Baku says good price to determine new gas routes

BAKU, June 2 - Azerbaijan said on Tuesday it would choose new routes for its energy exports based on a good price, not politics, and a U.S. official called on Baku and Ankara to reach a pricing compromise to speed up the Nabucco gas project.

"The energy sector has become very politicised," Azeri President Ilham Aliyev told visiting government officials and executives at the opening of the Caspian Oil and Gas exhibition.

"If we are negotiating sales and purchase contracts, the price should be reasonable. If the issue of transit is on the table, we should also get a reasonable price," he said.

Turkey said last month it sees the current price of Azeri gas unfair. The country wants to boost Azeri imports for domestic consumption and eventually resell the gas to Europe via Nabucco.

Azerbaijan, an ex-Soviet republic on the Caspian Sea, offers an alternative supply route for European energy consumers already reliant on Russia for a quarter of their natural gas.

The country already hosts seven oil and gas pipelines and is a potential partner in the Nabucco project to deliver Caspian and Central Asian gas to Europe.

Russia, concerned Nabucco would undermine its role as gas supplier, has opposed the project in favour of its own alternative.

Russia's South Stream project would transport gas from northern Siberia under the Black Sea and onward to southeast and central Europe. Russia's gas export monopoly Gazprom is in talks to buy all new Azeri gas output from state energy firm Socar from as early as 2012.

Should Baku fail to agree with Turkey on new volumes or should Russia clinch a final deal to buy Azeri gas, the prospects of Nabucco would be seriously undermined as analysts say it is still lacking enough gas to ship to Europe.

"Azerbaijan is going to be very important ... That's why it's critical that Azerbaijan and Turkey reach an agreement on pricing and on transit in the near future that will give confidence to the project," U.S. Secretary of State's Special Envoy for Eurasian Energy Richard Morningstar told Reuters.

Nabucco rests on securing gas supplies in Azerbaijan and Turkmenistan and, possibly, Kurdistan.

"Iraq needs to be subject to an agreement between the Kurds and the national government and we hope that that will happen and then Iraqi gas can ultimately be part of the Nabucco project," said the envoy.

Georgia, which borders Azerbaijan and has coastline on the Black Sea, also offered support in developing energy supply routes that would bypass Russia, with which it fought a five-day war last August over the breakaway region of South Ossetia.

"Europe has one major challenge ahead of it: energy diversification and security," Georgian Prime Minister Nika Gilauri said.

"In the South Caucasus, all projects will play a major role in European energy security. These projects will make Azerbaijan and Georgia stronger in terms of the geopolitical situation."