The race between Russia and the European Union over energy pipeline corridors has become a little more intense after a series of recent events in Turkey.

Months of delays in negotiations between Turkey and Azerbaijan over Turkey’s price for transmitting gas to Europe through the Nabucco gas pipeline and the Interconnector Turkey-Greece-Italy gas pipeline have culminated in a row between Baku and Ankara. This seemed to coincide with the recent rapprochement between Azerbaijan’s ally Turkey, and its enemy Armenia. As Turkish-Armenian rapprochement began to appear inevitable, President Ilham Aliyev of Azerbaijan arranged a deal with Moscow during a Commonwealth of Independent States meeting in which he would direct the sale of 500 million cubic metres of gas from the newly tapped Shah Deniz Phase 2 gas field reservoir (a large deposit located below the Shah Deniz Phase 1 reservoir off Azerbaijan in the southern Caspian Sea) in 2010, and threatened to extend this deal into a permanent supply agreement. This would divert gas from the South Caucasus gas pipeline (which supplies gas to Georgia) and bypass Turkey.

A week later, after the signing of the Ankara-Yerevan rapprochement, President Aliyev announced on Azerbaijani national television that he would no longer subsidise gas sold to Turkey, issuing further threats against Western efforts to use the Turkish pipeline to deliver gas to Europe. Negotiations have been quietly proceeding since then to restore Azerbaijan’s confidence in Turkey as a transportation corridor partner.

Then last week Russia, in a race to push through the Gazprom-Eni backed South Stream gas pipeline before the EU’s Southern Corridor can be constructed jumped a major hurdle when Turkish Economy Minister Taner Yildiz announced on Tuesday that his Government will permit the Russian-Italian project to lay pipes within Turkish territorial waters. This will allow South Stream to bypass territorial waters controlled by Ukraine.

These events have brought the race between the Southern Corridor and South Stream to the forefront of international attention, and moved Russia into a neck-and-neck chase with the Europeans, in which it may be even a bit ahead, in the race to build the first pipeline.

Europe’s Entry: The Southern Corridor

The Southern Corridor is Europe’s latest effort to diversify its energy sources and move beyond dependence on Russia. To be implemented by the Caspian Development Corporation (CDC), a body devised last November to serve as a “one-stop shop” for the transport of gas from the Caspian Sea and Central Asia to Europe, the Southern Corridor concept will involve using the existing South Caucasus gas pipeline, the Nabucco gas pipeline connecting Turkey and Austria, the Interconnector Turkey-Greece-Italy gas pipeline, the proposed White Stream project connecting Georgia, Ukraine and Romania and the Trans-Adriatic gas pipeline connecting Romania and northern Italy to deliver gas to Europe along three corridors (Turkey-Austria, Turkey-Italy and Georgia-Romania-Italy).

Southern Corridor diversifies Europe’s energy providers from the east. Since the West-Siberian gas pipeline was extended to Western Europe in the 1980s, Russia has dominated the European energy market. Today, the European Union receives 50 percent of its gas and 30 percent of its oil supplies through the Russian pipelines.

Tapping Caspian Sea oil and gas resources was seen as the best remedy to reduce Russian control of Europe’s energy market. In 1994 the BP Company (formerly British Petroleum) led a consortium of 10 oil firms in forming the Azerbaijan International Operating Company (AIOC – likely a play on BP’s original name: the Anglo-Iranian Oil Company). The new AIOC began developing the Azeri-Chirag-Gunashli (ACG) oil fields in the central Caspian Sea. Similarly, BP worked with a smaller group of companies in a joint venture to develop the Shah Deniz offshore gas field farther south.

Today, Caspian oil runs through Georgia and Turkey in the Baku-Tbilisi-Ceyhan (BTC) pipeline (the second largest oil pipeline in the world after the Druzhba), and its gas goes through the South Caucasus pipeline (which follows the same route as far west as Erzurum). In the future, it is planned to send Caspian gas from eastern Turkey through the Southern Corridor pipelines. The most well-known component of the Corridor is the proposed pipeline from Turkey to Austria to be built by Nabucco Gas Pipeline International GmbH (named after a Giuseppe Verdi opera), a consortium led by Austria’s OMV energy firm. This pipeline would supply southeastern Europe and connect Caspian gas with Western European energy markets.

Russia’s Entry: South Stream

Russia is racing in with a pipeline of its own to supply gas to southeastern Europe and ensure an equally reliable connection with Western Europe. With its South Stream, and corresponding Nord Stream, gas pipelines Moscow plans to eliminate its own reliance on its Western neighbours.

Russia began facing difficulties transmitting gas to the West when newly independent Ukraine diverted it from pipelines passing through its territories. Russia attempted to halt gas supplies to Kiev several times for its alleged failure to pay for what it had overtly imported, but each time the Ukrainians simply diverted gas from the pipelines going to Europe to make up the shortfall.

Following the 2004 Orange Revolution in Ukraine and after a 2007 dispute over Transneft’s attempt to normalise the price of oil sold to Belarus, Russia’s quest for another option became even more urgent. Gazprom selected two projects: Nord Stream, a Baltic subsea pipeline that would carry gas from St. Petersburg to Germany, and South Stream, a Black Sea subsea pipeline that would carry gas from the Krasnodar Region to Bulgaria.

The South Stream project is useful to Russia not only as a more reliable means of delivering gas to the market, but, as Russian Prime Minister Putin demonstrated this week, an effective diplomatic weapon. The Russian newspaper Kommersant stirred fears internationally on Tuesday by suggesting that the timing of the Russian-Turkish agreement meant that Bulgaria, which has elected the relatively anti-Moscow Citizens for European Development (GERB) Party under Prime Minister Boyko Borissov, would be excluded from the South Stream project for refusing to cooperate on other energy projects. In a more notable example of non-cooperation, fellow GERB Party politician and Mayor of Burgas Dimitar Novikov echoed on Greek television the unpopularity of the pipeline. “Our priorities are projects related to the development of tourism and light industry, not those which threaten the environment such as the Burgas-Alexandropoulis oil pipeline,” he said.

Putin has arranged with Turkish Economy Minister Yildiz the use of the proposed Turkish Samsun-Ceyhan pipeline, replacing the Bulgarian-Greek bypass route, but the threat to take the gas pipeline around Bulgaria has proved to be either inaccurate reporting or a bluff, at least for the time being. Still, Turkish cooperation removes a bargaining chip from Ukraine, which had earlier sought to trade its approval for the South Stream passing through Ukrainian territorial waters in return for Russian approval for Ukraine’s White Stream subsea gas pipeline to pass from the Georgian coastline through Russian territorial waters to Ukraine.

Turkish cooperation has also reportedly helped speed up the South Stream project’s timetable, so that it would be completed before the rival Nabucco pipeline. Media observers such as The Moscow Times have suggested that the threat of the speedy construction of such a bypass of the Ukraine-based West-Siberian gas pipeline might be designed to damage Ukrainian President Viktor Yushchenko’s chances of reelection at the beginning of 2010.