Shah Deniz II fields in the Caspian Sea across Turkey. TANAP suggested that Nabucco continue -– in a shortened form –- its way from the Turkish-Bulgarian border into the Baumgarten continental hub near Vienna. The larger Nabucco project then started to be referred to as "Nabucco-West." Shah Deniz shareholders, including such big players as BP and Norway's Statoil, promote Nabucco-West be linked to the planned TANAP and apparently so does Turkey.138
Again, in the broader context, Azerbaijan does not lose. What the Nabucco project aims at is to bypass Russia. For the EU the main benefit of Nabucco is that it will give access to a „“completely new source of gas“ from the Capsian region.139 When one considers this as its ultimate aim Azerbaijan's position is secure whatever the route. The gas will come from Azerbaijan. Alternative pipelines means that Azerbaijan makes links with all the countries, especially the powerful players such as Russia, Turkey and the EU. At the same time, as the United States supports the pipeline for geo political reasons, Azerbaijan can also count on Western support.
With the start of Shah Deniz’s second phase in 2014-15, Azerbaijan will be able to double production to about 40 billion cubic meters. That means it will become valuable to European players and also attract an estimated 20 billion dollars in investment. The more investment the more Azerbaijan's position becomes valuable.140 Again, it fulfills the broader aims of Azerbaijani foreign policy.