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" ! COMMITTEE PRINT 

112TH CONGRESS

2d Session 

S. PRT. 

2012

112–42 

ENERGY AND SECURITY 

FROM THE CASPIAN TO EUROPE 

A MINORITY STAFF REPORT 

PREPARED FOR THE USE OF THE 

COMMITTEE ON FOREIGN RELATIONS 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

DECEMBER 12, 2012 

Printed for the use of the Committee on Foreign Relations 

Available via World Wide Web: 

http://www.gpo.gov/fdsys/ 

COMMITTEE ON FOREIGN RELATIONS

JOHN F. KERRY, Massachusetts, Chairman

BARBARA BOXER, California 

ROBERT MENENDEZ, New Jersey 

BENJAMIN L. CARDIN, Maryland 

ROBERT P. CASEY, JR., Pennsylvania 

JIM WEBB, Virginia 

JEANNE SHAHEEN, New Hampshire 

CHRISTOPHER A. COONS, Delaware 

RICHARD J. DURBIN, Illinois 

TOM UDALL, New Mexico 

RICHARD G. LUGAR, Indiana 

BOB CORKER, Tennessee 

JAMES E. RISCH, Idaho 

MARCO RUBIO, Florida 

JAMES M. INHOFE, Oklahoma 

JIM DEMINT, South Carolina 

JOHNNY ISAKSON, Georgia 

JOHN BARRASSO, Wyoming 

MIKE LEE, Utah 

WILLIAM C. DANVERS, Staff Director

KENNETH A. MYERS, JR., Republican Staff Director

(ii)

C O N T E N T S 

Page 

Letter of Transmittal ........................................................................................... v 

Maps ...................................................................................................................... vii 

Executive Summary ............................................................................................. 2 

U.S. Interests in the Southern Energy Corridor ............................................... 6 

The U.S. Special Envoy for Eurasian Energy Security ................................. 7 

Connecting the Caspian and Europe .................................................................. 9 

European Natural Gas Vulnerability .............................................................. 9 

Policy Response by the Euro-Atlantic Community ........................................ 12 

Azerbaijan: The Southern Corridor’s Supply Anchor .................................... 13 

TANAP Overtakes Nabucco ............................................................................. 15 

Turkish Domestic Energy Dynamics .............................................................. 17 

Security for European Allies: Nabucco West vs. Trans-Adriatic Pipeline ... 18 

Future Gas Supplies ............................................................................................ 21 

Turkmenistan, the Trans-Caspian Pipeline, and the ‘‘Take our gas at 

the border’’ Policy .......................................................................................... 21 

Iraq, Kazakhstan, and the Eastern Mediterranean: Future Supplies in 

Need of Policy Attention ............................................................................... 29 

U.S. LNG: Putting Molecules Where Our Mouth Is ...................................... 30 

A P P E N D I X E S 

APPENDIX I ............................................................................................................

The Lugar Energy Report, ‘‘Lugar Travels Pipeline Route,’’ August 2006. . 39 

The Lugar Energy Report, ‘‘Importance of the Nabucco Pipeline,’’ July 

2009. ............................................................................................................... 46 

APPENDIX II ..........................................................................................................

Transcript of Senator Lugar’s keynote address at the German Marshall 

Fund Conference, delivered at the NATO Summit in Riga, Latvia. ......... 53 

APPENDIX III .........................................................................................................

Letter to Secretary of State Condoleezza Rice from Senator Lugar and 

then-Senator Biden regarding the appointment of a U.S. Special Envoy 

for Eurasian Energy Security. ..................................................................... 61 

APPENDIX IV .........................................................................................................

Liquefied Natural Gas (LNG) for NATO Act ................................................. 63 

(iii) 

LETTER OF TRANSMITTAL 

UNITED STATES SENATE, 

COMMITTEE ON FOREIGN RELATIONS, 

Washington, DC, December 12, 2012. 

DEAR COLLEAGUES: For years, I have pressed for greater U.S. 

diplomatic engagement to realize the immense strategic and economic benefits of opening an oil and natural gas Southern Corridor 

from Central Asia and the Caucasus to European and global energy 

markets. I asked my Foreign Relations Committee professional 

staff members, Neil Brown and Marik String, to travel to Azerbaijan, Turkey, and Turkmenistan to assess progress on the next 

installment of the Southern Corridor to bring Caspian basin natural gas to Europe. This strategic U.S. initiative would advance 

U.S. interests by alleviating Russian gas-fueled pressure against 

NATO allies, bolstering bilateral relations in the Caspian Sea region, and further isolating Iran. 

After years of infighting between energy companies involved in 

the project, the Southern Corridor for gas to Europe appears within 

reach. This result likely would not have occurred absent U.S. energy diplomacy over the last decade. Revitalized U.S. leadership is 

needed to fully realize strategic benefits for the United States. 

This SFRC Minority Staff report provides background analysis 

and recommendations that will advance U.S. national security and 

economic interests. I would highlight three recommendations for 

Congressional consideration. First, the State Department should 

restore the dedicated, high-level position of U.S. Envoy for Eurasian Energy Security to ensure that U.S. interests are advanced 

at the highest levels of government in the Caspian region where 

energy decisions are made. Indications that the Envoy position will 

be subsumed, as opposed to better coordinated, within the State 

Department’s new Energy Bureau threaten to undermine confidence in U.S. resolve regarding energy security and our broader 

commitment to the region. 

Second, the United States must make clear that our strategic interest lies in Caspian gas reaching our NATO allies in Turkey, 

Central and Southeastern Europe, and beyond, who are in acute 

need of energy diversification due to vulnerability to Russian energy cutoffs. If the gas instead arrives at destinations in Western 

Europe with multiple supply options, Congress should reexamine 

the merits of a statutory exemption from Iran-related financial 

sanctions for the further development of Azerbaijan’s Shah Deniz 

gas field, the source for initial stages of the gas corridor. 

(v) 

vi 

Finally, Congress should swiftly pass the Liquefied Natural Gas 

(LNG) for NATO Act. My legislation would place NATO allies on 

equal footing with free trade partners under U.S. law in providing 

for automatic licenses for U.S. LNG exports. Unlike in past years, 

U.S. domestic shale natural gas production affords us the opportunity to directly alleviate the dependency of our NATO allies in 

the Baltics, Central and Southeastern Europe, and Turkey on Russian supplies, and further isolate Iran, while benefiting the U.S. 

economy by opening new markets. 

This staff report provides further background on the Southern 

Corridor. I welcome any comments you may have. 

Sincerely, 

RICHARD G. LUGAR, 

Ranking Member. 

MAPS 

EXISTING AND PROPOSED NATURAL GAS INFRASTRUCTURE IN THE 

CASPIAN REGION 

(vii) 

viii 

THE SOUTHERN CORRIDOR FOR NATURAL GAS 

(1) 

ENERGY AND SECURITY 

FROM THE CASPIAN TO EUROPE 

As Chairman and Ranking Member of the Senate Foreign Relations Committee, Senator Richard G. Lugar has prioritized energy 

diplomacy as a major element in meeting current and future challenges to U.S. national security. This has spurred both policy and 

structural change within the U.S. diplomatic apparatus to elevate 

energy security to be a central component of American foreign policy. 

As a continuation of efforts to link European NATO allies and 

friends to the Caspian oil and gas basin, Senator Lugar directed 

Senate Foreign Relations Committee professional staff members 

Neil Brown and Marik String to undertake a mission in October 

2012 to Azerbaijan, Turkey, and Turkmenistan to assess the status 

of the Southern Corridor to Europe and related U.S. diplomatic efforts. Staff met with State Department officials in Washington and 

overseas, host government national security and energy officials, 

representatives from international and state-owned energy companies, third-country embassy officials, independent experts, as well 

as foreign embassy officials in Washington, D.C. Specifically, the 

purpose of the visit was to: 

• Investigate the impact of the Obama Administration’s decision 

to effectively eliminate the position of U.S. Envoy for Eurasian 

Energy Security; 

• Assess the status of competing pipeline proposals to carry gas 

from the Caspian basin to Europe as part of the Southern Corridor; 

• Examine the prospect of including gas from Turkmenistan, 

Iraq, Kazakhstan or the Eastern Mediterranean in the Southern Corridor; and 

• Evaluate what opportunities the United States has to increase 

the effectiveness of its policy on the Southern Corridor; 

This trip was timely for several reasons. First, the State Department has signaled that it is unlikely to appoint a new Envoy for 

Eurasian Energy Security, calling into question whether a parttime or lower-level appointment will carry sufficient weight with 

regional leaders. Second, growing concern that the Obama Administration is being too risk-averse in support of specific export routes 

for natural gas makes that staffing decision even more potentially 

problematic. Third, the world’s evolving natural gas markets invite 

a reassessment of the Southern Corridor’s strategic benefit and 

commercial viability. Fourth, with the coming departure of Senator 

Lugar from Congress, it will be important that new Members of 

Congress champion the Southern Energy Corridor project from the 

legislative branch. Finally, Congress is set to re-assess the scope of 

Iran sanctions, and it is useful to evaluate whether a continued 

2 

sanctions exemption for the Shah Deniz project (with its minority 

Iranian stakeholder) is warranted. 

EXECUTIVE SUMMARY

U.S. strategic interests in linking the nations of the Caspian Sea 

region with European and global markets have long been recognized and supported on a bipartisan basis. Energy is the economic 

lifeblood of many NATO allies and partners in the Europe and Eurasia region, and dependence on Russia and Iran for energy imports 

or exports remains a central detriment to those nations’ sovereign 

independence in policymaking, economic development, and security. 

When U.S. allies and partners are made vulnerable in this way, it 

undermines our own bilateral relationships and weakens our multilateral diplomatic and military efforts. 

Development of a Southern Corridor to link the Caspian to Europe with oil and natural gas pipelines was an early element of a 

U.S. strategy to end that dependence. The first stage was achieved 

with the completion of the Baku-Tblisi-Ceyhan (BTC) oil pipeline 

from Azerbaijan to a Turkish Mediterranean port and the South 

Caucasus Gas Pipeline (SCP) from Azerbaijan to Turkey. 

This report examines the next stage of Southern Corridor development. Utilizing expanded production of natural gas in Azerbaijan 

as a supply anchor, this stage envisions the expansion of the South 

Caucasus Pipeline, a new pipeline route across Turkey, and construction of one or more pipelines from the Turkish border further 

into Europe. The United States and our allies have also pressed for 

additional gas from Turkmenistan and Iraq to supply the Southern 

Corridor. 

The next phase of the Southern Corridor would advance several 

U.S. and NATO foreign policy objectives: it would further isolate 

Iran, assist in cultivating partners in the Caucasus and Central 

Asia and bolster their sovereign independence, and perhaps most 

importantly, curtail Russia’s energy leverage over European NATO 

allies. Among EU countries, Austria, Bulgaria, the Czech Republic, 

Estonia, Finland, Latvia, Lithuania, Poland, and Slovakia all depend on Russia for over 60 percent of their gas imports; EU aspirants such as Moldova, Turkey, and Ukraine rely on Russia for 

over 65 percent of their imports. Instead of allowing the market to 

produce a windfall for the Russian economy, the Kremlin has undertaken a series of astonishingly antagonistic policies. Russian energy cutoffs in the cold of winter, energy contract coercion, and use 

of the Nord Stream and South Stream pipelines to further isolate 

certain European markets have underscored the need for an alternative gas corridor to Europe. 

Natural gas imports are likely to occupy an increasingly central 

role in Europe’s energy portfolio, necessitating multiple alternatives such as a new Southern Corridor. Europe’s reliance on natural gas imports has been exacerbated by a steep decline in natural 

gas production within Europe, Germany’s decision to phase out nuclear power (France, too, is considering a scaling back of nuclear 

energy), and opposition to shale gas in several EU countries. Although Europe’s unconventional shale gas resources could impact 

Central European energy markets in the future, the results of exploration have been uneven, and significant production is not exVerDate Nov 24 2008 12:13 Dec 11, 2012 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 S:\HEARING FILES\112TH CONGRESS, 2ND\TOPIC REPORTS\MINORITY\MARIK\ENGY1
3 

pected in the near term. Numerous European nations are also 

ramping up capacity to import liquefied natural gas (LNG). 

Turkey’s rapidly growing domestic energy demand has been a 

central dynamic to the Southern Corridor and merits more priority 

in the U.S.-Turkey bilateral relationship. In particular, its willingness to allow transit of significant amounts of natural gas to Europe, even when its own domestic market could easily consume the 

gas, has bolstered the prospects for the Southern Corridor. The 

small amount of Turkish trade in Iranian gas is a growing area of 

concern as sanctions are further tightened. However, Turkey currently has no capacity to fully replace Iranian natural gas imports, 

which would require both new supplies and new domestic pipeline 

capacity to move gas between regions. 

Azerbaijan is the pivotal supplier for the Southern Corridor and 

is positioned to be a long-term transit hub for potential trans-Caspian supplies from Turkmenistan and Kazakhstan. For the past 

two decades, Azerbaijan’s leadership has made the strategic calculation to use new pipelines to forge closer ties with the West. BP 

is the largest foreign investor and principal operator of Azerbaijan’s 

oil and natural gas projects, including the major offshore field, 

Shah Deniz. The Shah Deniz consortium is scheduled to make a 

final investment decision for expansion (Shah Deniz II) by late 

2013, gas from which will be the anchor for expanding the Southern Corridor to Europe. 

With its 2009 Intergovernmental Agreement, the Nabucco Pipeline had once been envisioned to be the onward Southern Corridor 

route to Central Europe from SCP’s Turkish terminal. Though its 

original concept has faced subsequent delays, the Nabucco pact was 

momentous symbolically because, for the first time, Turkey, other 

transit nations (Bulgaria, Romania, Hungary, and Austria), and 

the EU demonstrated a willingness to assert their common political 

interest in natural gas supply diversification. 

In 2011, the Turkish and Azerbaijani Governments seized the 

initiative to put forward their own government-backed proposal, 

the Trans-Anatolian Pipeline (TANAP), the most significant development for the Southern Corridor since 2009. TANAP would replace the portion of the Nabucco Pipeline concept through Turkey, 

delivering 10 bcm of Shah Deniz II gas to the Turkish-EU border 

and leaving 6 bcm for consumption in the Turkish market. 

TANAP’s management structure is far simpler than Nabucco with 

only two governments driving initial strategic decisions, and Azerbaijan will invest the majority of capital required. However, 

TANAP’s terms also have potentially worrying implications. 

SOCAR’s controlling 51 percent stake raises concern that Azerbaijani gas may receive priority in TANAP, potentially precluding 

westward throughput capacity for additional trans-Caspian gas 

from Turkmenistan or Iraq. 

From TANAP’s terminal at the EU border, a decision must still 

be made on the final westward route of this stage of the Southern 

Corridor, determining the project’s ultimate strategic value. Two 

options remain: the Trans-Adriatic Pipeline (TAP) from Turkey 

through Greece and Albania and under the Adriatic Sea to Italy; 

and the Nabucco West Pipeline, a scaled-back proposal that follows 

Nabucco’s original route through the EU, transiting Bulgaria, RoVerDate Nov 24 2008 12:13 Dec 11, 2012 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 S:\HEARING FILES\112TH CONGRESS, 2ND\TOPIC REPORTS\MINORITY\MARIK\ENGY1
4 

mania, Hungary, and delivering gas to the distribution hub in Austria. 

Nabucco West would most clearly advance U.S. foreign policy interests, directly providing energy to those countries in Central and 

Southeastern Europe in greatest need of diversification away from 

Russian supply. Specifically, Nabucco West would introduce international competition in the region that would improve negotiating 

posture with Russia, reduce the potency of potential supply disruptions, and bolster the political and economic sovereignty of NATO 

allies and partners. By contrast, the strategic benefit that the EU 

and United States would derive from facilitating a TAP pipeline 

would be exceedingly narrow, resulting principally in a gas glut in 

Italy. As the pipelines are currently proposed, Nabucco West is 

clearly superior to TAP for U.S. foreign policy interests in the region. 

Thus far, the United States Congress has granted a narrow exemption for the Shah Deniz consortium from financial sanctions, 

which have been considered due to the 10 percent share in Shah 

Deniz held by the National Iranian Oil Company as a ‘‘passive investor.’’ Congressional support for sanctions exemptions is based on 

compelling benefits for U.S. national security interests, and these 

interests will be advanced by an expansion of the Southern Energy 

Corridor, irrespective of whether the Shah Deniz consortium selects 

TAP or Nabucco West. However, Iran sanctions will inevitably be 

reviewed and tightened in the coming months, and the standards 

for sanctions exemptions will become increasingly stringent. Selection of TAP as currently proposed would weaken the argument that 

Shah Deniz II and its ancillary projects are of such immense benefit to U.S. security interests that they should trump further sanctions against Iran. 

Beyond Shah Deniz II gas, securing additional supplies for the 

Southern Corridor is crucial. Turkmenistan’s conventional natural 

gas supply, the world’s fourth largest, has high potential for being 

joined to the Southern Corridor by constructing a Trans-Caspian 

Pipeline from Turkmenistan to Azerbaijan’s energy infrastructure. 

However, a combination of inscrutable leadership, geopolitical pressure by Russia, and an investment climate unfriendly to energy 

majors has hampered progress, and the window for Turkmenistan’s 

participation in the Southern Corridor may be closing. Most critically, the President of Turkmenistan must be willing to assert his 

nation’s political independence from Russia by executing the necessary reforms that will make increased production and trans-Caspian transit a reality. 

The need to embolden former Soviet states in making strategic 

energy decisions is not unfamiliar. The United States, Turkey, and 

the European Union have a key role to play in building an international political and commercial coalition in favor of trans-Caspian natural gas flows. An intriguing near-term possibility would 

be for Turkey to purchase Turkmen gas, possibly through small 

sub-Caspian Sea connections to Azerbaijan, which would increase 

confidence and help meet Turkey’s domestic needs. Concurrently, 

the United States and the EU should press ahead on facilitating 

a longer-term multilateral Caspian gas transit agreement. Russia 

could also be invited to play a constructive role in these talks. 

5 

Iraqi gas could also reach Europe through the Southern Corridor. 

In 2009, Iraqi Prime Minister Nouri al-Maliki suggested that Iraq 

could contribute up to 15 bcm to the Southern Corridor, but little 

progress has been made towards this goal due to deep internal 

Iraqi disagreements on energy revenue sharing and flagging 

progress on domestic electrification within Iraq. U.S. policy should 

be under constant review to ensure that internal political disputes 

are not unduly hindering projects beneficial for Iraq, regional stability, and U.S. private investment. 

Elsewhere, Kazakhstan already participates in the Southern Corridor by exporting oil trans-Caspian and then through the BakuTblisi-Ceyhan pipeline, but its 1.9 tcm of natural gas reserves remain relatively underdeveloped. In the Eastern Mediterranean, discussions on Southern Corridor linkages should also begin with 

Israel, given its abundant reserves, ready access to capital, and 

strong rule-of-law protections. 

The United States, too, has an opportunity to directly address 

the energy insecurity of our NATO allies in Europe. U.S. shale gas 

reserves have already transformed European gas markets since 

LNG previously destined for the United States has now been made 

available for Europe. The United States can do much more to allow 

LNG trade with NATO allies in need of supply diversification and, 

in doing so, to promote economic growth in the United States. The 

LNG for NATO Act, introduced by Senator Lugar, would achieve 

this objective by placing NATO allies on an equal footing with 

other free trade partners with respect to access to U.S. natural gas 

trade. 

Extension of the Southern Corridor is particularly advantageous 

now. Some critics may argue that the Southern Corridor should be 

a lower priority: U.S. shale gas and global LNG trade is producing 

more market liquidity, thus tending to lower prices and improve 

Europe’s negotiating position with Russia. Russia’s Gazprom has 

been forced to change its domestic strategy, including abandoning 

its flagship Shtokman project in the Arctic, and it has had to contend with plummeting market value and a new EU antitrust investigation. These trends may or may not last, but their existence 

today gives the United States an unprecedented opportunity to advance broad natural gas diversification and break Russia’s control 

over European gas markets. The Southern Corridor and approval 

of U.S. LNG exports are vital for achieving these strategic objectives in Central and Southeastern Europe and Turkey. 

These many dynamics to the Southern Corridor and Eurasian energy security will require constant attention by the United States. 

Thus, the preliminary State Department decision to discontinue 

the dedicated position of U.S. Special Envoy for Eurasian Energy 

Security, with direct reporting authority to the Secretary of State, 

is particularly disappointing and threatens to undermine U.S. engagement. Indeed, the need for continuing the Special Envoy position was roundly supported in staff’s discussions with NATO allies 

and partners throughout the region. The State Department should 

restore the dedicated Special Envoy position to ensure that U.S. energy diplomacy can reach the senior levels of government in the 

Caspian region and within the U.S. bureaucracy. Much is expected 

6 

of U.S. leadership, and exceeding those expectations comes at little 

cost but offers great gains. 

U.S. INTERESTS IN THE SOUTHERN ENERGY CORRIDOR

U.S. strategic interests in linking the nations of the Caspian Sea 

region with European and global markets have long been recognized and supported on a bipartisan basis. Energy is the economic 

lifeblood of many NATO allies and partners in the Europe and Eurasia region, and dependency on Russia for energy imports or exports remains a central detriment to those nations’ sovereign independence in policymaking, economic development, and security. 

Development of a Southern Corridor to link the Caspian to Europe with oil and natural gas pipelines was an early element of 

U.S. strategy. The first stage was achieved with the completion of 

the Baku-Tblisi-Ceyhan (BTC) oil pipeline and the South Caucasus 

Pipeline (SCP) for natural gas. Both pipelines carry energy resources from Azerbaijan’s offshore fields to Georgia and onward to 

Turkish markets for natural gas and to global markets for oil. The 

BTC pipeline has also served as the first non-Russian energy 

bridge across the Caspian, providing market access for trans-Caspian tankers carrying Kazakh oil. 

This report examines the second stage of Southern Corridor development. Utilizing expanded production of natural gas in Azerbaijan as a supply anchor, this stage envisions the expansion of the 

South Caucasus Pipeline, a new pipeline route across Turkey, and 

construction of one or more pipelines from the Turkish border further into Europe. The United States and our allies have also 

pressed for additional gas to supply the Southern Corridor from 

Turkmenistan and Iraq. 

The United States, regional NATO allies, and other production 

and transit states have all reaped benefits from the first stage of 

the Southern Corridor, and those benefits would be enhanced significantly with successful expansion of natural gas trade. 

First, regional energy diplomacy has opened a new venue for 

U.S. engagement in the region. The Southern Corridor has 

strengthened ties, in particular, with Azerbaijan, a secular majority-Shi’a Muslim nation that borders Iran, and has bolstered the 

foundation for cooperation on non-proliferation through NunnLugar Global and counter-terrorism, even as Azerbaijan must still 

make progress on civil society and governance issues. Moreover, 

the entrance of numerous multinational energy companies has exposed the governments in the Caspian region to the importance of 

rule-of-law and investment climate issues. 

Second, the Southern Corridor has provided post-Soviet nations 

with internal strength to assert their independence from Russia. 

Additional states not currently connected to the Southern Corridor 

remain vulnerable. Several NATO allies have been susceptible to 

energy supply cutoffs and political manipulation from their over-reliance on Russia, and the Southern Corridor, along with a broader 

diversification and energy efficiency strategy, will alleviate this dependence. For energy producing nations in the Caspian basin, the 

Southern Corridor offers export diversity and stable consumer markets in Europe to ameliorate the effect of the whims of Russian energy policy. 

7 

Third, the Southern Corridor could, somewhat paradoxically, encourage the Russian energy sector to assume a more market-oriented trajectory. Even as the Kremlin strengthens control over its 

state-dominated energy industry and uses the Nord Stream and 

proposed South Stream pipelines to tighten its grip on Europe, if 

energy becomes less effective as a tool of political coercion, the Russian energy market will have a stronger chance of reorientation towards market dynamics. This development would be beneficial to 

the United States, Europe, and Russia since market-led Russian 

economic growth will encourage stability. With respect to the 

Southern Corridor, Russia could even be granted the chance to be 

a constructive partner by bidding its natural gas in competition for 

excess pipeline capacity. 

Fourth, the Southern Corridor will further isolate Iran. While 

Iran’s natural gas exports are relatively small compared to oil (the 

latter is currently subject to U.S. sanctions), gas sales nonetheless 

provide economic receipts and political leverage, particularly in relation to Turkey in winter. 

Fifth, future pipelines linking the Middle East to the Southern 

Corridor could foster cooperation and stability. In the future, gas 

from Iraq, Egypt, and Israel, and perhaps other Eastern Mediterranean countries could all be linked to Europe, creating mutual dependence and creating new export routes beyond the Persian Gulf. 

Extension of the Southern Corridor is particularly advantageous 

now. Some critics may argue that the Southern Corridor should be 

a lower priority: U.S. shale gas and global LNG trade is producing 

more market liquidity, thus tending to lower prices and improve 

Europe’s negotiating position with Russia. Russia’s Gazprom has 

been forced to change its domestic strategy, including abandoning 

its flagship Shtokman project in the Arctic, and it has had to contend with plummeting market value and a new EU antitrust investigation. These trends may or may not last, but their existence 

today gives the United States an unprecedented opportunity to advance broad natural gas diversification and break Russia’s control 

over European gas markets. The Southern Corridor and approval 

of U.S. LNG exports are vital for achieving these strategic objectives in Central and Southeastern Europe and Turkey. 

The U.S. Special Envoy for Eurasian Energy Security 

Regrettably, following completion of the first stage of the Southern Corridor, U.S. energy diplomacy in the follow-on stages lost priority. While a few talented U.S. diplomats kept the project moving 

forward with suppliers in the Caspian and consumer nations in Europe, a diminishment of high-level attention was incongruous with 

the key U.S. national interests at stake and ignored the reality 

that energy decisions in the Caspian region are made at the most 

senior levels of government. 

In 2006, Senator Lugar, as committee Chairman, authored and 

led broad bipartisan support for the Energy Diplomacy and Security Act, a bill designed to invigorate diplomatic engagement on energy issues throughout U.S. foreign policy around the world. In December 2007, portions of that bill became law, leading to the creation of the post of International Energy Coordinator and eventually precipitating a 2011 State Department reorganization to estabVerDate Nov 24 2008 12:13 Dec 11, 2012 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 S:\HEARING FILES\112TH CONGRESS, 2ND\TOPIC REPORTS\MINORITY\MARIK\ENGY1
8 

lish a Bureau of Energy Resources (ENR), which is ably led by Ambassador Carlos Pascual. 

Even as these measures enhanced U.S. energy diplomacy broadly, Senator Lugar pushed for breakout progress on high priority 

areas, including the Southern Corridor. He led Congressional Delegations focusing on energy to Azerbaijan, Brussels, France, Georgia, Germany, Romania, Russia, Kazakhstan, Turkey, Turkmenistan, and Ukraine (see Appendix I) and called for energy security 

to be incorporated into NATO’s Article Five mutual defense commitment (see Appendix II). In partnership with then-Senator Joseph Biden, Senator Lugar encouraged the Bush Administration to 

re-establish high-level U.S. engagement on Eurasian energy security (see Appendix III). In response, Secretary of State Condoleezza 

Rice named Ambassador C. Boyden Gray as Special Envoy for Eurasian Energy Affairs. Secretary of State Hillary Clinton continued 

and enhanced this position by appointing a close confidant, Ambassador Richard Morningstar, whose outstanding work led to major 

breakthroughs in recent years, including the 2009 Nabucco Intergovernmental Agreement. 

The Office of the Special Envoy assured governments in the region, and the U.S. Congress, that the United States was engaged 

on Eurasian energy security at the most senior levels with direct 

reporting authority to the Secretary of State. Beyond the Caspian 

region, the Special Envoy played a critical role in advocating for internal energy reform in Europe, as well as encouraging the EU’s 

external energy diplomacy. The Special Envoy position also benefitted from the ability to take ad hoc trips to specific capitals when 

additional prodding was needed, as opposed to being permanently 

based in one capital as with bilateral U.S. ambassadors. 

Regrettably, the State Department has recently indicated that it 

will not retain the dedicated Special Envoy position but that the 

Assistant Secretary for ENR will be dual-hatted as Special Envoy. 

The ENR Bureau serves critical roles in ensuring that energy security is systematically prioritized across U.S. foreign policy and bolstering needed energy-related expertise to meet U.S. security and 

economic interests. Yet, it is a small bureau with global responsibilities. 

The preliminary State Department decision to not re-appoint a 

Special Envoy for Eurasian Energy threatens to undermine recent 

progress on the Southern Corridor and could be interpreted as an 

attempt by the United States to retrench from many years of 

strong engagement. Indeed, the need for high-level U.S. engagement was roundly supported in discussions throughout the region. 

As one foreign official said, ‘‘There is a perception that U.S. engagement is fading away, so not having a Special Envoy would confirm 

this view.’’ Another foreign official noted that Secretary Clinton 

and Ambassador Morningstar were perceived to be carrying the entire energy security portfolio for the U.S. Government, with scant 

engagement from the White House: ‘‘With the Obama Administration, we don’t have the leadership we had under President Clinton 

for energy in this region,’’ one official remarked. Another European 

official noted that the European Union cannot replace the United 

States on these energy issues, given that the EU’s energy policy is 

fragmented and backed only by soft power, underscoring the need 

9 

for U.S. energy engagement in Brussels and European capitals. 

Much is expected of U.S. leadership, and exceeding those expectations comes at little cost but offers great gains. 

Although it does seem logical to house the Office of the Special 

Envoy in the new ENR Bureau, this aspect of the reorganization 

must meet at least three criteria to be successful. First, high-level 

representation is essential to access the decision-making levels of 

government in the region. If a U.S. energy envoy is not speaking 

directly with presidents or prime ministers on a regular basis, then 

the mission will fail. Second, continuing the U.S. role as key arbiter 

in the region requires shuttle diplomacy and constant on-theground care in order to cut through misinformation and 

misperceptions between capitals. The Assistant Secretary for ENR 

will be busy tending to a demanding global portfolio, and our bilateral U.S. ambassadors have a full-range of bilateral issues on their 

agendas and lack the mandate for this type of diplomacy. Finally, 

the Special Envoy must be able to ensure the Southern Corridor remains on the agenda at highest levels of the State Department, 

which is assisted by direct reporting authority to the Secretary. 

Recommendation: Restore the dedicated position in 

the State Department for U.S. Envoy for Eurasian Energy 

Security. While no doubt led capably by an Assistant Secretary, the ENR Bureau will face myriad challenges, detracting from the high-level and consistent attention required to facilitate the conclusion of the Southern Corridor 

and secure additional sources of gas from Turkmenistan, 

Iraq, and beyond. Energy decisions in the Caspian region 

are made by the senior national leadership, making it all 

the more important to have an interlocutor from the 

United States with ambassadorial rank who reports directly to the Secretary of State. Finally, an Envoy based 

outside of the region possesses a better ability to objectively assess progress and avenues for U.S. advocacy compared to U.S. ambassadors in the region, who, despite 

their competence, will necessarily be focused on a wide 

array of bilateral issues. 

CONNECTING THE CASPIAN AND EUROPE1

European Natural Gas Vulnerability 

The European Union (EU) is the world’s largest importer of energy,2 and its overall energy and climate strategy has exacerbated 

its reliance on natural gas imports. Due to ambitious carbon reduction goals, EU member states are shifting consumption away from 

oil and coal. Increased dependence on natural gas imports has been 

furthered by declining indigenous gas production as well as certain 

national decisions, such as Germany’s decision to phase out nuclear 

power by 2020. European shale gas may offer a domestic alternative in the future, but progress has been uneven and faces political headwinds exemplified by French and Bulgarian prohibitions.3

Meanwhile, national capitals have historically encumbered EU efforts to unbundle natural gas markets, thereby reducing pricing 

and supply benefits of competition. For example, lack of price comVerDate Nov 24 2008 12:13 Dec 11, 2012 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 S:\HEARING FILES\112TH CONGRESS, 2ND\TOPIC REPORTS\MINORITY\MARIK\ENGY1
10 

petition in Italy is partly driving rivalry on the future destination 

of Caspian gas (discussed below). 

EUROPEAN AND OTHER CONSUMPTION OF RUSSIAN NATURAL GAS 

(PERCENTAGE) 

Natural gas is generally traded in regional markets under longterm contracts linked to global oil prices, with European Union import supplies dominated by Russia, Norway, and Algeria. However, 

European markets are slowly evolving with the rise of spot markets, which are breaking traditional natural gas pricing linkages to 

oil prices. A major factor in this dynamic is the rise of shale gas 

in the United States. Liquefied natural gas once destined for U.S. 

markets is now seeking new consumers, and Europe is attractive 

for shipments via tanker from diverse locations in Africa and the 

Middle East. Even Gazprom has been forced to begin renegotiating 

rates in selected European markets. Yet, the European market is 

not fully integrated for pricing or trade, so many nations, particuVerDate Nov 24 2008 12:13 Dec 11, 2012 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 S:\HEARING FILES\112TH CONGRESS, 2ND\TOPIC REPORTS\MINORITY\MARIK\ENGY1 MarikF1.eps
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larly Central and Southeastern European countries, face the cold 

reality of ongoing over-dependence on Russia. 

Among EU countries, Austria, Bulgaria, the Czech Republic, Estonia, Finland, Latvia, Lithuania, Poland, and Slovakia all depend 

on Russia for over 60 percent of their gas imports; EU aspirants 

such as Moldova, Turkey, and Ukraine rely on Russia for over 65 

percent of their imports. But instead of quietly capitalizing on its 

position as supplier of 36 percent of the European Union’s gas, 

Russia has undertaken a series of astonishingly antagonistic policies, which produce a compelling case for Europe and the United 

States to take far-reaching steps to reverse Europe’s reliance on 

Russian gas. 

For many years, Russia exploited its ability, quite literally, to 

freeze a nation’s population and economy. Between 1998 and 2004, 

Russia curtailed or cut off energy supplies nearly a dozen times to 

influence the sale of Lithuanian and Latvian energy infrastructure 

to Russian companies. In 2006, Russia undertook a barrage of energy intimidation against nearly every one of its neighbors. After 

Lithuania declined to sell certain oil facilities to a Russian company in favor of a Polish one, Russian energy supplies were cut due 

to ‘‘technical difficulties.’’ Moldova and Georgia faced an ominous 

Russian demand that same year: pay double the price or have your 

gas cut off in the cold of winter; Moldova would not initially accede 

and had its gas cut temporarily. 

Most infamously in 2006 and 2009, Russia cut gas supplies to 

Ukraine in the middle of winter following a dispute over gas prices, 

debts, and broader political disagreements (and threatened to take 

similar action in other years). As a major transit country, cutting 

off gas to Ukraine had ripple effects throughout Central and Western Europe. In 2008, Russia cut supplies to the Czech Republic the 

day after Prague agreed to host a U.S. missile defense radar on its 

territory. In 2010, Russia halted gas flows to Belarus amid a purported pricing dispute, affecting gas supplies to Poland, Germany, 

and Lithuania and then bought Beltransgaz in late 2011, giving 

Gazprom control of major Belarusian pipelines. Also in 2010, Russia coerced a 32-year lease extension for its Black Sea Fleet in Crimea in exchange for a $40 billion discount to Ukraine on gas over 

10 years. Several European nations, including Bulgaria, Moldova, 

Hungary, Croatia, Greece, and the Czech Republic, face a unique 

window of vulnerability given that they will all experience an expiration of certain long-term contracts with Gazprom in the next five 

years (before political diversification would occur through the 

Southern Corridor in 2017) and may be forced to again be locked 

into long-term contracts with Russia. 

Across Europe, Russia has sought to expand its monopolistic position by seeking to purchase distribution and storage infrastructure. Gazprom has also developed business linkages with many 

major European oil and gas companies. Although this is expected 

(and can have certain benefits) due to Russia’s massive oil and natural gas reserves, policymakers should recognize that these arrangements inevitably create internal pressures on those companies to avoid projects outside of Russia that might not be viewed 

favorably by the Kremlin. Furthermore, Gazprom’s insistence on 

long-term contracts with rates indexed to oil prices has created 

12 

acrimony with European consumers as prices on the spot gas markets across Europe have fallen well below global oil prices. 

Meanwhile, Russia’s planned South Stream pipeline across the 

Black Sea to Bulgaria is widely seen as an attempt to stymie Europe’s efforts at energy diversification towards Caspian and Middle 

Eastern gas. The principal rival to the Southern Corridor for natural gas, South Stream is a technologically complex and massively 

expensive proposal (costing an estimated $21 billion) that has the 

personal backing of Russian President Vladimir Putin, who presided over its ground-breaking on December 8, 2012. South Stream 

would stretch from Russia under the Black Sea to Bulgaria with 

northward connectors to Serbia, Hungary and Austria; and southward connectors to Greece and Italy. Few interlocutors possessed 

concrete details on South Stream, but it appears that South Stream 

would by no means preclude the Southern Corridor and itself faces 

several major economic and regulatory obstacles.4 South Stream 

comes on the heels of Nord Stream’s direct sub-Baltic Sea connection of Russia and Germany, which was viewed by some in the region as a move to isolate Poland and others. 

Policy Response by the Euro-Atlantic Community 

Russian provocations in the mid-2000s exposed that the European Union and United States had few tools to come to the energy 

aid of allies and partners in the region. In recent years, however, 

the Euro-Atlantic community has begun to take more concerted action. 

The EU has deployed an increasingly robust internal policy toward energy security reform and strengthened its resolve to respond to Russia’s energy intimidation. In 2011, the EU took a decision that would force energy companies operating in Europe to 

unbundle their pipeline operations from their downstream sales 

companies, which may force Gazprom to sell equity in many distribution networks; last year, the EU invalidated Gazprom’s acquisition of a 50 percent stake of Central European Gas Hub in 

Baumgarten, Austria (the very hub at which Southern Corridor gas 

may arrive). The EU has also sought to fully liberalize the internal 

European energy market by 2014, to connect all EU states to a 

common grid by 2015, and to build a series of gas interconnectors 

(with progress particularly in Hungary) to create fluid regional 

markets instead of isolated national spot markets dependent on 

one supplier. The European Commission also recently opened an 

investigation into Gazprom’s anti-competitive practices in Europe, 

including allegations of having ‘‘divided gas markets by hindering 

the free flow of gas across member states’’ and ‘‘prevented the diversification of supply of gas.’’ 

U.S. energy policy can also address Europe’s gas vulnerability 

through the export of U.S. liquefied natural gas (LNG) to countries 

in need (discussed at length below). Europe relied on LNG for 

about 26 percent of its gas imports in 2011, but this is expected 

to increase as additional LNG import terminals and interconnections are being built throughout Europe. Although LNG remains a 

relatively more expensive solution than gas delivered via pipeline, 

it is becoming increasingly economic and oftentimes more reliable 

than pipelines, whose taps can easily be switched off. With a view 

13 

toward trans-national planning, strategically placed LNG terminals 

in the Baltics, Poland, Croatia, and Bulgaria, along with expanded 

storage capacity and pipeline network recalibration, would be particularly useful. 

The United States and the European Commission have also 

worked cooperatively on various elements of the Southern Corridor 

for oil and natural gas as means of diversification. The first major 

success was opening of the Baku-Tbilisi-Ceyhan (BTC) pipeline. 

The EU and United States also joined in encouraging the 2009 

signing of the Nabucco Intergovernmental Agreement between Turkey, Bulgaria, Romania, Hungary, and Austria, solidifying the political foundation for a natural gas corridor. Furthermore, in September 2011, the EU Council provided a mandate for the European 

Union to facilitate an agreement on trans-Caspian energy shipments. 

Some skeptics of the Southern Corridor refer to ‘‘marginal downstream economics.’’ Under this reasoning, high transport costs associated with a lengthy pipeline, the forced renegotiation of Gazprom’s long-term oil-indexed contracts in Europe, global LNG 

trade, and the potential for shale gas in Europe all suggest falling 

gas prices in the coming years, potentially washing out any margins for Caspian gas. However, for the foreseeable future, pipeline 

transit remains more economical than LNG, and shale gas in or 

near European markets is not likely to be produced in quantities 

ready for export for, potentially, over 20 years.5 In light of the EU’s 

carbon emissions decisions, investment in natural gas infrastructure for Europe appears to be a safe bet for decades to come. 

Azerbaijan: The Southern Corridor’s Supply Anchor 

Fully committed to energy trade with the West, Azerbaijan is the 

pivotal supplier for the Southern Corridor and is positioned to be 

a long-term transit hub for potential trans-Caspian supplies from 

Turkmenistan and Kazakhstan. For the past two decades, Azerbaijan’s leadership has made the strategic calculation to use new 

pipelines to forge closer ties with the West, a decision that was by 

no means inevitable given the substantial cost of vast new pipeline 

infrastructure and geopolitical pressures from neighboring Iran and 

Russia.6 However, Azerbaijan’s main alternative to westward trade 

would be with Russia, which is not an attractive prospect: as one 

senior official said, ‘‘gas is a matter of survival for our country’’ because of the independence it provides. 

Azerbaijan has developed close ties with BP, which has become 

its largest foreign investor and operates several key offshore fields, 

terminals, and pipelines from Baku. Most importantly for the 

Southern Corridor under examination here, BP operates the Shah 

Deniz7 offshore gas field and the South Caucasus Pipeline (SCP), 

which has carried natural gas since 2006 from Baku, through Georgia, to the Erzurum terminal in Turkish Anatolia. In addition to 

Shah Deniz’ current 9 bcm gas production capacity, the Shah Deniz 

Consortium is scheduled to make a final investment decision of approximately $23 billion (upstream) for the expansion of Shah Deniz 

field development (known as Shah Deniz Phase II) by late 2013, although several interlocutors foresaw likely delays until the end of 

2013. That investment is expected to produce an additional 16 bcm 

14 

by 2017 that will be transported to Turkey (6 bcm) and onward to 

other European nations (10 bcm). Although technically a decision 

for the entire Shah Deniz consortium, Azerbaijan’s State Oil Company (SOCAR) and BP will play a central role in selecting the pipeline routes that will take gas to Europe. 

Azerbaijan is also expected to experience additional natural gas 

production in new offshore fields, strengthening its position as the 

Southern Corridor linchpin for perhaps several decades. France’s 

Total has announced discovery of 300 bcm of gas in the Absheron 

offshore field, which is expected to begin producing in 2020. Azerbaijan may soon tender a new production sharing agreement for 

deepwater segments of the Azeri, Chirag, and Gunashli fields 

(‘‘ACG Deep’’). By 2030, analysts estimate Azerbaijan alone could 

produce 30–50 billion cubic meters annually.8

Some interlocutors noted that the presence of new international 

oil company entrants into Azerbaijani production may bring helpful 

competition and temper several increasingly acrimonious disputes 

between the Azerbaijani Government and BP. In October 2012, Azerbaijani President Ilham Aliyev took the major step of publicly rebuking BP for its ‘‘numerous mistakes’’ resulting in underperforming oil extraction, which is essential to Azerbaijan’s finances 

(as the Azerbaijani saying goes, oil is about money and natural gas 

is about politics).9 Although much of the rhetoric on both sides of 

the argument is political positioning, the uncertainty may ricochet 

to Shah Deniz II (if investors lose confidence) and to trans-Caspian 

trade (if the Turkmenistan Government sees mostly tumult in the 

Azerbaijani energy sector). 

Indeed, this dispute is emblematic of the increasingly tense relationship between the Government of Azerbaijan, SOCAR, and BP. 

At the time of the Staffdel visit to Baku, a similarly acrimonious 

dispute was underway between BP and SOCAR on the engineering 

options available to upgrade the South Caucasus Pipeline (SCP) 

that will be necessary to accomodate Shah Deniz II gas supply.10

Although the SCP dispute has reportedly been resolved, the fact 

that a technical dispute could so easily flare into a crisis between 

BP and SOCAR is cause for concern with the myriad investment 

decisions currently pending. 

Recommendation: Encourage SOCAR to participate 

more fully in technical and operational discussions in Shah 

Deniz and other field development to minimize future 

miscommunications. 

Beyond Azerbaijani natural gas (1.3 trillion cubic meters, or tcm, 

of reserves), other regional powers, beginning with Turkmenistan 

(24.3 tcm) and possibly including Kazakhstan (1.9 tcm) and 

Uzbekistan (1.6 tcm), could transform Azerbaijan into a key gas 

transit hub as well.11 However, Azerbaijan has yet to fully embrace 

this prospect and has sent mixed signals on its willingness to allow 

other nations’ natural gas to compete with its own in the Southern 

Corridor. Without guaranteed transit access, a trans-Caspian pipeline (discussed further below) is a non-starter. 

In light of the key role for Azerbaijan in the Southern Corridor 

over the coming decades, as well as regional security concerns, the 

United States has dedicated substantial resources to critical energy 

infrastructure protection and interdiction of illicit materials. For 

15 

example, the Nunn-Lugar Global and other Defense and State Department programs have provided radars to monitor offshore activities near Caspian energy platforms, bolstered Azerbaijani Coast 

Guard assets, and assisted in the construction of a maritime command-and-control center and a naval port.12 Although no overtly 

hostile activity has occurred in the Caspian in recent years, the 

Caspian littoral nations have yet to delimit the Caspian’s waters, 

leading to several energy exploration-related disputes and military 

exercises.13

Recommendation: The United States should ensure 

that the Ambassadorial post in Baku does not remain absent for extended periods of time. The U.S.-Azerbaijan relationship benefits from a solid anchor based on energy, 

non-proliferation, and counter-terrorism cooperation, as 

well as skilled Ambassadors such as Ambassador Richard 

Morningstar and his predecessor Ambassador Matthew 

Bryza. However, the ambassadorial post has previously 

been vacant for extended periods of time, which has caused 

confidence in the relationship to suffer and undermined 

U.S. interests in the region. 

TANAP Overtakes Nabucco 

The June 2012 signing of the Trans-Anatolian Pipeline (TANAP) 

Intergovernmental Agreement by the Governments of Azerbaijan 

and Turkey has been the most significant development for the 

Southern Corridor since 2009. 

Signing of the 2009 Nabucco Intergovernmental Agreement was 

a tremendous step forward for the Southern Corridor concept that 

transcended the benefits of any particularly transit route, including 

the proposed Nabucco Pipeline itself.14 First, by agreeing to allow 

substantial amounts of natural gas to simply transit its territory, 

Turkey set aside the policy that required either the purchase of all 

of the gas for its own onward resale or for Turkey’s own domestic 

consumption. Second, the Nabucco Agreement demonstrated that 

European nations were finally willing to assert their common political interest in natural gas supply diversification. 

Despite the unprecedented political support enjoyed by the 

Nabucco Consortium,15 culminating in the 2009 Intergovernmental 

Agreement, the project has proven vulnerable to infighting among 

the consortium members (each previously wielding veto authority); 

disputes with the BP-led Shah Deniz consortium; and divide-andrule tactics employed by the Kremlin. As one interlocutor said, ‘‘all 

they [Nabucco] do is fight with each other.’’ The situation was not 

helped by Turkey and Azerbaijan going rounds on pricing terms. 

Some level of uncertainty has been justified given that the Shah 

Deniz II full field development is expected to produce only 16 bcm 

during its initial stages beginning in 2017, while Nabucco itself 

was originally envisioned to have a 31 bcm capacity. While supplies 

of natural gas from Turkmenistan (whose President had indicated 

willingness to participate) and Iraq (whose Prime Minister pledged 

to deliver 15 bcm to the Southern Corridor) could potentially fill 

the extra capacity, insufficient tangible progress was made to secure those additional sources. 

16 

As the Nabucco ‘‘classic’’ original proposal stalled, the Governments of Turkey and Azerbaijan began negotiations themselves on 

two alternatives to the Nabucco trunk line across Turkey: an upgrade of existing infrastructure operated by the Turkish Petroleum 

Pipeline Corporation (BOTAS) or a new pipeline called TANAP. 

Given the limited capacity of the BOTAS system, the two governments in June 2012 selected TANAP, which will initially carry 16 

bcm and will be scalable up to 60 bcm over the coming decades as 

additional Azeri gas and other sources become available. Of the 16 

bcm available initially from Shah Deniz II, Turkey will purchase 

6 bcm for domestic consumption, leaving 10 bcm for onward supply 

to Europe. Compared to the Nabucco ‘‘classic’’ proposal, TANAP’s 

management structure is far simpler with only two governments 

driving initial strategic decisions and Azerbaijan investing the majority of capital required. 

The next steps for TANAP will be the ratification of the Intergovernmental Agreement by the Turkish parliament (Azerbaijan ratified the agreement in November 2012) and finalization of equity 

sales. Initially, TANAP’s equity is split between SOCAR (with an 

80 percent share) and BOTAS and Turkish Petroleum (TPAO) dividing a 20 percent share. It is expected that Shah Deniz consortium members BP, Statoil, and Total will purchase part of 

SOCAR’s stake, leaving the Azerbaijani state company a controlling 51 percent stake in TANAP. 

Shah Deniz consortium members have expressed several concerns about TANAP. One member contended that it will not make 

a final investment decision in Shah Deniz II unless it will be guaranteed use of existing BOTAS pipelines in case TANAP is not completed in time for Shah Deniz II gas to come online in 2017.16

Given previous delays by Turkey and Azerbaijan in finalizing natural gas agreements (combined with the possibility of a reorganization of BOTAS), concerns about delays are reasonable. However, 

absent substantial additional capital, the BOTAS system itself is 

not a viable option, and it is unlikely that Shah Deniz consortium 

members would be willing to pay, even on a temporary basis, the 

exceptionally high tariff rates required to finance those upgrades. 

Recommendation: Turkey should plan, as a contingency, to upgrade the existing BOTAS system to transport 

Shah Deniz gas in 2017, in case TANAP is not completed 

on time. 

Some Shah Deniz members complain that they have been kept 

in the dark about the likely tariffs and technical engineering of 

TANAP, which should be disclosed and analyzed by the end of 2012 

if a timely final investment decision in Shah Deniz II is to occur. 

Indeed, the Shah Deniz consortium members, as potential equity 

partners of TANAP, must also be able to agree to all of TANAP’s 

terms, and private entities will often require more ambitious returns on investment than state-backed companies. This could remain a critical point of contention, as other officials involved in 

TANAP have insisted that tariff negotiations will not occur until 

SOCAR sells its TANAP equity shares to fellow Shah Deniz consortium members in early 2013. 

TANAP’s terms also have potentially worrying implications for 

future gas supplies for the Southern Corridor. Given that AzerVerDate Nov 24 2008 12:13 Dec 11, 2012 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 S:\HEARING FILES\112TH CONGRESS, 2ND\TOPIC REPORTS\MINORITY\MARIK\ENGY1
17 

baijan’s SOCAR will retain a controlling 51 percent stake in 

TANAP, several interlocutors expressed concern that SOCAR will 

exercise a right of first call on TANAP’s capacity for Azerbaijani 

gas. In other words, all Azerbaijani gas may receive priority in 

TANAP, potentially precluding westward throughput capacity for 

additional trans-Caspian gas from Turkmenistan or from Iraq and 

raising concerns in Europe about lack of supply price competition. 

Absent a guarantee from Azerbaijan that Turkmen gas would have 

access, trans-Caspian flows are a non-starter, which also will weaken Azerbaijan’s long-term economic and geopolitical position vis-avis energy supplies. Securing such a guarantee from Azerbaijan 

should be a top priority for U.S. diplomats. 

Recommendation: Azerbaijan should guarantee that 

Turkmen gas, as well as additional future trans-Caspian 

and Iraqi sources, would have access to capacity in the 

TANAP and SCP pipelines. Some portion of pipeline capacity should be open to competitive bidding. 

Turkish Domestic Energy Dynamics 

Turkey’s domestic energy situation remains a central consideration in the development of the Southern Corridor and warrants a 

higher priority in the bilateral relationship. Turkey’s willingness to 

allow transit of significant amounts of natural gas to Europe, even 

as its own domestic market could easily consume the gas, has been 

a key to progress in the Southern Corridor. Turkey is expected to 

consume approximately 48 bcm of gas in 2012, but demand is expected to exceed 60 bcm within ten years. With few known indigenous oil and natural gas resources, Turkey relies on imports for 90 

percent of its oil and nearly 100 percent of its gas demand. Meanwhile, Turkey has little natural gas storage capacity, which weakens its ability to manage supply disruptions and suggests that it 

will continue to need slack in its LNG import capacity to compensate for unexpected disruptions. 

Turkey is eager to secure additional sources of gas from 

Turkmenistan, Iraq, and others and would have readily purchased 

all 16 bcm of Shah Deniz II gas that will be available in 2017 instead of agreeing with SOCAR to send 10 bcm onward to Europe. 

Currently, Turkey imports most of its gas from Russia, arriving either via Bulgaria and Romania (16 bcm) or across the Black Sea 

in the Blue Stream pipeline (10 bcm). In the past, Russia has 

stepped in to assist Turkey with additional gas flows in times of 

shortage. Turkey also takes 7 bcm of gas from Azerbaijan via the 

South Caucasus Pipeline, and it imports through a single LNG terminal connected to the Mediterranean for Algerian and Nigerian 

gas. BOTAS has announced the development of three additional 

LNG projects to increase its import capacity in 3–4 years. 

Turkey imports the remaining 20 percent of its gas from Iran 

pursuant to a 1996 long-term contract that ends in 2026. Due to 

the exorbitant rate, poor quality gas, and unreliability of Iran (Iran 

has cut supplies in times of its own domestic need during winter), 

Turkey has on several occasions sought to re-negotiate the contract, 

which Iran has rejected. The parties are currently in international 

dispute resolution over price renegotiation. 

18 

As the international community seeks to put more pressure on 

Iran’s nuclear weapons ambitions, Turkish trade in Iranian gas is 

a growing area of concern in Ankara—and should be in Washington. The Council of the European Union took a decision in October 2012 to apply further financial sanctions against Iran and 

noted in its directive that ‘‘the purchase, import or transport of natural gas from Iran should be prohibited,’’ which could potentially 

lead to sanctions against those who ‘‘provide, directly or indirectly, 

financing or financial assistance . . . related to the import, purchase 

or transport of Iranian natural gas.’’ 17 Apart from complicating 

Turkey’s bid to join the EU, this provision could draw Turkey itself 

directly into the EU’s sanctions regime if Turkey cannot certify 

that no Iranian gas is commingled with the Southern Corridor supply. 

The United States Congress is also likely to continue pressing for 

strengthened sanctions against Iran. While the amount paid by 

Turkey for Iranian gas is meager (compared to Iran’s oil revenues 

paid partly by several other U.S. allies), natural gas sanctions will 

likely be part of future Congressional debate. However, Turkey currently has no capacity to fully replace Iranian natural gas, which 

would require both new supplies and new domestic pipeline capacity to move gas between regions. In any case, contract terms may 

require Turkey to pay for the Iranian gas even if it does not accept 

delivery. Unfortunately, efforts begun under the Bush Administration to jumpstart alternative energy investments in Turkey have 

atrophied. 

Recommendation: Turkey should expand its LNG import capacity, upgrade internal pipeline connections, import gas from Turkmenistan (see below), and invest in alternative energy supplies to alleviate its high dependence 

on Iranian gas, which could soon be subjected to international financial sanctions. The United States should reinvigorate technical assistance and commercial support for 

investment in these projects, and facilitate financing 

through actions of the U.S. Trade and Development Agency, Overseas Private Investment Corporation, and international financial institutions. 

Security for European Allies: Nabucco West vs. Trans Adriatic Pipeline 

At the western end of the Southern Corridor, a final decision 

must still be made on the initial route of natural gas (sourced in 

the Caspian, transiting the SCP, most likely transiting TANAP) onward from the Turkish-EU border. By June 2013, the BP-led Shah 

Deniz consortium is scheduled to decide between two alternative 

pipeline proposals that will determine the ultimate destination of 

Caspian gas and, thus, the overall strategic value of the Southern 

Corridor. 

One option is the Trans-Adriatic Pipeline (TAP), stretching from 

Turkey through Greece and Albania and under the Adriatic Sea to 

Italy. A second option is the Nabucco West pipeline, a scaled-back 

proposal following Nabucco’s original route through the EU, 

transiting Bulgaria, Romania, Hungary, and delivering to the gas 

distribution hub in Austria. These two options remain after the 

19 

Shah Deniz consortium eliminated two pipeline options, the Interconnector Turkey-Greece-Italy (ITGI) 18 and the Southeastern Europe Pipeline (SEEP) 19 in February 2012 and June 2012, respectively. 

Without doubt, TAP has advantages. With an initial capacity of 

10 bcm, it is likely to be less costly: it is shorter than Nabucco 

West and most of its length will lie under the Adriatic, requiring 

less complex engineering. Compared to Nabucco West, TAP also 

benefits from a less unwieldy management structure of only three 

energy companies, Swiss EGL, German E.ON, and Norwegian 

Statoil (a Shah Deniz partner). TAP could help diversify Albanian 

energy supplies, and further connections to other Balkan nations in 

need of diversification would be technically feasible;20 however, 

these additional regional connections are not part of TAP’s current 

proposal and have no ready sources of financing. TAP could also 

encourage competition in the Italian market, prodding sorely needed regulatory reforms. Although TAP has suffered from a relative 

lack of political clout, this was partly remedied by the signing of 

a tripartite Ministerial Agreement on September 28, 2012 between 

Albania, Italy, and Greece. Due in large part to these attributes, 

some Shah Deniz Consortium members assert, without providing 

specific details, that TAP is commercially preferable absent a cost 

revision in the Nabucco West proposal. 

However, the strategic benefit that the EU and United States 

would derive from facilitating a TAP pipeline would be exceedingly 

narrow, resulting principally in a gas glut in Italy. In fact, some 

supporters of TAP argue that the principal benefit would be the 

promotion of price competition in Italy and enabling more (likely 

Russian) gas supply to flow to Western European markets. However, genuine price competition depends on structural reforms in 

Italy’s internal market, not simply additional supply, and Western 

Europe (particularly Italy) already benefits from supply diversification, as well as the build-out of renewable energy. Albania, Greece, 

and Italy all rely on Russia for less than 46 percent of their gas 

(Albania does not purchase any Russian gas currently). By virtue 

of geography, Western Europe will have ready access to new supplies of North African gas following Arab Spring reforms, as well 

as unconventional gas potential in Algeria. With a change of political leadership in Italy, it is also worth re-examining whether the 

Government will be more independent from Russian energy policy, 

and whether any such changes affect the cozy relationship between 

Italian and Russian energy and finance companies. 

Nabucco West would trace the same route of Nabucco ‘‘classic’’ 

from the Bulgarian-Turkish border and have a 10 bcm capacity, 

scalable to 23 bcm pending further gas supplies. In contrast to 

TAP, Nabucco West would offer direct and immediate diversification to those countries in Central and Southeastern Europe in need 

of diversification away from Russia, particularly Bulgaria (89 percent dependent on Gazprom), Hungary (57 percent), Romania (23 

percent) and Austria (67 percent). Short- and medium-distance 

interconnectors could reach NATO and EU Members and aspirants 

in Central Europe who are in even more need of diversification, 

particularly Slovakia and the Czech Republic (see energy diversification map on page 10). However, as with TAP, those potential 

20 

interconnections are still theoretical and lack developed financing 

proposals. Most critically, Nabucco West would introduce international competition in the region that would improve negotiating 

posture with Russia, reduce the potency of supply disruption 

threats, and bolster internal stability of NATO allies and friends. 

Due to those energy realities, Nabucco West still benefits from 

the accumulation of political support in Washington and Brussels, 

including the 2009 Intergovernmental Agreement that remains in 

force. In order to address a debilitating management structure requiring unanimity among consortium members, Nabucco West 

shareholders met in late September and agreed to shift to a majority voting rule and offered BP an equity stake in the consortium.21

The United States should not be in the business of choosing winners in what are ultimately commercial matters. For this reason, 

the routing decision made by the Shah Deniz consortium (which 

will no doubt be influenced by the Government of Azerbaijan) must 

be commercially attractive to gain financing. Despite claims of marginal economics from some Shah Deniz Consortium members, both 

pipeline projects can certainly meet that requirement. However, 

the U.S. Government frequently intervenes in the market when national security interests are at stake, as with anti-terrorism and 

counter-proliferation sanctions and the vetting of foreign investment through the Committee on Foreign Investment in the United 

States. Given that no U.S. energy company has a direct stake in 

Southern Corridor gas supply or pipelines, one of the underappreciated realities is that the principal reason the United States has 

even become involved in Southern Corridor negotiations is because 

of U.S. foreign policy, not commercial, interests. 

As the two pipelines are currently proposed, Nabucco West is 

clearly superior to TAP for U.S. foreign policy interests in the region. Although the U.S. interest does not lie with the completion 

of the Nabucco West pipeline per se, Nabucco West offers the most 

meaningful advance in two key objectives: prompt delivery of gas 

to multiple allies in desperate need of diversification and scalability 

to accommodate larger gas supplies to the region in the future. 

Without doubt, other allies would benefit from the TAP pipeline 

but the coercive energy pressures brought by Russia against allies 

in Central and Southeastern Europe are of an order of magnitude 

greater. The United States owes it to these allies to speak clearly 

for that shared interest. 

Recommendation: The United States should advocate 

that Nabucco West be selected as the downstream route of 

the Southern Corridor, as opposed to wavering between 

available options. Nabucco West is strategically superior in 

that it will directly and immediately transport gas to nations in East and Southeast Europe who are most vulnerable to Russian energy coercion and in need of diversification. Although opportunities to use TAP to reach several 

vulnerable Balkan states exist, those proposals are not 

part of TAP’s current planning or financing. 

Supply decisions for the Southern Corridor will be of continued 

interest to Congress. Thus far, Congress has exempted the Shah 

Deniz Phase I project from financial sanctions, which have been 

considered due to the 10 percent share in Shah Deniz held by the 

21 

National Iranian Oil Company as a ‘‘passive investor,’’ under a narrow statutory exception.22 However, continuing Congressional support for sanctions exemptions, particularly for Shah Deniz Phase II 

and ancillary projects, will be based on compelling benefits for U.S. 

national security interests. 

Congress has already indicated its preference that natural gas 

projects must substantially contribute to Europe’s energy security 

(rather than producing a gas glut in Western Europe) in order to 

receive an exemption. The 2012 Iran Threat Reduction and Syria 

Human Rights Act explained that natural gas development projects 

will be exempted only if they provide Turkey and ‘‘other countries 

in Europe energy security and energy independence from the Government of the Russian Federation.’’ 23 While Shah Deniz Phase II 

itself may fall under the exemption created for Shah Deniz Phase 

I, it is unclear whether other infrastructure projects ancillary to 

Shah Deniz (including pipelines carrying that gas) would be exempt under current law given the potential financial benefit to 

Iran. 

In any case, Congress will inevitably reconsider sanctions in the 

future, and the standards for exemptions are likely to become more 

stringent. Thus, although expansion of the Southern Energy Corridor to Europe will advance U.S. interests regardless of whether 

the Shah Deniz consortium selects TAP or Nabucco West, that benefit will be weighed against the detriment of allowing the project 

to benefit Iran’s state budget. In this respect, it is clear that of the 

two pipeline proposals currently being discussed, Nabucco West offers the most compelling case for continued exemptions from U.S. 

financial sanctions because it would directly address the energy insecurity of several NATO allies and provide much-needed competition in Eastern European markets. 

Recommendation: The United States should reconsider sanctions against the National Iranian Oil Company’s 10 percent share in the Shah Deniz Consortium. Although Shah Deniz Phase I remains exempt, the merits of 

an exemption for Shah Deniz II gas (and ancillary projects) 

will, in part, depend on its ultimate destination. In this respect, Nabucco West, or a similarly conceived pipeline, 

would provide the most compelling case for an exemption 

of Shah Deniz II gas and related pipelines. By contrast, selection of TAP would weaken the argument that Shah 

Deniz II and its ancillary projects are of such immense 

benefit to U.S. security interests that they should trump 

further sanctions against Iran. 

Recommendation: Shah Deniz Consortium members, 

with the political backing of their home governments, 

should seek ways to exclude the National Iranian Oil Company’s 10 percent share of Shah Deniz. As financial sanctions continue to tighten around Iran, the consortium will 

be faced with increasing pressure for sanctions due to this 

Iranian stake, however minor and ‘‘passive’’ Iran’s role is 

in the consortium. 

22 

FUTURE GAS SUPPLIES

Turkmenistan, the Trans-Caspian Pipeline, and the ‘‘Take our gas 

at the border’’ Policy 

With the fourth largest conventional natural gas reserves in the 

world, Turkmenistan could become a major supplier to the Southern Corridor, but a combination of inscrutable leadership, geopolitical pressures, an unattractive investment climate, and distance from consumer markets has hampered progress. 

Since taking power in 2006, President Gerbanguly Berdymukhamedov has disappointed many observers who expected him to open 

up Turkmen society and to more sharply dispense with the eccentricities of his predecessor, Saparmurat Niyazov. However, 

Turkmenistan has successfully pursued a foreign policy of ‘‘positive 

neutrality,’’ leaving it with almost no political disputes with neighbors in an otherwise tumultuous region, even if this entails keeping 

foreign diplomats, visitors, and businessmen at arm’s length. 

The United States has been able to cooperate on important humanitarian and former security related issues with the 

Turkmenistan Government, and Special Envoy for Eurasian Energy Security Richard Morningstar made substantial headway in 

building confidence on energy cooperation. However, the basics of 

broad bilateral diplomatic interchange are still lacking, and more 

high-level civilian official visits from the United States will be 

needed to bolster efforts of our diplomats and complement the substantial U.S. military engagement in the region due to Afghanistan. Given Turkmenistan’s economic dependence on natural gas 

and its need for diversification of export markets, energy remains 

the centerpiece of non-military engagement. 

The Turkmen Government operates in a reclusive manner on oil 

and natural gas issues, which, as nearly every interlocutor agreed, 

will have to be reformed if Turkmenistan is to achieve its production goals and open new export markets, particularly through the 

Southern Corridor. With current production capacity of approximately 70 bcm of gas annually, Turkmenistan aims to increase production to 120 bcm by 2015 and 250 bcm by 2030. However, there 

is wide skepticism that the Government seriously desires to significantly increase production. As one longtime observer wryly noted, 

‘‘The Turkmen aren’t in a hurry to do anything.’’ 

Onshore, Turkmenistan possesses vast conventional gas reserves. 

The Dauletabad field in the southeast has long been under production. Recently documented as the world’s second largest conventional gas field, the Galkynysh (formerly known as South Yolatan) 

field is expected to be the focus of new production. Galkynysh is a 

high-pressure, high-sulfur, and high-temperature field, ranking 

among the most challenging in the world. 

For capital-intensive new production projects (as would be the 

case in Turkmenistan), the international oil company (IOC) majors 

are generally interested in negotiating production sharing (PSA) or 

joint venture agreements that result in ownership of a share of the 

gas. The energy majors generally avoid basic service contracts except where they expect future PSAs.24

However, Turkmenistan is deeply suspicious of the energy majors and has been steadfast in refusing production sharing agreeVerDate Nov 24 2008 12:13 Dec 11, 2012 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6633 S:\HEARING FILES\112TH CONGRESS, 2ND\TOPIC REPORTS\MINORITY\MARIK\ENGY1
23 

ments or other licensing arrangements that would allow major 

IOCs to own onshore gas. Instead, the Turkmenistan Government 

has informed the IOCs to ‘‘take our gas at the border,’’ if they want 

to participate in gas exports. Thus far, optimism for future gas 

ownership has been insufficient among IOCs, and none operate in 

Turkmenistan under service contracts.25 This investment climate 

will be particularly problematic to the construction of future pipelines from Turkmenistan (discussed further below). 

Instead, natural gas production onshore is conducted by nationally-owned Turkmengaz, which engages American and other international companies for expertise and technology under service contracts but retains ownership of all gas for the Turkmenistan Government. The exception is the arrangement offered to the China 

National Petroleum Company (CNPC) for onshore gas development, 

reportedly under a 35-year turnkey arrangement, whereby CNPC 

will build the facilities, commence production, ship gas to China, 

and then turn operations over to Turkmengaz. This deal is reportedly linked to China’s agreement to finance and construct the Central Asia-China gas pipeline to carry gas to China. 

Analysts diverge in their opinion as to whether CNPC and 

Turkmengaz can develop Galkynysh by relying almost exclusively 

on the assistance of service contractors and eschewing the expertise, technology, and production scale offered by IOCs.26 Some 

small- and medium-sized service companies operating in 

Turkmenistan have indicated that operations in Galkynysh are 

producing results, although detailed information, particularly from 

CNPC operations, were confidential. 

Whether Turkmenistan reforms its investment climate for onshore natural gas production depends on its actual ambitions for 

ramping up production. If reports are correct that progress in 

Galkynysh is occurring (even at a slow pace), that may well suit 

the modest ambitions of the Turkmenistan Government.27 Given a 

long enough time horizon, Turkmengaz will likely be able to acquire the expertise necessary for ongoing yet modest production increases. On the other hand, such a strategy would take longer than 

the lifespan of the current leadership. Reforms to the investment 

climate that would allow IOC investment alongside Turkmengaz 

would not only boost production but would also accelerate domestic 

expertise gains. 

Offshore, Turkmenistan’s terms have been closer to international 

norms, but the reserves have not been sufficiently lucrative to attract IOCs. Only a handful of companies, including RWE (Germany), Dragon Oil (UAE), Petronas (Malaysia), Buried Hill (Canada), Itera (Russia) and Wintershall (Germany), have pursued 

these offshore arrangements, in some cases to keep a toehold in the 

Turkmenistan market should the investment climate change.28

Several other companies have departed due to disappointing offshore discoveries, a frustrating regulatory environment, or a lack 

of profitable export markets, which, by one account, results in 8– 

9 bcm of offshore gas being flared annually. 

Recommendation: The Government of Turkmenistan 

should reform domestic energy laws to enable major investments by energy majors in natural gas exploration, 

production, and transport. The energy majors not only 

24 

have advanced technology and expertise to more capably 

develop Turkmenistan’s challenging gas fields, but an energy major’s ownership of part of the gas through production sharing agreements will be necessary to make advance sales to privately finance the Trans-Caspian and 

Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipelines (discussed below). 

Recommendation: The Government of Turkmenistan 

should work with the State Department’s Energy Governance and Capacity Initiative, the World Bank, and the Extractive Industries Transparency Initiative, to promote 

good governance in management of energy resources and 

revenues. Doing so will help build needed domestic capacity, promote a positive investment climate in 

Turkmenistan, and will help address suspicion of IOCs. 

Turkmenistan has also considered several new export destinations. Historically, Turkmenistan has been highly dependent on 

Russia as a purchaser of its natural gas through the Central Asian 

Center pipeline system, giving Moscow potent leverage over 

Ashgabat. Following a mysterious 2009 pipeline explosion, as well 

as declining demand in Europe for Russian gas, Russia substantially curtailed imports to 10–11 bcm. Still, Russia reportedly 

makes payments of approximately $330 million per month to the 

Turkmenistan Government, a relatively inflated price that Russia 

retains for political leverage with Turkmenistan. 

China has also undertaken concerted energy diplomacy in 

Ashgabat and imports gas through three pipelines, with a fourth 

under discussion via Afghanistan. By 2013, Turkmen gas exports 

to China are expected to reach 30 bcm and 65 bcm in the following 

years. Iran also imports 12–15 bcm via the Korpezhe-Kurt Kui and 

Dauletabad-Khangiran pipelines but reportedly pays mostly in 

goods, not hard currency, due to sanctions. In the near term, trade 

with Russia is most vital for Ashgabat because it provides hard 

currency. By contrast, gas sales to China are used largely to pay 

off loans. 

The United States and European allies are currently advocating 

two major pipeline proposals in Turkmenistan: the TurkmenistanAfghanistan-Pakistan-India (TAPI) and the Trans-Caspian Pipeline. Despite several substantial challenges, TAPI has important 

merits and has been a key element of the U.S. Government’s ‘‘New 

Silk Road’’ strategy in South Asia, with the hope that, with pipelines come peace and economic development. Commercially, TAPI 

offers a link into the growing Indian gas market. The Asian Development Bank (ADB) has been appointed as financial advisor although it has little experience in projects of this magnitude (estimated to exceed $7.6 billion). Turkmenistan has offered 32 bcm for 

TAPI (5 bcm for Afghanistan; the rest split equally between India 

and Pakistan), and all TAPI countries except for India have agreed 

to take equity in the TAPI pipeline. However, Turkmenistan’s tariff 

rates have apparently priced out Afghanistan as a consumer via 

TAPI, and key players in the discussions seem to lack awareness 

that employment along the pipeline route will be limited after construction is complete. 

25 

Perhaps most critically, pipeline security will remain a monumental challenge. Pakistan and Afghanistan have offered to deploy 

thousands of security forces dedicated solely to pipeline protection, 

which would leave forces exposed over hundreds of miles.29 According to one somewhat fanciful proposal, the Taliban would also be 

relied upon to contribute its own forces. With strong backing from 

the U.S. Government, the ADB and the TAPI nations have undertaken a series of roadshows to drum up financing for the project. 

Several oil majors have been involved in preliminary talks but interest has been uneven following the recent road show. The next 

step for TAPI will be a Steering Committee meeting to clarify India’s equity stake and to discuss tariffs. 

Furthermore, Turkmenistan’s ‘‘take our gas at the border’’ policy 

could further hinder progress on TAPI (and the Trans-Caspian 

Pipeline, discussed below) because it is incongruous with how pipeline projects are privately financed. Leaving aside the question of 

whether Turkmenistan’s modest production can even fill massive 

new export routes, pipelines constructed by the IOCs (who possess 

the expertise and capacity) are financed by contracting for advance 

sales of gas that they are given ownership of via PSAs or joint ventures. The Turkmenistan Government has apparently failed to appreciate the fact that, although its ‘‘take our gas at the border’’ policy may have worked with China due to CNPC’s willingness to simply fully finance and construct a gas pipeline, private financing of 

the TAPI or Trans-Caspian Pipeline will not occur according to this 

model. State-backed financing or deep internal investment climate 

reforms in Turkmenistan will be required. 

A second, long-standing pipeline concept is the Trans-Caspian 

Pipeline, which would traverse the Caspian Sea to connect 

Turkmenistan and Azerbaijan, the key for transporting Turkmen 

gas to the Southern Corridor. Construction of this pipeline would 

be relatively simple from a technical point of view, and it could be 

constructed in a matter of months once initiated. Similar to the financing problems that hamper the TAPI concept, the Trans-Caspian Pipeline would also likely require private-financing by the 

IOCs. However, given that costs would be dramatically lower than 

the TAPI pipeline due the shorter trans-Caspian distance, the cost 

could also be well within range of the Azerbaijani Government and 

its State Oil Fund (SOFAZ), Turkish companies, project financing 

by the European Bank for Reconstruction and Development 

(EBRD), European Investment Bank (EIB), World Bank’s International Finance Corporation (IFC), or other international financial 

institutions, or some combination. 

Recommendation: The United States and EU should 

lead diplomatic efforts to secure project financing for the 

construction of the Trans-Caspian Pipeline with international lenders, including the EBRD, EIB, IFC, and others. 

The principal impediment for the Trans-Caspian Pipeline remains a failure of the Turkmenistan Government to exhibit the 

necessary political will. Put bluntly, the President of Turkmenistan 

must decide whether to assert Turkmenistan’s independence from 

Russia. 

26 

Several signs of diplomatic progress on the Trans-Caspian Pipeline have been seen in recent years. The Turkmenistan Government has spoken openly of non-Russian gas destinations, and 

Turkmenistan has initiated construction of an East-West pipeline 

to take gas from its major eastern gas fields to infrastructure on 

the Caspian. As high-level U.S. engagement has stalled, the European Union has also become a leading advocate of the Trans-Caspian Pipeline.30 In September 2011, the Council of the European 

Union encouraged the opening of discussions with Azerbaijan and 

Turkmenistan on a trans-Caspian pipeline, and both EU President 

Jose ́ Manuel Barroso and EU Energy Commissioner Gu ̈nther 

Oettinger have travelled to Ashgabat for discussions.31 Nonetheless, several years of talks have resulted in scant concrete progress 

to date, leading to great frustration on both sides. In September 

2012, for example, President Berdymukhamedov refused to meet 

with Commissioner Oettinger on his latest visit to Ashgabat. 

The Government of Turkey, too, has begun to play an increasingly pivotal role in talks with the Turkmenistan Government, a 

welcome prospect given the two nations’ warm relations, common 

Turkic linguistic and cultural roots, and the likelihood of Turkey 

becoming a major downstream purchaser of Turkmen gas. For example, Turkish Energy Minister Taner Yildiz has participated in 

discussions in Ashgabat with the European Union and 

Turkmenistan Government, and the Turkish Government has proposed a joint meeting with the Turkmenistan Government and the 

European Union in Istanbul in late 2012. 

Several specific obstacles will need to be addressed in order to 

achieve further progress on the Trans-Caspian Pipeline. First, 

Turkmenistan and negotiating partners will have to adopt a more 

flexible approach to purchase guarantees. To date, Turkmenistan 

has demanded that the EU guarantees a purchase of 30 bcm of gas 

at Turkmenistan’s Caspian border, an amount too large for any 

single European company (or country). Moreover, Turkmenistan 

itself has not provided confidence that this amount of gas would 

even be available in the near-term, given its own production uncertainties and lack of domestic investment reform. Unlike visits by 

Russian or Chinese officials, who do have authority to negotiate 

substantial gas purchases and the construction of pipelines, EU officials possess no such authority: the EU is neither a downstream 

purchaser nor does it build pipelines. Although strong EU engagement is welcome, it must be complemented by diplomacy from individual EU Member States and downstream energy majors, who together have authority to make purchase and pipeline agreements. 

An earlier concept to create a Caspian Development Corporation to 

guarantee aggregate long-term, high-volume purchases of Turkmen 

gas is a promising initiative, deserving of more attention.32

Recommendation: Turkmenistan and the European 

Union should be more pragmatic in volume negotiations. 

The EU should involve more downstream energy purchasers and energy majors in talks with Turkmenistan 

given that the EU itself does not have the authority to 

guarantee gas purchases. The Government of 

Turkmenistan must take a more flexible approach to gas 

purchases and step back from its requirement of a 30 bcm 

27 

purchase guarantee. Turkmenistan’s delays in finalizing 

agreement on a trans-Caspian pipeline means that such 

large volumes will not be accommodated in the next stage 

of the Southern Corridor due to capacity constraints in 

TANAP and SCP. 

Recommendation: The European Union should involve 

more national bilateral European delegations in talks with 

Turkmenistan. A visit by a high-level delegation from Germany would be particularly helpful because of Germany’s 

position as a large gas consumer and the close affinity for 

Germany held by Turkmenistan’s leadership. 

Turkey and Azerbaijan should also play a more constructive and 

active role. Thus far, Azerbaijan has been lukewarm on trans-Caspian gas trade, due in part to lingering historical distrust between 

Azerbaijan and Turkmenistan and to lower-cost Turkmen gas that 

could compete with Azeri offshore gas. However, Azerbaijan could 

take advantage of Turkmenistan’s ‘‘take our gas at the border’’ policy and directly purchase Turkmen gas for resale, thereby enhancing its own position as a regional energy hub (so long as EU competition regulations are not implicated). Moreover, as noted above, 

Azerbaijan (and Turkey) can provide additional confidence for 

trans-Caspian gas transit by assuring that sufficient pipeline capacity exists throughout the Southern Corridor for Turkmen supply, both in SCP and TANAP. 

Recommendation: Azerbaijan should use its controlling stakes in TANAP and SCP to guarantee access for 

Turkmenistan gas, as well as future gas from Kazakhstan 

and other nations, and consider purchasing large quantities of Turkmen gas for onward sales to Turkey and Europe. 

An even more appealing option would be for Turkey to purchase 

Turkmenistan gas and finance trans-Caspian transit infrastructure.33 Turkey could help meet its booming domestic demand with 

relatively cheap Turkmen gas, thereby building on the strong Turkish-Turkmen commercial relationship. This option would also cause 

less aggravation with Moscow given that Turkmen gas would not 

be in direct competition with Russian gas in significant European 

markets. Azerbaijan, too, could benefit by sending more of its own 

gas onward to European markets, instead of to Turkey for its domestic consumption (possibly including the initial 6 bcm of Shah 

Deniz II gas slated for Turkey). 

Recommendation: Turkey should secure contracts to 

purchase natural gas from Turkmenistan and gain the 

support of Azerbaijan and private energy companies to 

allow this gas to transit Azerbaijani energy infrastructure. 

The EU and United States will also need to demonstrate greater 

political backing for the trans-Caspian project. Russia has demonstrated a willingness to exert pressure on Ashgabat by cutting 

Turkmen gas imports, thus depriving the regime of substantial finances, and at times, has partnered with Iran in opposing further 

progress on trans-Caspian energy transport. As one interlocutor 

said, ‘‘Russians always have strings they can pull.’’ 34 The 

Turkmenistan Government will need political support from the 

28 

West to contain any fallout in its relationships with Russia and 

Iran resulting from trans-Caspian gas sales. Unfortunately, 

Turkmenistan has little reason to gain confidence in the West’s 

support by the example of the Nabucco Consortium, whose strong 

backing by the EU has yet to translate into success. Perhaps the 

strongest way that the United States and our allies can demonstrate the efficacy of westward trade is to complete the Southern 

Corridor from Azerbaijan onward to Europe and guarantee access 

for Turkmen gas. 

In particular, one canard often raised in opposition to a transCaspian pipeline is Russian and Iranian objection to any project 

until the Caspian Sea is demarcated by the five littoral nations 

(Iran, Azerbaijan, Russia, Kazakhstan, and Turkmenistan). Russia 

repeatedly refers to an October 2007 agreement saying decisions 

regarding Caspian energy development would be taken by consensus by all Caspian nations, even though Russia itself violated 

this provision through bilateral agreements on sea use. Russia, 

with some irony, also cites environmental implications of a new 

pipeline. In any case, a trans-Caspian pipeline linking 

Turkmenistan and Azerbaijan would only cross offshore terrain 

that would belong to either Turkmenistan or Azerbaijan, and the 

United States rightly supports the view that proceeding with transCaspian energy transport should be these nations’ own bilateral 

prerogative. 

Recommendation: The United States, European Union, 

and Turkey should advocate for a preliminary agreement 

between Azerbaijan and Turkmenistan to connect 

Turkmenistan’s offshore gas production with Azerbaijan 

infrastructure. This would allow up to 10 bcm of gas production to find a market in Turkey or Europe in the nearterm, providing Turkmenistan with a flavor of westward 

trade that will begin to build economic relationships and 

confidence. That relatively small amount of gas could be 

accommodated in plans for SCP and TANAP and would 

not require the political fanfare of a major new pipeline. 

The need to embolden former Soviet states in making strategic 

energy decisions is not unfamiliar. Similar problems initially hindered the Baku-Tbilisi-Ceyhan (BTC) oil pipeline, but a coalition of 

support built by the EU, the United States, and a handful of energy majors helped push the project through. A similar coalition 

will have to be built around trans-Caspian gas transit. Russia 

should be invited to play a constructive role in these talks, and its 

response will be indicative of whether it is a good faith partner of 

Turkmenistan or has ulterior motives in preventing Turkmenistan’s energy development according to its sovereign interests. 

Recommendation: Over the long-term, the United 

States, Turkey, and European Union should encourage negotiation of an Intergovernmental Agreement for the 

Trans-Caspian Pipeline. Russia, too, could be invited to 

play a constructive role in these talks. 

Recommendation: The United States should ensure 

that senior U.S. civilian visits to Turkmenistan occur more 

29 

frequently to indicate high-level political support for transCaspian shipments of Turkmen gas. 

In light of the years of work that have gone into moving forward 

on Nabucco, TANAP, and expansion of the South Caucasus Pipeline, it is unlikely that political or financial capital for any additional major new projects or expansions of either SCP or TANAP 

will be forthcoming in the short-term. Moreover, the European gas 

market could change significantly in the coming decades, particularly if domestic shale reserves are exploited. Therefore, the window for Turkmenistan to participate in the next phase of the 

Southern Corridor is quickly closing. 

Iraq, Kazakhstan, and the Eastern Mediterranean: Future Supplies 

in Need of Policy Attention 

Although Turkmenistan possesses the most potential as a future 

supplier to the Southern Corridor, the United States should dedicate more attention to cultivating additional gas sources for the 

next phase of development, including Iraq, Kazakhstan, and in the 

Eastern Mediterranean. 

In 2009, Iraqi Prime Minister Nouri al-Maliki attended the signing of the Nabucco Pipeline Intergovernmental Agreement in Ankara and stated that Iraq could contribute up to 15 bcm to the 

Southern Corridor, raising hopes that Iraq, in possession of the 

world’s tenth largest conventional natural gas reserves, was on its 

way to become a major supplier to Europe. Since then, little 

progress has been made towards this goal due to deep disagreements on energy revenue sharing between the central government 

in Baghdad and the Kurdistan Regional Government (KRG), as 

well as flagging progress on domestic electrification and investment 

in domestic gas infrastructure. 

Currently, energy revenues from the KRG are channeled to the 

central budget in Baghdad, which then distributes proceeds to the 

KRG and international energy companies operating in Kurdistan. 

However, this arrangement has led to numerous disputes involving 

delays by Baghdad in making the distributions. Furthermore, several drafts of a comprehensive national oil and gas law are under 

consideration in Baghdad, and a September 2012 Baghdad-KRG 

agreement included a provision to set up a six-member committee 

to review various drafts and decide which version to send to the 

Council of Representatives for consideration. The first meeting 

planned for mid-October 2012 failed to occur. Intransigence at the 

national level has caused impatience in KRG and with international energy companies, several of which (including 

ExxonMobil, Chevron, Gazprom and Total) have negotiated independent exploration deals with the KRG, only to become frozen out 

of negotiations with the central government.35 In light of these disputes, analysts do not expect Iraq to become a natural gas exporter 

until at least 2017. 

U.S. policy currently supports a national agreement on oil and 

gas revenues prior to exports from Kurdish regions. Given that 

higher value oil is concentrated in the south, this is likely to be a 

net economic benefit to the KRG. However, U.S. policy on this matter should be under constant review to ensure that internal political disputes are not unduly hindering projects beneficial for Iraq, 

30 

regional stability, and U.S. private investment. The Iraqi energy 

situation is yet another reason why concerted U.S. energy diplomacy will be required in the coming years. 

By virtue of geography and geology, Turkmenistan would be the 

anchor of trans-Caspian energy trade, but it is not the only player. 

Kazakhstan is already a participant in the Southern Corridor, shipping oil across the Caspian by barge to Baku to connect to the BTC 

oil pipeline. Given that the BTC pipeline is operating under capacity, Kazakhstan’s participation in the BTC pipeline could be increased in the future. By contrast, Kazakhstan’s 1.9 tcm of natural 

gas reserves remain relatively underdeveloped as a commodity, frequently being flared or re-injected for enhanced oil recovery. To 

date, Kazakh officials have given mixed signals about natural gas 

participation in the Southern Corridor, at times citing the need for 

a Caspian demarcation agreement. The United States should continue to bring the Kazakhstan Government into discussions on the 

Southern Corridor given future potential participation. 

Finally, the United States should enhance engagement in energy 

diplomacy on the development and interconnection of energy resources off the Turkish coast and in the Eastern Mediterranean. 

In 2007, the Greek-Cypriot Government approved a license for 

offshore exploration in waters that are disputed by Turkish-Cypriot 

authorities. After exploration commenced in September 2011, the 

Turkish Government sent military vessels to the area as a warning 

and facilitated a separate offshore exploration arrangement in 

what is claimed to be the Turkish-Cypriot exclusive economic zone. 

In light of discussions between Greek-Cypriot authorities and 

Israel on energy transport and a future pipeline, tensions could 

eventually flare again. 

Israel itself has discovered large offshore natural gas reserves, 

and the U.S. Geological Survey has estimated 3.5 bcm of technically recoverable reserves in the Levant Basin. Owing to abundant access to capital and strong rule-of-law protections, Israel may 

be the most likely source of additional gas flows from the Eastern 

Mediterranean. While current conditions in the region are not conducive to quick progress, increased natural gas trade within the region and in connection with the Southern Corridor can promote 

long-term economic development and stability. The United States 

should play an active role in fostering regional dialogue on energy 

and related demarcation issues, including track-two discussions between Israel and Turkey on energy trade. 

U.S. LNG: Putting Molecules Where Our Mouth Is 

The United States, too, is in possession of resources that could 

directly contribute to European energy security. In 2009, the 

United States overtook Russia as the world’s largest natural gas 

producer due to vast unconventional reserves. At current U.S. consumption rates, the United States possesses perhaps a century of 

gas supply. This development has caused U.S. natural gas prices 

to fall to nearly a half to a third of gas prices in other key European and Asian markets36 and has prompted numerous applications for export licenses of U.S. liquefied natural gas (LNG) exports. 

31 

Pursuant to Section 3 of the Natural Gas Act,39 gas exports are 

subject to approval by the Department of Energy’s Office of Fossil 

Energy and the Federal Energy Regulatory Commission, which 

must certify that a particular export is in the U.S. public interest. 

For destination countries with which the United States has a free 

trade agreement, a presumption is created that the export is in the 

public interest, and the license is automatic. For non-free trade 

agreement nations, a study must be conducted to determine the 

public interest, entailing a notice and comment period. 

Several companies have submitted applications to retrofit U.S. 

LNG import terminals for regasification and export; to construct 

new LNG export terminals; and to export cryogenic natural gas to 

Latin America by rail and ship. After approving one application, 

the Obama Administration deferred others until at least 2013, 

pending further study completed in December 2012. 

U.S. shale gas reserves are already transforming European natural gas markets since LNG previously destined for the United 

States has now been made available for Europe. The United States 

can do much more to both use LNG exports to benefit NATO allies 

facing energy insecurity in Europe and to promote economic growth 

in the United States. 

Turkey currently relies on Iran for 20 percent of its gas imports, 

which could come under increased pressure when the European 

Council’s decision of October 15, 2012 to prohibit the ‘‘purchase, import or transport of natural gas from Iran’’ is implemented. Moreover, several allies and partners in Central and Southeastern Europe (Bulgaria, Croatia, Hungary, Greece, the Czech Republic, and 

Moldova) will see their long-term contracts with Gazprom expire 

before 2017, leaving a potential gas import gap until Shah Deniz 

II gas comes online in that year. For these countries, targeted U.S. 

LNG exports, along with infrastructure investment and other policy responses, could help alleviate energy insecurity. It is possible 

that several other NATO allies and partners may opt for U.S. natural gas imports (and even paying a reliability premium for them) 

if the opportunity existed. 

Meanwhile, European nations are ramping up capacity to import 

LNG. At present, Europe imports LNG primarily from Algeria, 

Egypt, Oman, and Qatar to meet about 26 percent of its gas needs, 

due in large part to a lack of LNG import terminals, which are 

mostly located in Western Europe,38 as well as underdeveloped onward interconnectors and storage capacity in Europe. However, numerous European countries, some with financing from the European Bank for Reconstruction and Development (EBRD), are considering construction of additional LNG import terminals, including 

Bulgaria, Croatia, Estonia, Lithuania, Latvia, Poland, Romania, 

Turkey, and Ukraine. 

In light of these dynamics, the United States is well-positioned 

to become a strategic energy supplier of LNG to NATO allies in 

need of diversification. Senator Lugar has introduced the LNG for 

NATO Act to achieve this objective (see Appendix IV for the text 

of the legislation). This Act would not direct supply, which should 

remain exclusively the function of private industry. Instead, the 

Act would place NATO allies on equal footing as other free trade 

partners with respect to access to U.S. natural gas trade. Through 

32 

market forces, NATO allies will be more secure and the alliance 

will be stronger. While the U.S. Congress will no doubt continue to 

debate full liberalization of natural gas exports, the LNG for NATO 

Act follows other precedents for narrowly tailored exceptions to our 

export licensing regime. 

Recommendation: The U.S. Congress should pass the 

Liquefied Natural Gas for NATO Act, which would amend 

Section 3 the Natural Gas Act to create a presumption 

that licenses to export U.S. natural gas to NATO allies is 

in the U.S. public interest, giving NATO allies the same 

preferential treatment enjoyed by free trade partners. Specifically, swift passage of this Act will make gas export licenses automatic for Turkey, which relies on Iran for 20 

percent of its gas demand, and those NATO countries, 

whose long-term gas contracts with Gazprom expire in the 

next five years, in advance of Shah Deniz II gas coming 

online through the Southern Corridor. 

Recommendation: The United States and European 

Union should encourage the Overseas Private Investment 

Corporation, U.S. Trade and Development Agency, the European Bank for Reconstruction and Development, and the 

European Investment Bank to facilitate financing for the 

construction of LNG import terminals in Europe, particularly on the territory of NATO allies in need of diversification. U.S. assistance should also be provided to plan alternative gas routes, storage capacity, interconnectors, and 

power generation options. 

——————— 

NOTES: 1 The authors thank Michael Ratner of the Congressional Research Service. 

2 The authors recommend ‘‘Europe’s Energy Security: Options and Challenges for 

Natural Gas Supply Diversification’’ by Michael Ratner, Paul Belkin, Jim 

Nichol, and Steven Woehrel of the Congressional Research Service for further 

data and analysis. 

3 The State Department Unconventional Gas Technical Engagement Program 

plays an important role in providing information and enabling policies for shale 

gas development. 

4 Because South Stream would transit EU territory, it would have to comply with 

several onerous EU regulations. First, South Stream would be required to provide full access to third-party gas in all distribution and transmission infrastructure in a competitive manner, unless an exemption is granted. Exemptions 

are granted only where the investment ‘‘enhances competition in gas supply’’ 

and ‘‘security of supply’’ and ‘‘is not detrimental to competition or the effective 

functioning of the internal gas market.’’ See European Council Directive 2009/ 

73/EC. Given the EU’s recent anti-competition investigations of Gazprom, such 

exemptions may not be forthcoming. Second, Russia would have to officially provide design, routing, and construction information to the EU, none of which, according to EU officials, has occurred. Finally, several energy analysts note that 

Russia may not have sufficient gas to even supply South Stream in an economical manner. 

5 The U.S. Energy Information Administration estimates that Poland, Ukraine, 

Lithuania, Romania, Bulgaria and Hungary possess over 252 trillion cubic feet 

of technically recoverable shale gas. Poland has the most shale potential in Europe and is expected to produce its first commercial shale gas in 2014 but would 

not achieve energy independence until 2035. ExxonMobil and Talisman Energy 

have both recently pulled out of Polish shale gas exploration. 

33 

6 Also, Russia historically been willing to pay a significant premium for gas produced by other Caspian nations in order to maintain economic leverage and to 

thwart significant gas sales to Europe via a new southern corridor. Since 2009, 

Russia has purchased approximately 1 bcma of Azerbaijani gas through the 

Gazi-Magomed-Mozdok pipeline. Azerbaijan also conducts gas swaps with Iran 

to supply its exclave of Nakhchivan. 

7 Shah Deniz consortium shareholders include Britain’s BP (25.5 percent), Norway’s Statoil (25.5 percent), Azerbaijan’s SOCAR (10 percent), France’s Total 

S.A. (10 percent), Russia’s Lukoil in partnership with Italy’s Eni (10 percent), 

Iran’s NIOC (10 percent), and Turkey’s TPAO (9 percent). The participation of 

Iran’s NIOC has threatened the consortium’s political viability in the midst of 

tightening U.S. and EU sanctions against Iranian entities. The United States 

and European Union have repeatedly exempted Shah Deniz from Iran-related 

sanctions given NIOC’s role as a ‘‘passive’’ investor. 

8 The International Energy Agency’s World Energy Outlook 2012, for example, estimates 44 bcm in 2030. 

9 BP currently operates oil extraction in the ACG field on behalf of the Azerbaijan 

International Operating Company (AIOC), which includes Chevron, Statoil, Turkey’s TPAO, ExxonMobil, SOCAR, Japan’s INPEX and Itochu, and Hess. Significant capital investments would be required to increase production under the 

production sharing agreement that runs until 2024. This turmoil could result 

in delays for the tender of an ACG Deep PSA for gas development. To date, it 

is unclear even if current ACG partners would operate ACG Deep. 

10 Initially, the dispute centered on whether a new pipeline would be built (favored 

by SOCAR) or whether the SCP would be upgraded (favored by BP). Azerbaijani 

President Ilham Aliyev intervened and chose the latter. Consequently, the dispute centered on the size of the upgraded pipeline. SOCAR favored a 56-inch 

pipeline through the Caucasus mountains in Georgia (requiring lower compression costs but raising construction costs), whereas BP favored a smaller but 

scalable 42-inch pipeline over the mountains (reportedly requiring as much as 

1–2 bcm to be consumed by additional compressors). Both sides agreed, however, that the SCP upgrade must be scalable to accommodate all future Caspian 

gas, including potential Turkmen throughput, up to 63 bcm (25 bcm of which 

Shah Deniz I and II provide). 

11 BP Statistical Review of World Energy 2012. 

12 The U.S. State Department’s Export Control and Border Security (EXBS) and 

U.S. Defense Department’s Section 1206 train-and-equip programs have also 

provided smaller boats and zodiacs, respectively, to Azerbaijani coastal authorities. 

13 For example, twice in 2008, Azerbaijan’s coast guard intercepted vessels, which 

were conducting seismic exploration in offshore fields under contract from 

Turkmenistan. One involved a Russian state vessel hired by Canada’s Buried 

Hill and the other involved a ship hired by Malaysia’s Petronas. In 2011, the 

Russian and Kazakh military conducted a naval exercise to thwart aggression 

near Kazakhstan’s offshore platforms; Iran was allegedly the potential aggressor nation. In the past, Iran has also moved its own drilling rigs into waters 

disputed by Azerbaijan. More commonly, fishing vessels inadvertently float into 

the two-mile exclusion zones around Azeri offshore platforms, still requiring a 

response by coast guard authorities. 

14 Although not a signatory, the United States gave its full support for the 

Nabucco treaty and was represented at the signing ceremony in Ankara by Senator Richard Lugar and Special Envoy Richard Morningstar, demonstrating bipartisan support from both the Congressional and Executive branches. 

15 The Nabucco consortium currently consists of six energy companies: Germany’s 

RWE, Austria’s OMV, Hungary’s OML, Romania’s Transgaz, Bulgaria’s 

Bulgargaz, and Turkey’s BOTAS. 

16 While this concern is legitimate given that BOTAS currently has no capacity 

for extra gas, Turkish officials assured that TANAP would be completed on 

time; within Turkey, there is apparently disagreement on whether an additional 

BOTAS upgrade will occur in any case, which Turkey would have to fully finance absent a new round of negotiations with other stakeholders. 

34 

17 European Union Council Decision 2012/635/CFSP, October 15, 2012. To date, 

the EU and United States have pursued sanctions against Iranian oil exports, 

which far surpass its minimal gas exports. 

18 The shareholders included Italy’s Edison, Greece’s DEPA, and Turkey’s BOTAS. 

Like TAP, it was to have a capacity of 10 bcm and would stretch from Turkey 

through Greece to Italy. 

19 SEEP was BP’s own pipeline proposal that would have relied on existing infrastructure from Azerbaijan through Turkey. SEEP would have begun at the Bulgarian-Turkish border and stretched to Hungary, consisting of both upgraded 

existing pipelines and additional new segments. From Hungary, additional 

interconnectors were envisioned to Austria and other parts of Central Europe. 

SEEP would have had a capacity of 10 bcm. 

20 One proposal (not part of the official TAP proposal) would be the so-called Ionian-Adriatic Pipeline northward from Albania, through Montenegro, Bosnia, and 

Croatia. 

21 However, the scaled-back version of Nabucco West likely will cause its lead 

partner, RWE, to sell its stake in the project given RWE’s requirement that 5 

bcm arrives for delivery into its own system. Reportedly, BP may acquire a 

stake in the consortium. 

22 See Section 201 of the Iran Threat Reduction and Syria Human Rights Act of 

2012, P.L. 111–158. 

23 See Section 603 of the Iran Threat Reduction and Syria Human Rights Act of 

2012, P.L. 111–158. ‘‘Nothing in this Act or the amendments made by this Act 

shall apply to any activity relating to a project: (1) for the development of natural gas and the construction and operation of a pipeline to transport natural 

gas from Azerbaijan to Turkey and Europe; (2) that provides to Turkey and 

countries in Europe energy security and energy independence from the Government of the Russian Federation [emphasis added] and other governments with 

jurisdiction over persons subject to sanctions imposed under this Act or amendments made by this Act; and (3) that was initiated before the date of the enactment of this Act pursuant to a production-sharing agreement, or an ancillary 

agreement necessary to further a production sharing agreement, entered into 

with, or a license granted by, the government of a country other than Iran before such date of enactment.’’ 

24 This exception has been exercised by several energy majors in Iraq given vast 

potential for future PSAs. 

25 Several energy majors maintain offices in Turkmenistan. Chevron also runs 

major development projects with USAID, providing 17 percent of USAID’s budget in Turkmenistan, focusing on youth centers and junior achievement projects. 

26 For example, at the time of the SFRC visit, a row continued between the 

Turkmenistan Government and one of its service contractors due to drilling failures. 

27 With only a population of 5 million, the Turkmenistan Government appears to 

be satisfied with modestly rising energy revenues. The Government only requires a reported $10 million to finance its construction boom in Ashgabat. 

Moreover, as one interlocutor noted, the concept of present value of money (i.e., 

a dollar today is worth more than a dollar tomorrow) does not exist in 

Turkmenistan. 

28 Turkmen suspicion of even smaller companies was heightened after Burren Energy, an offshore operator, sold its shares to Italy’s ENI without the 

Turkmenistan Government’s consent. 

29 That is, unless they are concentrated around compressor stations, which would, 

however, not prevent disruptions to the pipeline itself, as has been the case in 

pipeline attacks in Turkey and elsewhere. 

30 Commissioner Oettinger at the time of this decision noted that ‘‘Europe is now 

speaking with one voice. The trans-Caspian pipeline is a major project in the 

Southern Corridor to bring new gas to Europe.’’ 

31 The European Union reportedly will also soon open a mission in Ashgabat. 

35 

32 The latest report of the Caspian Development Corporation can be accessed at: 

http://ec.europa.eu/energy/infrastructure/studies/doc/ 

2010_12_report_cdc_final_implementation.pdf. 

33 As long as the Government of Iran pursues a nuclear weapons program, it 

would be unwise for Turkey to consider transiting Turkmen gas via Iran. 

34 For example, in response to intensified talks on trans-Caspian gas shipments 

from Iran, Russian Duma Vice Speaker is reported to have warned of an impending ‘‘Arab Spring’’ in Turkmenistan; Russian non-governmental outfits 

have warned Turkmenistan that it may suffer the same fate as Georgia in 2008 

if talks with the EU continue. 

35 ExxonMobil is reportedly pulling out of its project in southern Iraq, seeking to 

sell its 60 percent stake in a service agreement to develop the massive West 

Qurna-1 oil field in southern Iraq. 

36 The average price in the United States is $3.18/MBtu; the price in the United 

Kingdom is $10.35/Mbtu; the price in Germany is $10.82/Mbtu; and the price 

in Japan is nearly $16.84/Mbtu, as of December 8, 2012, Bloomberg New Energy 

Finance. 

37 15 U.S.C. §717b 

38 As of May 2012, Europe possessed 22 LNG terminals (import and export) with 

the following breakdown: Belgium (1); UK (4); France (3); Italy (2); Greece (1), 

Turkey (2); Portugal (1); Spain (6); Netherlands (1); Sweden (1); and Norway 

(1). 

A P P E N D I X E S 

(39) 

Appendix I 

The Lugar Energy Report, ‘‘Lugar Travels Pipeline Route,’’ 

August 2006 

40 


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45 


I he Lug .. "netg)' Rep"" 

L UGAR VISITS GEORGI.\N C D C 

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ond ' .. """" .. -...... Lotwnlory. the N"",,",_ .......... '" disnIooI ..... 01",· moo _ 1>I:qal_1>OI>I 

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~,Georeio-U.s_'e~-..""""""' .. CIIo/nNonDi<l<L ___ IO/IJ_....,."..._ 1iOoQO""" ...... ___ (1ou<!"In>m/oft) .. _ ... __ ... ~_~,,... .... 

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(47) 

The Lugar Energy Report, ‘‘Importance of the Nabucco Pipeline,’’ 

July 2009 

48 


NABUCCO'S IMPORTA NCE, CONT IN UED 

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50 


POX' • 

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52 


p, ••• 

NABUCCO'S IMPORTANCE, CONTINUED 

__ 

torm_~rc.h'_,""""'''"''' ItI(Io.ootry_Io __ __ 

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__ 10 

Oor(r 

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SENATOR Tho-.,"'_L LUGAR'S NABUCCO STATEMENT __ ..... _ .. _ .. IIIo-"CCO ___ ~_In_, ... 

_ _ bt' __ "'_ S._£""",,rc.E_~. 

~ __ "'_fI' 

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NATO-..,. ...... mekO_ ~ 

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......,.",_In~.1 __ .. ~_ .... ___ Goorpo_~TIIounllo<l 

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--,~ . .-.--.. --.... ---- ...,. ~ 

.. _._--_ __ .. £tieoo-._ -.---.. _""'"' .... 

----",-~­ ~ .. - -_ Tooolt"" IoI'Ootoo"y_"" 

.. _ ... - .... <»nI'kta. YO<J<..-.oo_ 

--- .".,.,.,otO>n.,.., ... -..._ 

~-
(53) 

Appendix II 

Transcript of Senator Lugar’s keynote 

address at the German Marshall Fund Conference, 

delivered at the NATO Summit in Riga, Latvia 

Congressional Record, Senate 

VOL. 152, PT. 18

Mr. President: I rise today to request that my remarks, delivered 

in a keynote address at the German Marshall Fund conference on 

Monday, November 27 in Riga, Latvia in advance of the NATO 

Summit, be entered into the record. 

Thank you Madam President [Dr. Vaira Vike-Freiberga, President of the Republic of Latvia]. I appreciate your thoughtful introduction and your generous hospitality. It is a pleasure to be back 

in Riga and to deliver the keynote address here at this important 

German Marshall Fund conference. This conference and the participants it has drawn are evidence of the deep respect the Fund merits throughout Europe and North America. 

In 1991 NATO stood at a crossroads. With the collapse of the Soviet Union and the Warsaw Pact, the Alliance could have declared 

victory and disbanded. Instead, NATO chose to adapt to the new 

security environment and build on its legacy of being the most successful security and defense organization in history. 

Since that time, we have welcomed ten new members into the Alliance and have begun a dramatic transformation of our military 

capabilities. We have also undertaken missions in the Balkans and 

Afghanistan that have extended the purpose of the Alliance beyond 

the territorial defense of its membership. However, while NATO is 

busier than ever, these activities do not guarantee that the Alliance 

will remain strong and relevant. 

For nearly half a century, NATO was oriented toward defending 

against an attack from the East by Warsaw Pact forces. Today, 

NATO’s posture is influenced by emerging threats such as the proliferation of weapons of mass destruction, rogue states, terrorism, 

and genocide. The security threats of the 21st century require 

NATO members to deploy forces rapidly over long distances, sustain operations for extended periods of time, and operate jointly as 

trans-Atlantic partners with the United States in high intensity 

conflicts. To be fully relevant to the security and well being of the 

people of its member nations, NATO must think and act globally. 

The Test of Afghanistan 

This is evident in the NATO mission in Afghanistan. That country presents a difficult environment, but NATO must be resourceful, resilient, and ultimately successful. The September 11 attacks 

were planned in Afghanistan, al-Qaeda still operates there, and the 

fate of the country remains inexorably tied to the Alliance. NATO’s 

54 

International Security and Assistance Force (ISAF) is responsible 

for security operations throughout all of Afghanistan. 

In recent months, Taliban attacks have occurred with greater 

frequency, coordination, and ferocity. They have extended well beyond the South and East, where most of the fighting has been located. Although the hunt for al-Qaeda terrorists continues, the primary threat to the stability of Afghanistan is Taliban insurgents 

who are challenging ISAF in greater numbers, sowing dissent 

among Afghanis, cooperating with the bourgeoning narcotics trade, 

and complicating security efforts in ways that inhibit the rule of 

law and reconstruction. 

If the most prominent alliance in modern history were to fail in 

its first operation outside of Europe due to a lack of will by its 

members, the efficacy of NATO and the ability to take joint action 

against a terrorist threat would be called into question. Moreover, 

Afghanistan has a legitimately elected government and a long-suffering people, both of which deserve a chance to succeed without 

the threat of violent upheaval. 

It is imperative that NATO fulfills its commitments to Afghanistan. The Alliance has found it difficult to generate the political 

will to meet NATO objectives. The reluctance in capitals to grant 

NATO requests for troops and resources have complicated this 

process. Despite months of intensive discussions, Supreme Allied 

Commander/Europe, General Jim Jones, disclosed in September 

that NATO was 2,500 troops short of the minimal commitment requested for ISAF. These troops did not materialize until General 

Jones and other NATO leaders publicly put Alliance nations on the 

spot for these shortfalls. 

Afghanistan has become a test case for whether we can overcome 

the growing discrepancy between NATO’s expanding missions and 

its lagging capabilities. NATO commanders must have the resources to provide security, and they must have the flexibility to 

use troops to meet Afghanistan’s most critical security needs. Unfortunately, NATO capitals are making the military mission even 

more difficult by placing national caveats on the use of their forces. 

These restrictions, coupled with troop shortages, are making ISAF 

a less cohesive and capable force. 

Similar problems are plaguing the NATO Response Force (NRF), 

which is slated to be NATO’s expeditionary fighting unit. As is 

often the case, the lack of transport capabilities is a glaring deficiency. I am hopeful that the plan to establish a fleet of C-17s 

under the command and control of NATO succeeds. To overcome 

these challenges and similar ones, we must reverse the downward 

spiral of defense budgets. Only a handful of members spend more 

than 2 percent of their gross domestic product on defense. Good intentions can only carry a military force so far—the NRF and other 

NATO assets must have the equipment, training, and resources to 

fulfill their mission. 

I believe strongly that NATO is capable of meeting the challenge 

in Afghanistan. NATO commanders have demonstrated that they 

understand the complexity of the mission. They know that success 

in Afghanistan depends on the attitudes of the people, the progress 

of reconstruction, the development of the economy and the building 

55 

of civil institutions that can deal with the narcotics trade, as much 

as it depends on battlefield victories. 

Most Afghanis have welcomed the advances in personal freedom, 

political participation, and educational opportunities that have 

come during the last five years. The recent increase in violence in 

Afghanistan clearly is not evidence of a popular uprising. But to 

the degree that there is discontent, disillusionment, or fear among 

the Afghan people due to their security situation, trust in the Afghan Government and NATO will dissipate. Insecurity stemming 

from insurgent activity by Taliban forces has also caused Afghanis 

in some regions to seek the protection of tribal leaders and warlords, which in turn undercuts the authority of the Afghan Government and increases the risk of civil conflict between tribal factions. 

Given these dynamics, we must dispel any doubts about the commitment of NATO and the West to Afghanistan’s emergence as a 

stable and free society. 

The Centrality of Energy 

NATO’s challenges continue to come in new formations. We have 

to understand not only the military configuration of threats before 

us, but also the likely basis for future conflict. The NATO alliance 

has been successful, not because it fought wars, but because it prevented them. If the NATO alliance is to be fully relevant to the security of its members, it must expand beyond the mission of military defense and begin to think about how to prevent the conditions that will lead to war. 

In the coming decades, the most likely source of armed conflict 

in the European theater and the surrounding regions will be energy scarcity and manipulation. It would be irresponsible for NATO 

to decline involvement in energy security, when it is abundantly 

apparent that the jobs, health, and security of our modern economies and societies depend on the sufficiency and timely availability 

of diverse energy resources. 

We all hope that the economics of supply and pricing surrounding energy transactions will be rational and transparent. We 

hope that nations with abundant oil and natural gas will reliably 

supply these resources in normal market transactions to those who 

need them. We hope that pipelines, sea lanes, and other means of 

transmission will be safe. We hope that energy cartels will not be 

formed to limit available supplies and manipulate markets. We 

hope that energy rich nations will not exclude or confiscate productive foreign energy investments in the name of nationalism. And 

we hope that vast energy wealth will not be a source of corruption 

within nations that desperately ask their governments to develop 

and deliver the benefits of this wealth broadly to society. 

Unfortunately, our experiences provide little reason to be confident that market rationality will be the governing force behind 

energy policy and transactions. The majority of oil and natural gas 

supplies and reserves in the world are not controlled by efficient, 

privately owned companies. Geology and politics have created oil 

and natural gas superpowers that nearly monopolize the world’s oil 

supply. According to PFC Energy, foreign governments control up 

to 79 percent of the world’s oil reserves through their national oil 

companies. These governments set prices through their investment 

56 

and production decisions, and they have wide latitude to shut off 

the taps for political reasons. 

The vast majority of these oil assets are afflicted by at least one 

of three problems: lack of investment, political manipulation, or the 

threat of instability and terrorism. As recently as four years ago, 

spare production capacity exceeded world oil consumption by about 

ten percent. As world demand for oil has rapidly increased in the 

last few years, spare capacity has declined to two percent or less. 

Thus, even minor disruptions of oil supply can drive up prices. Earlier this year, a routine inspection found corrosion in a section of 

BP’s Prudhoe Bay oil pipeline that shut down 8 percent of U.S. oil 

output, causing a $2 spike in oil prices. That the oil market is this 

vulnerable to something as mundane as corrosion in a pipeline is 

evidence of the precarious conditions in which we live. 

Within the last year and a half, the international flow of oil has 

been disrupted by hurricanes, unrest in Nigeria, and continued 

sabotage in Iraq. Al-Qaeda and other terrorist organizations have 

openly declared their intent to attack oil facilities to inflict pain on 

Western economies. We should also recognize that NATO members 

are transferring hundreds of billions of dollars each year to some 

of the least accountable, autocratic regimes in the world. The revenues flowing to authoritarian regimes often increase corruption in 

those countries and allow them to insulate themselves from international pressure and the democratic aspirations of their own peoples. As large industrializing nations such as China and India seek 

new energy supplies, oil and natural gas may not be abundant and 

accessible enough to support continued economic growth in both 

the industrialized West and in large rapidly growing economies. In 

these conditions, energy supplies will become an even stronger 

magnet for conflict. 

Under the worst case scenarios, oil and natural gas will be the 

currency through which energy-rich countries leverage their interests against import dependent nations. The use of energy as an 

overt weapon is not a theoretical threat of the future; it is happening now. Iran has repeatedly threatened to cut off oil exports 

to selected nations if economic sanctions are imposed against it for 

its nuclear enrichment program. Russia’s shut off of energy deliveries to Ukraine demonstrated how tempting it is to use energy to 

achieve political aims and underscored the vulnerability of consumer nations to their energy suppliers. Russia retreated from the 

standoff after a strong Western reaction, but how would NATO 

have responded if Russia had maintained the embargo? The 

Ukrainian economy and military could have been crippled without 

a shot being fired, and the dangers and losses to several NATO 

member nations would have mounted significantly. 

We are used to thinking in terms of conventional warfare between nations, but energy could become the weapon of choice for 

those who possess it. It may seem to be a less lethal weapon than 

military force, but a natural gas shutdown to a European country 

in the middle of winter could cause death and economic loss on the 

scale of a military attack. Moreover, in such circumstances, nations 

would become desperate, increasing the chances of armed conflict 

and terrorism. The potential use of energy as a weapon requires 

NATO to review what Alliance obligations would be in such cases. 

57 

Energy as an Article Five Commitment 

We must move now to address our energy vulnerability. Sufficient investment and planning cannot happen overnight, and it will 

take years to change behavior, construct successful strategies, and 

build supporting infrastructure.NATO must determine what steps 

it is willing to take if Poland, Germany, Hungary, Latvia or another member state is threatened as Ukraine was. Because an attack using energy as a weapon can devastate a nation’s economy 

and yield hundreds or even thousands of casualties, the Alliance 

must avow that defending against such attacks is an Article Five 

commitment. This does not mean that attempts to manipulate energy for international political gain would require a NATO military 

response. Rather, it means that the Alliance must commit itself to 

preparing for and responding to attempts to use the energy weapon 

against its fellow members. NATO must become a reliable refuge 

for members against threats stemming from their energy insecurity. If this does not happen, the Alliance is likely to become badly 

divided as vulnerable members seek to placate their energy suppliers. In fact, no issue in the history of NATO is so likely to divide 

the alliance in the absence of concerted action. 

Article Five of the NATO Charter identifies an attack on one 

member as an attack on all. Originally envisioned to respond to an 

armed invasion, this commitment was the bedrock of our Cold War 

alliance and a powerful symbol of unity that deterred Warsaw Pact 

aggression for nearly fifty years. It was also designed to prevent coercion of a NATO member by a non-member state. We should recognize that there is little ultimate difference between a member 

being forced to submit to foreign coercion because of an energy cutoff and a member facing a military blockade or other military demonstration on its borders. 

In preparing for such a commitment, NATO leaders should develop a strategy that includes the re-supply of a victim of an aggressive energy suspension. How would the Alliance shift energy 

supplies and services to a member under such an attack? What 

steps can NATO take now to ensure that we have the infrastructure in place to respond to such an attack? What steps are needed 

to diversify our energy sources and supply routes to deter the use 

of energy as a weapon? Alternatives to existing pipeline routes 

must be identified and financial and political support for the development of alternative energy sources is crucial. A coordinated and 

well-publicized Alliance response would be a deterrent that would 

reduce the chances of miscalculation or military conflict. It would 

also provide a powerful incentive for Member states to remain in 

the Alliance and for prospective members to accelerate reforms necessary to qualify for membership. 

The energy threat is more difficult to prepare for than a ground 

war in Central Europe. Troops, equipment, and supplies can move 

along highways and over difficult terrain. Energy supplies do not 

enjoy the same freedom of movement. Developing a logistical response to an energy cutoff will prove a complex challenge. 

My friend, Mark Grossman, the former U.S. Under Secretary of 

State for Policy, has proposed reviving the REFORGER exercises 

of the Cold War. These exercises were carried out to prepare for 

the massive troop and equipment re-supply mission that would be 

58 

required to thwart a Soviet attack. A new REFORGER should focus 

on how the Alliance would supply a beleaguered member with the 

energy resources needed to withstand geo-strategic blackmail. This 

will not be easy or comfortable for the Alliance. Members will be 

required to tighten their belts and make hard choices. But, if we 

fail to prepare, we will intensify our predicament. 

Beyond constructing strong alliance commitments related to energy, NATO must engage Russia and other energy rich nations. I 

advocate establishing regular high-level consultations between Russia and NATO on energy security. The economic and political situation in Russia is intensely influenced by the price of energy. Moscow is banking on big returns from its energy sector indefinitely 

into the future. But the fickleness of energy markets affects not 

only consumers, but producers. 

I believe that Russia has a long-term interest in achieving a 

more prosperous stability that comes with greater investment in its 

energy sector and the development of a reputation as a trusted 

supplier. But its recent actions to temporarily reduce gas supplies 

to the West, confiscate some foreign energy investments, and create 

further barriers to new investment are undermining confidence in 

Moscow’s reliability. This trend is likely to have unintended repercussions for Russia. Even now, Russians are feeling the effects of 

inadequate investment in their energy sector. Russia boasts the 

world’s largest reserves of natural gas, but this winter it could face 

gas shortages of its own. Russia has not contended with investment 

problems in its natural gas industry, and its artificially low domestic gas prices have undermined the development of efficiency measures that are commonplace in the West. Russia now requires gas 

imports from Central Asia, which it sells at a premium to Europe. 

Yet if growing domestic demand in Russia outstrips stagnating production and Central Asian imports, as some commentators predict, 

the Kremlin will face the difficult choice between letting some of 

its people go cold or not meeting its commitments to Europe. 

We do not wish these difficulties on anyone. But we should speak 

clearly with Russia about our concerns and our determination to 

protect our economies and our peoples. We should outline the differences between a future in which Russia tries to leverage for political advantage the energy vulnerabilities of its neighbors and a 

future in which Russia solidifies consumer-producer trust with the 

West and respects energy investments that help expand and maintain Russia’s production capacity. Energy is a two-way relationship 

and will remain so even as Europe and the United States diversify 

their energy resource base. Both NATO and Russia need a sustained discussion on the rule of law, the status of foreign investment, bi-national and multinational agreements, and steps to implement the principles agreed to at the G-8 Summit in July. 

Expanding NATO’s Partners 

One critical element in strengthening the alliance’s energy security is developing new relationships and admitting new members 

who will contribute to NATO’s efforts in this area. I applaud Alliance efforts to develop special relationships with states around the 

world. At the Riga Summit, NATO should authorize the creation of 

59 

partnerships with like-minded countries such as Japan, Australia, 

South Korea, Finland, and Sweden. 

An effective energy strategy should also include new strategic relationships with energy exporters. I urge Alliance leaders to look 

to the Caucasus and Central Asia for new partnerships. These 

states are critically located and important sources of oil and natural gas. Substantial improvement is needed in the region in areas 

such as democracy, the rule of law, and civil society. A closer relationship with NATO will promote these values and contribute to 

our mutual security. I recommend that NATO focus especially on 

its relationships with Azerbajian and Kazakhstan. While both 

countries have considerable work to do, eventual NATO membership must be on the table. 

I believe that some aspirant states are prepared to assume membership responsibilities. Croatia, Albania, and Macedonia should be 

invited to join NATO as soon as they meet Alliance requirements. 

Each has expressed a strong desire to join the Alliance, and each 

is capable of making important contributions. While I am disappointed that invitations will not be extended here at Riga, we 

must increase the tempo of cooperation between the Alliance and 

those states. 

NATO should also invite Georgia to join the Alliance. Tbilisi is 

a young democratic government, resisting pressure from breakaway 

republics backed by Moscow and Russian troops on Georgian soil. 

Georgia has been a superb role model for the region, and it is host 

to critical segments of the Baku-Tbilisi-Ceyhan oil pipeline and the 

Southern Caucuses natural gas pipeline. Two months ago, the 

NATO Secretary General announced that the Alliance had 

launched an Intensified Dialogue with Georgia. While this is an important step, NATO must grant a Membership Action Plan as soon 

as possible. 

After recovering from recent political instability, Ukraine has indicated that it wants to move more slowly toward NATO membership. I am pleased that Kiev has acknowledged the important work 

needed to accurately convey to its population what NATO membership would mean. While I hope this process might move more 

quickly, I urge the Alliance, when all applicable criteria are satisfied, to support efforts for Ukraine to join NATO. 

The Alliance must also continue to encourage Belgrade to meet 

its international obligations, which include full cooperation with 

the International Criminal Tribunal for the former Yugoslavia. 

With additional progress on war criminals and other important reforms, Serbia would be a valuable member of the Alliance. 

Conclusion 

By their nature, alliances require constant study and revision if 

they are to be resilient and relevant. They must examine the needs 

of their members and determine how the alliance can safeguard the 

freedom, prosperity, and security of each member. NATO has survived and prospered because it has been able to do this repeatedly. 

We have met the threat of Soviet aggression, expanded the zone of 

peace and security across Europe, guarded against the risks posed 

by terrorism and weapons of mass destruction, and improved our 

ability to project power over long distances. We are meeting threats 

60 

in Afghanistan, the African continent, and other locations outside 

Europe. But if we fail to reorient the Alliance to address energy security, we will be ignoring the dynamic that is most likely to spur 

conflict and threaten the well-being of alliance members. 

I understand that adopting energy security as a mission is a 

major advancement from NATO’s origins. But it represents an historic opportunity to change the circumstances of geopolitics to the 

benefit of all members. At this summit, we should engage in a 

broad, strategic debate on how we can ensure progress in Afghanistan, strengthen NATO through new members, and face the energy 

security threats of the 21st century together. Although Riga may 

not produce definitive answers to these questions, it must be the 

summit that starts the crucial discussion that will lead to consensus. 

The stakes are such that if we wait even a few years, we are 

likely to find that our alliance is in jeopardy. We will look back at 

this point in time and see it as a critical juncture that required 

bold vision and leadership. I look forward to working together with 

each of you to provide this leadership. 

Thank you. 

(61) 

Appendix III 

Letter to Secretary of State Condoleezza Rice from 

Senator Lugar and then-Senator Biden regarding the 

appointment of a U.S. Special Envoy for Eurasian Energy Security 

62 


intended 10 giw RUSlli4IMnopoly COIItral oCoit lind IIlllural gas espon roUt" iQ CenlJ'lll Asia. 

We should find cnhanoi:d ways to a;ldrc .. thi.~ challenge and demOnSlnlle our p.lblic 

commitment to alternative energy roules, 

We applaud the dTor15 of IP.puly Assisl.ant SetTelIlTY of Stale Mall Bryu, wbo has 

f\']lresen~d \be: United SlateS "ilb Irt"mendous ,,"erg)' and creativity. "Illo: imponancc of the 

Caspian and Centn.l Asia for U.S . .'llCuril)' and the ongmlll! ftttivilicsofRusslalead us 10 believe 

WI U.S. diplomatic c~lIcmcm in lhe ~sion should be enhanced. 

We urge )'OIl to consid", appointment ofa Spt:<:ial reprcstntallve dedica:ed 10 metgy in 

the Caspian Sea j)as;n and C(!Ilra) Asia. Such a "'J1'""I:nuni,~ could .... -ork .... ill- the International 

Energy Coordinator and Bureau of European Affail1lto gal"an;"" use of U.S. diplomatic 

tcSOlIR:e5 in the region. It would 31$0 demO<1S\lale 10 leadn-s in the region a highet l~eI oru.s. 

regional rommilrt1ent. 

~!>~""), 

Richard G. LU~31 • 

Ranking Minority Member 
63 

Appendix IV 

LIQUEFIED NATURAL GAS (LNG) FOR NATO ACT

Æ