World's Energy

04-23-2009 - Upstream OnLine - Azerbaijan today raised fears that it may snub Western overtures for it to supply gas from the Shah Deniz development to the proposed Nabucco pipeline in retaliation over Turkey's moves to normalise its relations with Armenia. An Azeri official said that Turkey and Armenia risked raising tensions in the region if they went ahead with plans to normalise relations before a dispute over the Armenian-backed enclave of Nagorno-Karabakh in Azerbaijan was solved. "The opening of the Armenian-Turkish border cannot take place without a process to resolve the conflict over Nagorno-Karabakh," Reuters quoted Azeri Foreign Ministry spokesman Elkhan Polukhov as saying. "Opening the border could lead to tensions in the region and would be contradictory to the interests of Azerbaijan." Polukhov said it was "too early" to discuss what steps Azerbaijan might take in retaliation. Turkey shut its frontier with Armenia in 1993, in solidarity with fellow Muslim nation Azerbaijan after ethnic Armenian separatist forces took control of the enclave of Nagorno-Karabakh in a war that followed the collapse of the Soviet Union. Turkey and Armenia announced late last night they had agreed a framework for normalising their relations. Azerbaijan, a supplier of oil and gas to the West, fears losing leverage over Christian Armenia in the dispute if Turkey reopens the border with Armenia and restores full diplomatic relations. Azerbaijan is Europe's key hope for supplying gas for the proposed Nabucco pipeline that would run through Turkey and reduce Europe's energy dependence on Russia. Diplomats fear Baku could reject European overtures and instead sell the gas from phase two of the Shah Deniz field - due to come on stream by 2014 - to Russia for re-export. Polukhov earlier told Azeri news website Day.az that Armenian troops should be withdrawn from Nagorno-Karabakh "in parallel" with the normalisation of relations between Ankara and Yerevan. Since Armenia is landlocked and its border with Azerbaijan is also closed, the Turkish frontier is of key importance for trade routes to the West. "If Azerbaijan feels that Turkey is betraying them, then why would Azerbaijan not move in a Russian direction? And the Russians are offering to buy all their gas at European prices," Svante Cornell, research director at the Central Asia-Caucasus Institute, told Reuters. A senior Western diplomat, speaking to Reuters on condition of anonymity, said he did not expect Azerbaijan to renege on its existing energy contracts. However, he added: "But in terms of ongoing negotiations on Shaz Deniz II for example, then there I think the Azeris will have a very different perspective and keep doors open that were not very likely or not very attractive to the Azeris previously." Last month, Azeri state energy company Socar signed a memorandum with Russian gas export monopoly Gazprom on starting talks on Russia buying Azeri gas from 2010 for export to Europe.