Importance of the Caspian Countries for the European Union Energy Security

Abstract

When there is a lack of energy resources in the EU and it has to look for suppliers from other countries, Russia provides the world with most of the oil and gas. Diversification of energy resources is one of the objectives for the EU. The majority of international participants are interested in discovering the potential of the sea. However, the development of the region’s resources still faces many obstacles, such as lack of export pipelines, difficulties due to security of supply considerations, transit complications, political and legal considerations and market uncertainties. This study focuses on the countries of the former Soviet Union such as Uzbekistan, Kazakhstan and Turkmenistan in Central Asia, and Azerbaijan in Transcaucasia. One of the six priority areas of the EU in the energy infrastructure of - the Southern Energy Corridor (SEC), the purpose of which is to link the Caspian basin and potentially Middle Eastern gas to Europe. In the article, we analyzed the potential of the Caspian basin in terms of energy and its impact on the energy security of the European Union.

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International Journal of Energy Economics and Policy | Vol 8 • Issue 3 • 2018
150
International Journal of Energy Economics and
Policy
ISSN: 2146-4553
available at http: www.econjournals.com
International Journal of Energy Economics and Policy, 2018, 8(3), 150-159.
Importance of the Caspian Countries for the European Union
Energy Security
Aigerim Ibrayeva1, Dmitriy V. Sannikov2, Marsel A. Kadyrov3, Vladimir N. Zapevalov4,
Elnur L. Hasanov5*, Vladimir N. Zuev6
1L.N. Gumilyov Eurasian National University, Kazakhstan, 2Yaroslav Mudryi National Law University, Ukraine, 3Tyumen Industrial
University, Russian Federation, 4Tyumen Industrial University, Russian Federation, 5Ganja branch of Azerbaijan National Academy
of Sciences, Azerbaijan, 6National Research University Higher School of Economics, Russian Federation.
*Email: el-hasanov@mail.ru
ABSTRACT
When there is a lack of energy resources in the EU and it has to look for suppliers from other countries, Russia provides the world with most of the oil
and gas. Diversication of energy resources is one of the objectives for the EU. The majority of international participants are interested in discovering
the potential of the sea. However, the development of the region’s resources still faces many obstacles, such as lack of export pipelines, difculties
due to security of supply considerations, transit complications, political and legal considerations and market uncertainties. This study focuses on the
countries of the former Soviet Union such as Uzbekistan, Kazakhstan and Turkmenistan in Central Asia, and Azerbaijan in Transcaucasia. One of the
six priority areas of the EU in the energy infrastructure of - the Southern Energy Corridor (SEC), the purpose of which is to link the Caspian basin
and potentially Middle Eastern gas to Europe. In the article, we analyzed the potential of the Caspian basin in terms of energy and its impact on the
energy security of the European Union.
Keywords: Caspian Sea, Central Asia, European Union, Southern Corridor, Pipeline, Energy Security
JEL Classications: F52, H55, H56
1. INTRODUCTION
After the collapse of the Soviet Union in 1991, three states
were formed in Central Asia: Kazakhstan, Turkmenistan and
Uzbekistan. Their proved reserves of natural gas are 27.8 tcm
(trillion cubic meters), which is 13.3% of the total volume in the
world. According to the International Energy Agency (IEA), the
region will become an important exporter of the gas and the total
production will increase from 143 bcm (billion cubic meters)
in 2009 to 265 bcm (billion cubic meters) in 2035 (Gas Trade
Flows in Europe, 2010; Teleuyev et al., 2017). Table 1 presents
the Central Asian states proven reserves, production, consumption
and net exports in detail (British Petroleum, 2012). The Central
Asia countries seek to maximize their rich natural gas reserves.
Having inherited the Soviet pipeline network, they relied on
Russia for most of their gas exports to the west (Table 1, for
Central Asian exports by destination) (British Petroleum, 2012).
Russian dominance in the eld of gas transit and poor access
to alternative markets have established value for Central Asian
gas. Central Asian countries are trying to increase revenues from
gas exports. Despite the fact that pipelines transporting Central
Asian gas to distant markets should pass through several countries
with strategic interests, Central Asian countries are looking for
alternative pipeline projects that will diversify their transit routes
as well as export markets. There are four major powers striving
for potency in Central Asia: Europe and Turkey, led by the USA
in the West, Russia in the North, rapidly growing China in the
East and Iran seeking to become a regional power in the South.
Russia’s reaction to the political events in Ukraine in 2014, and
in particular its accession to the Crimea, military involvement in
the separatist movements in eastern Ukraine and the catastrophe
of the Malaysian airline MH17 caused a great comment on the
European dependence on the Russian energy sector in general
and, in particular, on the natural gas The price dispute, which led

Ibrayeva, et al.: Importance of the Caspian Countries for the European Union Energy Security
International Journal of Energy Economics and Policy | Vol 8 • Issue 3 • 2018 151
to the cessation of Russia’s supply to Ukraine in June 2014 and
the possibility of interruptions with gas supplies to Europe, has
led to resumption of appeals for the diversication of European
gas supplies and the reduction of Russian imports.
The Caspian is of central interest for European energy security,
although the supply chain from the region has been traditionally
kept under Russian Federation control. Today, the Caspian is also at
the crossroads between the great and contradictory energy interests
of the Russian Federation and Europe. In the last decade, the EU
has become increasingly ambitious in planning the oil pipelines
of the Caspian Sea, which exclude the territory of the Russian
Federation, and the project of the Nabucco pipeline has been for
many years at the heart of these strategic efforts.
The article argues that despite the serious tensions between the
geopolitical realities of the region, the EU was able to become
an important player in the eld of energy security of the region,
advancing its agenda, including the Nabucco geopolitical pipeline,
the ag ship of the SEC. EU-supported SEC builds upon the oil
and gas pipelines in order to prevent Russian monopoly over the
Caspian Basin supplies. If the SEC is possible then it is mainly
because of the path-dependent processes set off by the east-west
corridor, which inextricably connected the international position
of Azerbaijan and especially Georgia and Turkey transit role
between the Caspian Sea and Europe. Iran is the largest country in
the Middle East, capable of holding a serious international agenda.
Consequently, an amicable relationship with Tehran, who could
be convinced to act in the common interest of the region, would
be highly benecial for all parties involved (Crandall, 2006).
Iran has gone from being a consumer of foreign technology and a
pure exporter of oil to being an exporter of oil, gas and petroleum
products, a manufacturer of petroleum sector equipment as well
as a hub for energy connectivity in the region. The country has
pipelines that are connected with Turkmenistan and Turkey. The
EU’s demand of Caspian gas could be supplied through Iran.
This paper has two major aims: First to determine potential and
importance of the countries. Second, to examine the realistic
options for reducing European dependence on Russian gas. Further,
examines the alternative gas options for reducing dependence on
Russian gas; it also provides some idea of the possible supplies
through the pipelines and the likely competitiveness of Russian
versus alternative gas supplies. The analysis will be based on
a mixture of documentary analysis and a review of previous
literature. The documents are published by relevant factors,
such as the US Energy Information Administration (EIA) and
the International Energy Agency (IEA). These documents
provide necessary statistical information. This statistical data, in
combination with previous literature on the different countries’
energy policies will be instrumental to gain a full understanding
of the Caspian region’s energy security dynamics.
In the eld of energy security and the study of energy resources
it is not customary to employ a theoretically focused approach.
Instead, most academics have opted for a descriptive or historical
methodology, wherein a full description of the case at hand
informs the reader of a specic situation. Given the fact that
energy security is becoming an ever more important aspect of
international relations, it is worthwhile to consider integrating
theories of international relations (IR) within the energy security
eld (Cenaks, 2010). The question then remains which theory
would be best suited to analyze matters of energy security. This is
quite a complex matter, given the rather vast amount of theoretical
perspectives within international relations. It would require a
thorough discussion of each of these theories in the energy security
context to provide a solid answer to that question. For the purposes
of this paper, such a discussion is not feasible. However, we can
present some initial reections on arguably the two most dominant
IR theories: Realism and liberalism.
Realism is the oldest theory in international relations. Realists
argue that the international system is dened by anarchy, and there
is no central authority (Waltz, 1979).
Within that system states are sovereign and autonomous of each
other. By consequence, realist scholars have little faith in the
effectiveness of international institutions to contain the power of
sovereign states. The realist vision on the world then rests upon
four assumptions (Mearsheimer, 1994). Firstly, survival is the
principle goal of every state. This means that states will always
primarily make sure they can defend themselves from attacks, be
they of militarily (primarily) or economical nature. Secondly, states
are considered to be rational actors. They will always rationally
consider the best way to maximize their survival potential. Thirdly,
states all have some kind of military capacity and they do not
know exactly how their neighbors would behave, thus making the
world unpredictable and dangerous. Fourthly and lastly, the Great
Powers, which are the states with the most military and economic
might that dominate the international arena.
Liberalism (and its predecessor idealism) is the classical
contender of realism in IR. Its core assumption is that national
characteristics of states matter in international politics. This is
completely different from realism, which assumes that all states
have similar goals in the international arena. Instead liberalism
claims that a state’s ideological focus has a strong inuence on its
Table 1: Natural gas in Central Asia and Caspian Basin
Country Production bcm Consumption bcm Net exports bcm Proven reserves
bcm (%)
Azerbaijan 14.8 8.2 6.6 1.3 (0.6)
Kazakhstan 19.3 9.2 10.1 1.9 (0.9)
Turkmenistan 59.5 25.0 24.5 24.3 (11.7)
Uzbekistan 57.0 49.1 7.9 1.6 (0.8)
Total 135.8 83.3 42.5 27.8 (13.4)
Source: British Petroleum, 2012. Statistical Review of World energy

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International Journal of Energy Economics and Policy | Vol 8 • Issue 3 • 2018
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goals. Traditionally this argument has been used to differentiate
between liberal states and others. The democratic peace theory,
which claims that liberal states do not go to war with each other is
a prime example of this differentiation (Doyle, 1997). Moravcsik
has developed the liberal theory and claims it is based upon three
assumptions (Moravcsik, 1997). Firstly, individuals and private
groups, not states, are the most important actors in the international
arena. Secondly, states represent a part of the domestic society,
serving its interest. Thirdly, the combination of those preferences
in the international system determines the behavior of states. The
realist focus on balance of power and hegemony plays a secondary
role at best. Furthermore, even though survival may still be an
important goal, a state’s economic and ideological interests can
be equally important. Regarding the matter which theory is best
suited to analyze energy security issues, provide an interesting
perspective, that will largely be adopted in this paper as well (Luft
and Korin, 2009). They have attempted to integrate IR theory
in matters of energy security and argue in favor of realism over
liberalism. Political actors that belong to the liberal tradition (they
mention former U.S. president Jimmy Carter as a prime example)
claim that actors in the international arena are primarily interested
in prot maximization in the energy market. However, realists
argue that energy resources are not merely economic commodities,
but are key elements in state power (Cesnakas, 2010). More energy
resources equal more state power. That power is naturally affected
both by the state’s ability to extract and transport the resources,
and their global demand. As such, Luft and Korin claim that
resources such as oil and gas cannot be treated as merely economic
commodities, as long as those have key strategic value.
This paper is set clearly within the realist tradition. As such it
will focus primarily on the action of states within the Caspian
region and the power dynamics that come with energy security.
Energy resources are material objects that have a clear political
significance, which means that they belong very well in a
materialistic ontology and a positivistic epistemology. The analysis
that will follow is rmly based upon these assumptions.
1.1. Prole of the Caspian Basin, the Caspian Water
Plateau
The Caspian is the world’s largest enclosed or landlocked body
of (salty) water – approximately of the size of Germany and the
Netherlands combined. Geographical literature refers to this water
plateau as the sea, or world’s largest lake that covers an area of
386,400 km. The Caspian coastline shared by ve riparians (or
littoral) states (Bajrektarevic, 2015). Table 3 is described about
proved reserves of natural gas in the Caspian countries and it
shows average of barrels increasing by each year. Central Asian
countries and Azerbaijan proved oil reserves is increased from
1994 till 2014 (BP Statistical Review of World Energy, 2015).
2. MATERIALS, METHODS AND
DISCUSSION
The “Inner Circle” of the Caspian Basin consists of the ve littoral
(riparian) states, Russian Federation, Islamic Republic of Iran,
Azerbaijan, Kazakhstan, and Turkmenistan. They are could be
roughly divided the traditional (Russian Federation and Iran), and
the three newcomers (Azerbaijan, Kazakhstan and Turkmenistan).
2.1. Russian Federation
The Russian Federation controls the north-western shore of the
Caspian Sea and only a negligible part of its extensive energy
reserves appear to be located in the Caspian Basin. Therefore,
the Russian Federation has adopted a strategy of involvement in
the energy business of the other, better-endowed riparian states
by means of joint resource development (production revenues)
and granting access to the Russian oil and gas pipeline system
(transport revenues). The main players in this eld are state-owned
companies Gazprom, Rosneft, and Transneft as well as other large
private energy enterprises like Lukoil, Sibneft or Yukos (Crandall,
2006). From the 2000s the Russian Federation turned to bilateral
and plurilateral agreements with Caspian littoral countries to
secure its economic interests in the basin. Due to these efforts
agreed upon the division of the Northern part of the Caspian with
Azerbaijan and Kazakhstan, while still strongly the ve-party.
Although this agreement presents a good sign for the future, its
major downside is that it is completely dependent on the good
relations between littoral states and therefore dependent on the
current geopolitical realities of the Caspian. The top priority task
in Russia’s fuel and energy expansion is to create an integrated
water and fuel-energy complex in Central Asia (under Russian
management). One of the possible ways to carry out this task
is to include Tajikistan in the water-energy consortium being
created. Russia’s goal is clear: It wants to strengthen its position
as Turkmenistan’s main partner in the energy sector and, in so
doing, maintain control over the export of Turkmen gas. Today,
the growth rates of production, including those of gas export,
from the Central Asian countries is much higher than the rates
of modernizing and developing their gas transportation systems.
But the main gas artery from the region’s states to Russia-the
major gas Central Asia-Center pipeline – is currently operating
to its limit. This relates to all three gas transportation countries:
Turkmenistan, Uzbekistan and Kazakhstan. Regarding intra-
regional relations in general, Russia’s concerns about the inuence
of the EU and the US in the Caspian Basin have increased. As
for Iran, the historically adverse relations have improved in some
areas as the two powers still share a number of mutual interests in
the Caspian Basin, for instance their joint opposition to growing
Western interference in regional affairs.
2.2. Islamic Republic of Iran
Iran holds 16% of global proven gas reserves (Statistical Review
of World Energy, 2009). Total gas production in 2014 was 172.6
bcm, while domestic consumption stood at 117.6 bcm. More than a
third of domestic consumption is used for boosting oil production
by pumping gas into maturing oil elds. In 2009, natural gas had
a share of 57.9% of total energy supplies; oil was down at 40.8%.
Foreign investment is all blocked due to US bilateral sanctions
based on the Iran sanctions Act (1996), sanctions imposed by
the UN and the EU (Table 1) (Mangott, 2010). It is in Russia’s
vital interest that Iran does not turn into a competitor on the EU
gas markets. Iran is considered an attractive export route for oil
and gas between Central Asia and Europe, and for oil from both
Central Asia and Transcaucasia to the Persian Gulf. It already has

Ibrayeva, et al.: Importance of the Caspian Countries for the European Union Energy Security
International Journal of Energy Economics and Policy | Vol 8 • Issue 3 • 2018 153
a well-developed oil and gas infrastructure, including portions
of pipeline that could be used for the routes mentioned above
or for swaps. By some estimates, an Iranian route could prove
signicantly cheaper than other proposed pipelines. Foreign policy
priorities have been affected by its past dominance as well as the
religious ties with Azerbaijan, Kazakhstan and Turkmenistan. Of
the most concern are the Islamic Republic of Iran´ s relations with
Azerbaijan, hampered due to Azerbaijan´s westward cooperation
on energy matters (Dekmejian and Simonian, 2003).
Additionally, the ethnic Azeri minority makes up a quarter of Iran´s
population. An economically strong and independent Azerbaijan,
could potentially incite the Azeri population in Iran to start its
own nationalistic movement and threaten its territorial integrity.
Azerbaijan to rise any further as a global oil player might as well
be seen as Iran’s strategic goal (Croissant and Aras, 1999).
There are serious doubts about the viability of the proposed
Armenia–Georgia–Ukraine pipeline on economic and – following
Russia’s annexation of Crimea – geographical grounds. Aside from
these options, gas exports to Europe via Turkey using existing
infrastructure, seems the most feasible option prior to 2020.
Irrespective of the technical and geopolitical feasibility of these
proposed routes, the second major uncertainty over the export
of Iranian gas to Europe is the availability of sufcient gas for
export markets over and above Iran’s domestic requirements.
With the required investment and technology, Iran could increase
production capacity to around 210–230 bcm/year by 2018, but this
is expected to be mainly allocated to domestic and regional export
markets. After meeting growing domestic demand – expected
to reach 200–220 bcm/year before 2020 – and supplying gas
to the already contracted export markets of the neighboring
countries of Turkey (10 bcm/year), Iraq (10 bcm/year), and Oman
(5–10 bcm/year), any gas available for export to the rest of Europe
is expected to remain marginal prior to 2020.
Beyond 2020, depending on how fast Iran can develop the remaining
phases of the South Pars and other major discovered gas elds, the
country’s total production capacity could reach around 350 bcm/year
by 2030 (Hassanzadeh, 2014). It is only then that signicant exports
to Europe can be envisaged, provided that the required infrastructure
can be made available. Exports of around 10–20 bcm/year to Europe
through Turkey via the existing infrastructure are possible in the
2020s, but it is unrealistic to imagine more substantial volumes
becoming a reality until after 2030 (Hassanzadeh, 2014).
2.3. Azerbaijan
Azerbaijan’s total energy production has increased almost three-
fold from 27.9 million to 74.9 million oil equivalent mainly due to
oil and gas production. The country’s total energy consumption in
2009 was about 15.7 million tons, which means that a signicant
part of its production is exported.
Controlling the western side of the Caspian Sea, Azerbaijan holds
a crucial position between Central Asia and Europe. Azerbaijan
produced 41.7 million tons of oil in 2007. Heavily dependent
on the oil sector, the State Oil Company of Azerbaijan Republic
(SOCAR) was created to efciently benet from the abundance
of hydrocarbon resources in the respective sector of the Caspian
Sea (Aras et al., 2013).
The Shah Deniz Phase 2 project is expected to go into production
in late 2018, and to start exporting to Europe in late 2019. In
addition to Shah Deniz, there are several offshore Caspian elds
and exploration prospects that could increase Azerbaijan’s gas
production in the 2020s. One eld, Absheron, has been declared
commercial under a PSA (with Total as operator, GDF Suez, and
SOCAR); production is expected to start in 2021. SOCAR ofcials
have projected an increase in production to 40–45 bcm of sales gas
by 2025; this assumes 9–14 bcm/year of gas from new offshore
projects. (Scalability as Drawn’, Azerbaijan, 2012) We estimate
that 3–8 bcm/year of additional gas could become available for
export to Europe at some point in the 2020s.
2.4. Kazakhstan and Uzbekistan
Holding the greatest share of Caspian oil in its national sector,
Kazakhstan´s foreign policy is inuenced by its dependence on
Table 3: Oil – total proved reserves
Country At end 1994
Thousand million
barrels
At end 2004
Thousand million
barrels
At end 2013
Thousand
million barrels
At end 2014
Thousand million
Tones
Thousand
million
barrels
Share of
total (%)
R/P
ratio
Azerbaijan 1.2 7.0 7.0 1.0 7.0 0.4 22.6
Kazakhstan 5.3 9.0 30.0 3.9 30.0 1.8 48.3
Turkmenistan 0.5 0.6 0.5 0.1 0.6 6.9
Uzbekistan 0.3 0.6 0.6 0.1 0.6 24.3
Central Asia total 7.3 17.2 42.6 5.1 38.2 2.2 102.1
Source: BP Statistical Review of World Energy
Table 2: Natural gas exports from Central Asia and Caspian Basin
Exports to Azerbaijan Kazakhstan Turkmenistan Uzbekistan
Russia 1.4 11.5 10.1 2.2
Iran 0.4 - 10.2 -
China - - 14.3 -
Turkey 3.8 - - -
Others 1.7 0.1 - 2.0
Source: British Petroleum, 2012. Statistical Review of World energy

Ibrayeva, et al.: Importance of the Caspian Countries for the European Union Energy Security
International Journal of Energy Economics and Policy | Vol 8 • Issue 3 • 2018
154
Russian Federation as a primary energy transit route. Additionally,
the growing inow of FDI from China signals the rising importance
of cooperation with the east.
Uzbekistan is a major gas producer (50–60 bcm/year in recent
years), and Kazakhstan an expanding one (about 12 bcm/year in
recent years, likely to rise to 20–25 bcm/year in the 2020s). Most
Uzbek and Kazakh gas is consumed domestically; small quantities
(7–10 bcm/year from each) are exported to Russia; and both countries
have concluded framework agreements, and some contracts, with
China, providing for exports via the Turkmenistan–China pipeline,
which started in 2013 from Uzbekistan. It is possible that Uzbek
and Kazakh exports to Russia will fall in the 2020s, but there will
be calls on this gas from China and from their domestic markets.
There are essentially just two viable ways that Uzbek and Kazakh
gas could reach the European market. Namely, Kazakh gas could
be transported by pipeline across the Caspian Sea to Azerbaijan,
and thence to Europe.
Via Russia, via existing pipelines, to European destinations. (Such
sales were conducted, with the gas bought and resold by Gazprom
and other Russian companies, from the mid-1990s to 2009 (OIES
Paper, 2014).
2.5. Turkmenistan
The European Southern Corridor strategy, Turkmen gas could
come from Trans-Caspian pipeline, envisioned to transfer
Turkmeni gas to Azerbaijan via the Caspian Sea, where it could
easily connect to the pipelines heading for Europe. These plans also
effectively bypass both Russian Federation and Islamic Republic
of Iran, but their major are the bad relations between Turkmenistan
and Azerbaijan over the demarcation of the Caspian basin.
For Iran, a closer relationship with Turkmenistan promised useful
oil swap agreements and access to the potentially lucrative Turkish
natural gas market. The related further step of reaching Europe
through Turkey would have put both Iran and Turkmenistan on
the map as competitors to Gazprom. Iran considered, therefore,
the 6 BCM Korpedzhe (on the Caspian shore of Turkmenistan) to
Kurt-Kui line as a useful rst step. The line was funded by Iran,
with Turkmen debt to be repaid through gas deliveries. Still, the
line had immediate advantages for Iran. A new domestic line
linking gas elds in the south to the populous and industrial north-
west would have cost far more than the Korpedzhe to Kurt-Kui
pipeline (Kandiyoti, 2008). Since then Beijing has emerged as
Turkmenistan’s near monopolistic buyer-about 80% of Turkmen
gas exports are now directed toward China. If the Turkmen
authorities want to avoid total dependency on China, they will
have to reopen discussion with Europe, but such a push does
not appear likely to come either from Ashgabat or from Brussels
in short term (Maruelle and Mankoff, 2016). I assume that the
only likely Central Asian source for signicant gas exports to
Europe is Turkmenistan. With only Turkmenistan contributing
signicantly to any gas transport towards the EU, additional gas
from Azerbaijan will most likely have to ensure the necessary
capacity utilization and economies of scale in order to make the
EU’s tapping of Caspian resources economically viable (Table 4).
In 2011, the EU-27 imported about 83% of its crude oil, 64%
of natural gas and 47% of its coal demand (Directorate General
for Energy, 2013). Fossil fuel projections towards 2030 indicate
that gas demand is most likely to rise while oil consumption will
stagnate at the current high level (Europe’s Energy Position. Past
and present, 2008). So far, Russia is the EU’s most important
energy supplier. Russia’s share of EU gas oil, and coal imports
amount 34%, 33% and 26, 2% respectively. Norway and Libya,
the EU’s second and third largest supplier of oil, account for about
15 and 10%of imports. In the eld of gas, Norway and Algeria
contribute 31 and 14% to the EU’s demand (Gstol and Lannon,
2015). Though EU energy imports are likely to further diversify
as a consequence of increasing liqueed natural gas imports
from Africa and Middle East, additional political steps towards
diversication are necessary.
In the analysis on energy Import Dependency, which is made by
European commission, we can see and make comparison, how it
is increased from 1995 until 2014, it means that European Union
seeks the way to diversify its energy demand (Table 5).
An important conclusion from Table 6 is that for the three
groups of countries which are highly dependent on Russian gas,
demand is expected to increase by less than 7 bcm during the
period 2013–2030: In Central Europe by 5.2 bcm, in the Baltic
countries by 1.05 bcm, and in south-east Europe by 0.4 bcm.
In 2030, total demand for gas in countries highly dependent on
Russian gas in the Baltics and south-east Europe will be 19.3
bcm. In Central Europe, demand is much larger, particularly
in Poland (which has signicant domestic gas production and
an SCI which is signicantly lower than other countries in the
region).
2.5.1. Alternative sources of gas supply to Europe
In the early 1970s, European indigenous production covered most
of the region’s gas demand. By 2013, due to faster growth rates
of consumption and a decline in gas production since the early
2000s, it only accounted for around 57% of demand (Data for
OECD Europe in IEA Natural Gas, 2014). European production
is falling everywhere apart from Norway, and as a result, despite
slow demand growth expected up to 2030, Europe will become
sharply dependent on imports. Two countries represented 70%
of the indigenous production in 2013 – Norway: 109 bcm and
the Netherlands: 86 bcm. These countries are also the two main
sources of indigenous gas for the other European countries.
Production from the UK continental shelf (UKCS) is still crucial,
at about 38 bcm, but it only represents about half of the national
needs. Another 19 countries produced gas in 2013; this was used
by their national markets, except for Denmark which exported
small quantities. Table 6, shows scenarios for indigenous gas
production in Europe for 2015, 2020, and 2030. Production is
expected to decline from 282 bcm in 2013 to about 266 bcm
in 2015, mostly due to the limit imposed on production from
the Groningen eld in the Netherlands. By 2020, indigenous
production could decline by another 20 bcm as a result of sharper
decline in the Netherlands, UK, and Germany. By 2030, European
conventional gas production is expected to be about 172 bcm, a
reduction of 110 bcm compared with 2013 (Reducing European

Ibrayeva, et al.: Importance of the Caspian Countries for the European Union Energy Security
International Journal of Energy Economics and Policy | Vol 8 • Issue 3 • 2018 155
Dependence on Russian Gas: Distinguishing natural gas security
from geopolitics, 2014).
Table 7 shows, that the total is deeply dependent on the three largest
producers, which account for 82–84% of the total throughout
the period (Reducing European Dependence on Russian Gas:
Distinguishing natural gas security from geopolitics, 2014).
2.5.2. The EU’s South European gas corridor: Options for gas
supplies
The EU has been an active outside its borders in attempting to
diversify its import supply routes and strengthen its ties with non-
Russian suppliers in its neighborhood. This had led to a nascent
“energy diplomacy.” Already in 2008 the EU had announced a
strategy to open up new gas import routes from Central Asia, the
Caucasus and the Middle East – a project known as the Southern
Corridor (Dreyer and Stang, 2014). In June 2013, the Shah Deniz
consortium and its leading stakeholders (the State Oil Company
of Azerbaijan [SOCAR], BP, Statoil, Total, Lukoil, NICO and
TPAO, Turkey’s national energy company) concluded negotiations
that have lasted over a decade, approving the Trans-Adriatic
Pipeline (TAP) for the nal leg of a pipeline bringing gas from
the Shah Deniz eld in the Caspian Sea to European markets. The
consortium made a Final Investment Decision (FID) for stage 2
development of the Shah Deniz eld, triggering plans to expand
the South Caucasus Pipeline through Azerbaijan and Georgia,
construct the Trans-Anatolian Gas Pipeline (TANAP) across
Turkey and construct the TAP across Greece and Albania and into
Italy. The rst gas delivery to Europe (10 bcm/y) is scheduled for
2019 while plans to double this capacity are on the books. Another
6 bcm/y will go to Turkey (Atlantic Council, 2012).
In order to diversify EU gas supply, and to provide Caspian
suppliers with new export routes, several projects have been
studied, re-evaluated, scrapped and resurfaced for the Southern
Gas Corridor. The European Commission’s declared objective
remains to eventually supply 10% of European gas demand via an
enhanced Southern Gas Corridor, but the current scenario would
see the Corridor initially supply about 2% or 3% of Europe’s
demand. This may seem minor, but the countries receiving the
gas – from Bulgaria to Greece – are those that have the biggest
energy security concerns due to reliance on Russian gas (European
Commission, 2013). With British petrol committing its Shah Deniz
resources to the EU’s Southern Gas Corridor 10 billion cubic
meters of Azerbaijani gas will eventually nd its way to Europe
by 2018 (Turkmen Gas: Through Caspian Sea to Europe, 2012).
The source diversication provided by the Southern Gas Corridor
is not a panacea for European energy security but represents an
important step in expanding Europe’s energy frontiers towards
the Caucasus and potential future partners in Iraq, Turkmenistan
or Azerbaijan.
The Caspian and the Central Asian countries have a number of
options to diversify their transport routes as well as export markets.
While there is only the Turkmenistan–China pipeline to reach
eastwards, three routes extend from Central Asia to the West: Via
the Caspian Sea, via Iran, and via Russia.
Nabucco-West vs. TAP. After years of erce competition among
Europe’s energy giants, the developers of a major Azerbaijani
natural gas eld in the Caspian Sea recently picked the Trans-
Adriatic Pipeline (TAP) project over the Nabucco West project to
Table 4: Natural gas – total proved reserves
Country At end 1994
Thousand million
barrels
At end 2004
Thousand million
barrels
At end 2013
Thousand
million barrels
At end 2014
Thousand
million Tones
Thousand
Million
barrels
Share of
total (%)
R/P
ratio
Azerbaijan n/a 0.9 0.9 41.2 1.2 0.6 68.8
Kazakhstan n/a 1.3 1.5 53.2 1.5 0.8 78.2
Turkmenistan n/a 2.3 17.5 617.3 17.5 9.3
Uzbekistan n/a 1.2 1.1 38.3 1.1 0.6 19.0
Central Asia total 5.7 21 750 21.3 11.3 166
Source: BP Statistical Review of World Energy
Table 5: Import dependency – all fuels, %
Import from
extra EU
1995 2000 2005 2010 2013 2014
EU -28 43.1 46.7 52.2 52.6 53.1 53.5
Index 1995 100.0 108.3 121.1 122.2 123.3 124.1
Intra and Extra-EU imports
BE 80.8 78.1 80.1 77.9 77.4 80.1
BG 55.9 46.0 46.7 39.6 37.7 34.5
CZ 20.6 22.9 28.0 25.6 27.9 30.4
DK 33.4 -35.0 -49.8 -15.7 13.3 12.8
DE 56.8 59.4 60.4 60.1 62.66 61.6
EE 32.3 32.2 26.1 13.6 11.9 8.9
IE 69.5 84.8 89.6 86.6 89.3 85.3
EL 66.7 69.5 68.6 69.2 62.2 66.2
ES 71.7 76.6 81.4 76.7 70.4 72.9
FR 48.0 51.5 51.6 49.1 48.0 46.1
HR 36.1 48.4 52.5 46.6 47.0 43.8
IT 81.9 86.5 83.4 82.6 76.8 75.9
CY 100.5 98.6 100.7 100.8 96.4 93.4
LV 70.4 61.0 63.9 45.5 55.8 40.6
LT 63.1 59.4 56.8 81.8 78.3 77.9
LU 97.7 99.6 97.4 97.1 97.0 96.6
HU 47.9 55.2 63.1 58.2 52.1 61.7
MT 104.8 100.3 100.1 99.0 104.1 97.7
NL 20.0 38.1 38.0 30.3 26.1 33.8
AT 66.4 65.4 71.6 62.8 61.6 65.9
PL -1.2 9.9 17.2 31.3 25.6 28.6
PT 85.3 85.1 88.6 75.1 72.9 71.6
RO 30.3 21.8 27.6 21.9 18.5 17.0
SI 50.9 52.8 52.5 48.6 46.9 44.6
SK 68.5 65.6 65.3 63.1 59.2 60.9
FI 53.6 55.1 54.2 47.8 48.5 48.8
SE 38.9 40.7 36.8 36.6 31.6 32.1
UK -16.4 -16.9 13.4 28.4 46.4 45.5
Source: EU Commission. EU energy in gures, statistical pocketbook 2016

Ibrayeva, et al.: Importance of the Caspian Countries for the European Union Energy Security
International Journal of Energy Economics and Policy | Vol 8 • Issue 3 • 2018
156
transport Caspian natural gas to Europe. According to the estimated
cost of the project is around $5 billion (TAP Clinches Azeri Gas
Pipeline Deal, 2013). If constructed, TAP, developed by Norway’s
Statoil, Switzerland’s EGL and Germany’s E. ON, will ship 10
bcm of gas per year, with the option to increase the capacity up
to 20 bcm. It will run through Greece and Albania, under the
Adriatic Sea to southern Italy. The construction of TAP would
provide the countries involved in this project, such as Greece and
Albania, with a large inow of foreign direct investment (FDI)
and foster economic growth. West is the shortened form of the
“Nabucco” put forward a few years ago. “Nabucco”, one branch
of which started from Georgian-Turkish border and was more
than 3 thousand km in length, was planned for the transportation
of 31 billion m3 of gas from Central Asia, South Caucuses and
Middle East regions. The geopolitical situation in the above-
mentioned regions, and the absence of export routes from these
regions Europe put the realization of that project under question
(Nabucco West or TAP,2016). Considering the gains accruing
to Azerbaijan and Continental Europe from TAP and Nabucco-
West would favor TAP over Nabucco-West in 2013. TAP is based
on a 2013 intergovernmental agreement between Albania, Italy
and Greece. The advantage of the TAP project is that it links the
Caspian Sea and Turkey on one side and the European market on
the other. Apart from its main route to Italy, which is the biggest
European gas market after Germany, interconnectors can be built
to Bulgaria from Greece, as well as a new pipeline to Montenegro
and Croatia along the Adriatic coast from the tie-in in Albania, the
Ionian Adriatic Pipeline (IAP).
Via the Caspian Sea (TCP). TCP carries Central Asian gas via an
offshore pipeline under the Caspian Sea to its western coast, and
from there the Southern Corridor (TANAP and TAP) delivers the
gas to the Turkish and European markets. Turkmenistan benets
by 0.5 bn € since TCP bypasses the current transit countries,
i.e., Russia and Iran, and introduces a new transport route for
westbound Central Asian gas. Turkmenistan’s spare production
capacity is enough to ll up the offshore pipeline’s capacity. Turkey
enjoys supply competition in its market as well as it strains it
position on the route (0.bn €). However, Azerbaijan benets from
Turkmenistan’s access to its export markets (0.5bn €) since it is the
transit country on the route and controls Turkmenistan’s access to
the Southern Corridor. Although the EC supports TCP, Turkmen
gas via TCP returns the European players (the Balkans, Continental
Europe and UK) only 0.3bn €due to the transit countries on the
route, and the European companies show little interest in the
project. Costing 0.5bn€ (Cobanli, 2014), is strategically viable
for the non-European countries Turkmenistan, Azerbaijan and
Turkey (1.5bn € in total). However, continuing opposition from
Russia and Iran currently appears likely to prevent any submarine
gas pipeline across the Caspian from moving beyond a hypothesis
(Staadmuller and Bachmaan, 2012).
Via Iran (TTP) Linking Turkmenistan via Iran to the Southern
Corridor. Turkmenistan benefits 0.3bn €. Again, the transit
countries, in this case Turkey and Iran, collect most of the gains
from the project. While Turkey enjoys supply competition in
its market, Iran benets from better access to the markets. TTP
affects the rest of the players in an analogous manner to TCP. In
the nearest time, Turkmenistan intends to initiate gas extraction
in the world’s second gas eld Galkynysh, whose reserves are
Table 7: Indigenous conventional gas production in
European markets 2013–2030 (bcm)
Country 2013 2015 2020 2030
Norway 109 109 110 100
UK 38 38 34 20
Netherlands 86 71 63 26
Other 49 48 39 27
TOTAL 282 266 246 172
Norway/UK/Netherlands as a
% of total
83 82 84 84
Table 6: Gas demand scenarios for those countries which are – and are likely to continue to be – highly dependent on
Russian gas (with an SCI exceeding 30) up to 2030 (Honoré, 2014)
Country Gas demand in 2013 Russian gas imports in 2013 Gas demand projections
Central European countries 2015 2020 2025 2030
Austria 8.53 4.79 8.53 7.54 7.60 7.11
Czech Republic 8.47 7.27 8.08 8.69 8.68 9.94
Slovakia 5.81 5.06 4.72 4.86 6.19 7.66
Poland 18.31 11.87 15.73 17.08 19.49 21.07
Hungary 9.28 5.52 10.65 11.12 10.37 9.79
Total 50.4 34.51 47.70 49.30 52.33 55.57
Baltic countries
Estonia 0.68 0.64 0.34 0.38 0.41 0.43
Latvia 1.73 1.01 1.83 1.93 2.05 2.13
Lithuania 2.71 2.21 3.24 3.47 3.75 4.03
Finland 3.48 3.22 2.33 2.35 2.72 3.06
Total 8.6 7.08 7.74 8.13 8.92 9.65
South east European countries
FYROM 0.16 0.09 0.12 0.12 0.12 0.12
Bosnia/Herzegovina 0.19 0.18 0.26 0.27 0.29 0.30
Bulgaria 2.59 2.67 2.89 3.03 3.14 3.29
Serbia 2.52 1.84 2.30 2.30 2.30 2.30
Greece 3.84 2.39 4.32 4.10 3.85 3.64
Total 9.3 7.17 9.89 9.82 9.69 9.65
Grand Total 68.3 48.76 65.33 67.25 70.95 74.86

Ibrayeva, et al.: Importance of the Caspian Countries for the European Union Energy Security
International Journal of Energy Economics and Policy | Vol 8 • Issue 3 • 2018 157
evaluated from 13.1 to 21.2 tcm of natural gas. In view of starting
the development of such giant gas eld, Ashkhabad is concerned
about seeking new exports routes (Zhiltsov et al., 2016). Iran has
the world’s biggest proven gas reserves, and Turkmenistan is
ranked number four globally in terms of gas reserves. Together, the
two neighboring countries, located in the richest swathe of land in
the world in terms of energy resources, between the Caspian Sea
and the Persian Gulf, have some 25% of the world’s gas. With the
European Union and the United States lifting sanctions against
Iran on 16th January 2016, the EU will gain access to a second
major gas market in the world, beside Russia, and combined with
the soaring LNG imports envisaged in the next few years, the
EU’s Energy Union’s strategic goal to diversify Europevs energy
supply could be reached. After raising sanctions and normalizing
the Tehran-US relationships and the extension of the new gas
pipeline presently, supplying gas only to Iran as far as Turkey and
further on to Europe could become soon reality.
Via Russia: From South Stream to Turkish Stream. The south
stream project is Russia’s response to Nabucco. It was rst
launched in June 2007 when the Italian energy company Eni
and Gazprom of Russia signed a memorandum of understanding
(MOU) which push the construction of 900 km submarine
pipeline from Druzhba on the Russian Black sea coast to the
Bulgarian city of Varna. In Bulgaria, the pipeline will divide into
two. The southern side will run through Greece and under the
Ionic sea to Italy, while the northwestern part will run through
Serbia and Hungary to the Baumgarten gas hub in Austria. On
December 1, 2014, following a meeting between the Russian and
Turkish presidents, president Putin and Gazprom CEO A. Miller
announced that South Stream had been cancelled. The South
Stream cancellation was accompanied by a Russian announcement
that it would be replaced with pipelines of the same capacity to
deliver gas across the Black Sea directly to Turkey. Of the 63
bcm/year of capacity, 14 bcm/year would replace the volume
currently delivered to Turkey via Ukraine and the trans-Balkan
pipeline, while the part (approximately 50 bcm/year) would be
delivered to the Turkish-Greek border where Gazprom would set
up a natural gas “hub” for Southern European customers (Stern
et al., 2015). Turkish Stream proposals – both of which would
create a new route in bringing (the same) Russian gas to Europe.
For the EU, the energy security benets of South Stream and
Turkish Stream involving avoiding gas transit through Ukraine.
Both routes diversify supply routes, although not supply sources
(In the European Parliament Resolution, 2012).
Russians ofcials have stated that if the negotiations progress, gas
could be delivered by the end of 2016. Turkish authorities, on the
other hand, expect the project to continue for at least two and half
years (De Micco, 2015).
3. CONCLUSIONS
The ve Caspian littoral states differ in terms of size, power
projection capabilities and wealth in on- and offshore natural
resources. The two main Caspian littoral powers are Russia and
Iran, both endowed with huge natural gas and oil resources on
shore, and both not very well endowed with natural gas resources
offshore in the Caspian Sea. The other three Caspian littoral states
lack power projection capabilities, lack a diverse export market
for natural resources (especially Turkmenistan and Kazakhstan).
As such, the vision of importing large quantities of natural gas
or oil from the eastern side of the Caspian (Central Asia) to the
Western side of the Caspian (Europe), is a task and will require
a shift in EU foreign policy or alliances vis a vis third countries.
The EU’s energy security policy revolved around primarily two
objectives: Integration and diversication. The former of these
meant expanding the internal EU market structures, this way also
including external actors. This focus on transparent market rules
and networks would strengthen Brussels, as it would increase
access and availability of energy resources to the EU. Moreover,
by interlinking energy infrastructure the Union would become
more resilient to possible supply disruptions. In terms of the EU’s
diversication efforts, these were mainly related to attempts to
establish new routes, seek to include new energy suppliers and
nally to promote different energy types. All these three factors can
be seen as having the same fundament in the EU energy thinking;
as too large dependence on any one of these would constitute an
energy security risk. Caspian basin and Central Asian countries
played a role in both of the EU concerns. The EU-Caspian energy
structure could become a counterweight to Russia.
As things stand now, the geographical limits dictate three possible
or already realized options of shipping Eastern Caspian energy
resources to the Western Caspian. The rst one is a legacy of the
Soviet Union: Central Asian and Caspian energy resources being
shipped through Russian territory and pipelines, to Europe. This
is the status quo. The second option is to build trans-Caspian
pipelines, pipelines for the transport of gas and oil, from the
Eastern sea beds of the Caspian, to the Western sea beds of the
Caspian, to ship the onwards to Europe. Thirdly, the “southern
route,” piping Eastern Caspian natural gas and oil through over
land pipelines, via Iran, to Turkey and onwards to Europe. All three
options have pitfalls, drawbacks and rewards. In this conclusion,
I will focus on the ’path of least resistance’.
As mentioned above the EU policy push towards supply
diversication is to lessen the dependence and power of Russia.
Chiey because of that reason, the rst option (piping more
Caspian and Central Asian energy to Europe through Russia) is
not plausible and not a viable option. The second option, building
under sea pipelines, cutting through the Caspian Sea, from East
to West, has great challenges of a different nature. The biggest
problem with this option is the tandem opposition of Russia and
Iran. Would be deprived of a very large potential future market,
the EU. Russia would not only be deprived of a “potential future
market,” but it would also undermine current gas delivery volumes.
The third and nal option is the southern route, piping the energy
overland, from the Eastern Caspian, through Iran, to Turkey and
onwards to the EU. This is the path of least resistance.
There are already pipelines between Turkmenistan and Iran and
between Iran and Turkey. Although those pipelines don’t have
nearly enough capacity, parallel lines can be built. Routing through
Iran solves two crucial problems. Firstly, it lessens dependence on

Ibrayeva, et al.: Importance of the Caspian Countries for the European Union Energy Security
International Journal of Energy Economics and Policy | Vol 8 • Issue 3 • 2018
158
Russian energy supplies. As such, it gives the captive Turkmen
and Kazakh export markets a big breather. Their oil and gas can
even be sold through the Persian Gulf ports. Secondly, it solves
the insurmountable problem of double/tandem Russian-Iranian
opposition to Caspian Sea pipelines. The EU has enough power
to deal with Iran (mostly economically), but less with Russia.
Iran has a population of 80 million and cultural, historical links
to the other Caspian littoral nations. Also, it gives those small
countries a viable alternative vis a vis Russia, in order to balance
their foreign relations. As such, this EU policy, if executed well,
could two birds with one stone: Not only lessen dependence on
Russian gas/oil (transit), but also to lessen Russia’s inuence in
the littoral nations. That will force Russia to negotiate better prices
in the future. As a side-bonus: Iran would be invested in behaving
itself in the region and even in the middle east. Because being a
reliable transit country for the rst few years, would make EU
policy heads open toward purchasing large quantities of Iranian
gas, running along parallel lines, in the future. If executed well,
this solution will catch three birds with one stone for the EU.
4. ACKNOWLEDGMENTS
Research by V. Zuev was conducted under the HSE World
Economy and International Affairs Scientific Fund Project.
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