BAKU (Commodity Online) : Azerbaijan's state oil company SOCAR said Thursday that an agreement has been reached with Turkey concerning the price of Azerbaijani gas and its transit through Turkish territory.

The new agreement will enable the smooth functioning of the Nabucco gas project.

Nabucco is planned to take gas from the Caspian Sea basin through Georgia and Turkey to the Baumgarten hub in Austria for distribution throughout the European Union, via Bulgaria, Romania, and Hungary.

It was on this basis of the Azerbaijani-Turkish agreement that Nabucco chief Reinhard Mitschek declared last week that the project was on course for entry into service in 2014, for which date construction would begin next year.

There also appears to be progress on the sourcing of Nabucco's gas. Azerbaijan recently announced that it would be able to supply not just the 8 billion cubic meters per year (bcm/y) foreseen for the first phase but indeed as much as 12 bcm/y.

Added to the 8 bcm/y agreed by Turkey with Iraq for Nabucco, this would fill two-thirds of Nabucco's planned 31 bcm/y capacity.

Although there are several putative sources for the remainder, all that is really necessary now to make up the difference is to arrange for the 10 bcm/y Turkmenistan government has promised to the EU, and which can be set up through interconnection of offshore gas rigs in the Turkemenistani sector of the Caspian Sea to offshore gas rigs in the Azerbaijani sector.

At almost the same time as the announcement of the Azerbaijan-Turkey agreement, Austria, which already receives 60% of its gas from Russia, joined the Russian-sponsored South Stream gas pipeline project.

This is projected to run under the Black Sea to Bulgaria, and then bifurcate with one branch going to Italy via Greece and the other to Austria via Romania, Serbia, Hungary (or Croatia), and Slovenia.

Last year, Russia announced that it would more than double South Stream's capacity to 63 bcm/y from 31 bcm/y. Paradoxically; Moscow has already expressed interest to Kiev to participate in upgrading the Ukrainian pipeline system.

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