Einullah MADATLI: Ukraine is buying the most expensive gas in the world, and this is unfair
The formal start of the liquefied natural gas (LNG) terminal construction in Odesa oblast, Ukraine, is slated for mid-November. The protracted talks will eventually launch yet another project, aimed at strengthening of the nation’s energy independence. As the LNG-terminal project curator Vitalii Demianiuk emphasized in an interview with The Day, Enagas S.A., a Spanish company, is likely to become the key investor into the construction of the LNG regasification terminal. “At the initial stage, Enagas could participate in the project as the government’s major partner,” explained Demianiuk. In the terminal consortium the shares of Enagas and the Ukrainian government can appear as 75 and 25 percent, respectively. Later they are most likely to change, as the government is hoping to expand the circle of potential investors. Among other partners, who have displayed interest in the project, are such firms as KOGAS (South Korea), Excelerate Energy (US), and an unnamed Qatari company.
All good and well, but the game will only be worth the candle if Ukraine ensures gas supplies to this terminal. In other words, why build a highway if there are no cars to drive there? According to Demianiuk, at present gas supplies are being negotiated with eight companies, including Total (France), BP (UK), BG Group (UK), KOGAS, and Gas Natural (Spain). Surprisingly, the Azeri firm SOCAR is missing from the list of potential gas suppliers: experts consider gas transportation from Azerbaijan to be most profitable, given the short shipping distance and the absence of necessity to transport it by sea, through the Strait of Bosporus. Besides, Azerbaijan has already repeatedly suggested taking part in this project and supply 5 billion cubic meters of gas to Ukraine. How far have Ukraine and Azerbaijan progressed in the negotiations about gas supplies for the Ukrainian LNG terminal? When can gas from Azerbaijan be expected in Ukraine? What are Ukraine’s chances to become a participant of the new Azerbaijan-Turkey gas pipeline TANAP, which is also dubbed Trans-Anatolian gas pipeline? Einullah MADATLI, the Ambassador of Azerbaijan to Ukraine, shared this and much more in a special interview to The Day.
How is the negotiating of Ukraine-Azerbaijan agreement on starting a joint venture for supplying liquefied natural gas to Ukraine’s LNG terminal going?
“The mutually beneficial Ukraine-Azerbaijan cooperation in energy sector is successfully continuing. Busy talks on high level are in progress, all the issues, related to the signing of the prospective agreement, are being settled. There is political will on the highest level for expanding and consolidating contacts with a view to supplying hydrocarbons to Ukraine. However, the suspense in the signing of the relevant documents between both presidents in 2011 resulted from Ukraine’s desire to consider other routes, apart from the LNG terminal, for shipping Azerbaijani gas. In particular, Ukraine’s participation in the promising TANAP project is also being extensively discussed.
“On the other hand, haste in the signing of this document is undesirable also because the shipping of Azerbaijani gas can actually begin only after the launching of Shah Deniz 2 deposit in 2017. The feasibility study of the LNG terminal project and the beginning of the actual construction will give an impetus to the process of the signing of the agreement on the joint Azerbaijan-Ukraine venture for liquefied gas supplies. The negotiations are still in progress. At the moment, I am not prepared to say when exactly they can be expected to finish, and when the relevant documents can be signed. But I believe that a lot of issues will have been settled prior to the visit of our esteemed President Ilham Aliyev to Ukraine. This visit may be expected early in 2013.”
Given all the official talks concerning Ukraine’s joining in the Azerbaijani-Turkish gas project TANAP, how interested can Azerbaijan be in supplying its liquefied gas to a Ukrainian LNG terminal?
“Azerbaijan does not mind supplying its gas to a LNG terminal. What was promised and declared at the Davos forum in a joint memorandum, signed by our countries (concerning supplies of five billion cubic meters of gas per year), will be fulfilled. Azerbaijan has always been known to honor its obligations, stated in treaties. Rovgan Abdullayev, president of SOCAR (State Oil Company of the Azerbaijan Republic) stated that the eventual choice of the route, by which Azerbaijani gas will be shipped to Europe, will depend on transit tariffs and gas prices in the region in question. If pumping gas turns out more profitable economically, why bother with a LNG terminal then? It is not a matter of politics, only that of economic expediency.
“Meanwhile, the Trans-Anatolian gas pipeline is a breakthrough, and it is very interesting both for Ukraine and Azerbaijan. Where is the interest? It opens the road to Europe. At the same time, it allows for gas transportation (without having to build additional infrastructure) to Ukraine. There already exists a gas pipeline from Turkey to Bulgaria, from Bulgaria to Romania, and from Romania to Ukraine. If it is possible to transport gas by a pipeline, why deliver liquefied gas by ships? All the more so that at the moment there is no liquefying terminal at the Georgian port of Kulevi.”
In the TANAP gas pipeline construction consortium, 80 percent belongs to Azerbaijan, and only 20 percent to Turkey. Ukraine’s Fuel and Energy Minister Yurii Boiko assures that Turkey has already agreed to our country’s participation in this project. What are Ukraine’s chances to become the third participant of the consortium?
“The Trans-Anatolian gas pipeline is open to all interested companies. Azerbaijan has 80 percent of the project. Keeping 51 percent of its share, Azerbaijan will share the remaining 29 percent with the interested governments and companies. If Ukraine, being a potentially major gas consumer, takes part in the TANAP construction consortium, we will only welcome it, as Azerbaijan is interested in Ukraine’s independence and energy security. Remarkably, Ukraine has already started negotiations concerning gas purchase from alternative sources, for instance, Germany.”
Do you see any prerequisites today for intensification of cooperation between Ukraine and Azerbaijan in energy sector, both at the mutual level and in various international formats?
“Of course, the intensification of our cooperation has prospects – for instance, within the framework of Sarmatia project. I would like to remind you that Azerbaijan, Poland, Ukraine, Georgia, and Lithuania have already agreed to complete the Odesa-Brody oil pipeline, reaching Plock and Gdansk in Poland. For this, they started a joint venture Sarmatia. The feasibility study for the project is ready, and at the moment the project is being prepared for implementation. A certain amount of work has already been completed on the territories of Poland and Ukraine, but so far no funds for the continuation of the construction have been raised. At present, Poland, Ukraine, and the EU are jointly discussing the reconstruction of the Odesa-Brody gas pipeline. I would assess the prospects of prolonging the pipeline as far as Gdansk and Plock as rather good, as all the participants are genuinely interested in its completion. This project can also have a different development: oil can be delivered by tankers to the Romanian port of Constanta, and from there to Ukraine through the Odesa-Brody pipeline.”
In 2010-11, Azerbaijani oil was extensively exported to Central European countries (Hungary and the Czech Republic) through the Odesa-Brody and Druzhba (Friendship) pipelines. Does Azerbaijan consider the further development of this direction as promising? Are there any targets for the amounts of oil shipping? Will the oil supply be growing?
“I believe that this is a promising direction. Moreover, in 2011 the oil pipeline was launched in reverse. The infrastructure is ready, and it needs to be used. This oil pipeline can receive oil via Romania’s pipeline and send it to Ukraine. So far, I do not know of any plans to increase the pumping of oil through the Odesa-Brody pipeline. In 2011 the volume of pumping stayed at the level of 2010. Why is that so? Because there exist certain obligations on the market, and there is no extra oil to transport. However, why not, should there be demand for it.”
What are Ukraine’s chances to defend its energy independence?
“In the Soviet time a lot of gas was produced in several regions of Ukraine, for instance, in the west. These gas fields are still there, they have not expired. They only need to be developed. Actually, this is what Ukraine is doing today. Ukraine has opted for exploring new, alternative ways of oil and gas production. For one, it has launched a project of reverse gas supply from Europe, together with Germany. On the other hand, the statements made by government officials and the ministry of fuel suggest that they are planning to increase the country’s own gas production. Ukraine has started developing of the Black Sea shelf deposits. International companies have begun non-conventional gas production. At the same time, Ukraine has reduced the consumption of Russian gas by half, comparing with 2011. There is talk of switching a part of power plants back to coal. And while all this begins to work and yield results, Azerbaijan will launch Shah Deniz 2, and will gradually start supplying its five billion cubic meters of gas. This is to say that Ukraine has good chances at defending its energy independence. It must do it, as today Ukraine is buying the most expensive gas in the world, which is unfair.”
What other sectors, besides energy, are Ukraine and Azerbaijan poised to implement joint projects?
“Our two countries have a lot in common, therefore, Azerbaijan-Ukraine relations should not only be confined to the energy sector. Today, more than 4,000 Azerbaijani students are studying in Ukraine, and a lot of scholars are working in your country. The Azeri diaspora is one of the most numerous. We need to start building community centers, expand the network of libraries and humanitarian organizations, which could promote mutual acquaintance with our countries’ cultures and histories. Also, we need to expand tourism and agriculture – for instance, viticulture. Ukraine and Azerbaijan have good prospects for trade in consumer goods. With a sensible approach, such cooperation could prove no less profitable than the energy sector.”
