Baku seems to be in trouble...


It seems that Azerbaijan is having problems with the implementation of the project to double gas supplies to the European Union from the traditional 10 to 20 billion cubic meters per year by 2027. Although a memorandum of intentions was signed in July last year, the transition to the practical phase, which requires not “intentions” but commitments of the parties, is somehow stalling. Why?

I think there are at least several reasons: money, resources, infrastructure, politics and, of course, time. So let’s try to figure it out…

Let’s start, perhaps, with resources. That is, with the volumes of gas that Azerbaijan currently possesses. The explored reserves of the republic are estimated at 2.6 trillion cubic meters. Almost half of them (1.2 trillion cubic meters) are located in the Shah Deniz field, which is being developed by the British Petroleum corporation (BP). The Absheron field, which is being developed by France’s Total Energies, is estimated at 500 billion cubic meters. So far 1.5 billion cubic meters have been produced there, but the French are talking about the possibility of increasing this figure to 5.5 billion.

There are about five more promising fields, of which the most attractive is Shafagh-Asiman (estimated at about 500 billion cubic meters). But so far the British have only started drilling test wells there to understand the commercial viability of further work.

At first glance, the picture is quite encouraging. Especially since Baku has already managed to increase its exports to Europe from the traditional 10 billion cubic meters per year: 11.4 billion cubic meters were already transported last year, and 11.6 billion are expected this year. Nevertheless, something is holding Brussels back….

There are several factors in this case.

First, in addition to the EU, Azerbaijan traditionally exports hydrocarbons, including gas, to Turkey and Georgia. Secondly, its domestic consumption is steadily growing in the republic, which is connected with industrial development and social programs of the country’s leadership. In the aggregate, this reduces Azerbaijani opportunities to increase exports to Europeans.

In this regard, experts of the American think tank Jamestown Foundation note that the increase in raw materials supplies to the EU last year and this year was possible due to SWAP agreements with Turkmenistan and Iran, as well as due to the resale of Russian gas. Moreover, according to American forecasts, the agreements with Turkmenistan and Iran are already being extended, taking into account the increase in their gas volumes.

As for the Russian raw materials, American experts do not have exact information about their volumes coming to Europe through Azerbaijan, but they believe that they are «very significant». In this regard, they remind that the purchase of Russian raw materials, especially during peak seasons of its consumption, is «a traditional way for the republic to maintain the necessary level of exports to third countries».

And from the point of view of Brussels, which in every possible way seeks to get rid of the Russian gas needle, this is completely out of line.

One of the ways to get out of this unpleasant situation for Baku is the agreement reached back in the summer between Azerbaijan and Turkmenistan on the construction of the Trans-Caspian gas pipeline, which would theoretically help to seriously increase the volume of gas supplies to Europe.

But there is another problem. First, Ashgabat is bound by long-term commitments to supply significant volumes of raw materials to China, which has invested a lot of money in its production and construction of trunk pipelines. Secondly, the idea of building TAPI, a trunk pipeline that would carry Turkmen gas through Afghanistan to Pakistan and India, has not been completely discarded yet. By the way, the section from the extraction sites to the Afghan border has been largely built. Thirdly, the process of industrialization and modernization of Turkmenistan, launched by President Serdar Berdimuhamedov, is gaining momentum. Consequently, domestic gas consumption is also growing.

And one more question concerning not only the Trans-Caspian gas pipeline. Where to get funds for its construction, and at the same time for the modernization of the Trans-Antalya gas pipeline running from Erzurum to the border of Turkey with the EU countries, the main owner and beneficiary of which is Azerbaijan (it owns 58% of shares, Turkey — 30%, BP — 12%)? At least, a serious increase in pumping volumes will require the construction of additional pumping stations. Obviously, Baku does not have such money (we are talking about billions of dollars). So, investors are needed.

The issue of investments, especially long-term ones, also hampers the process of development of potentially promising fields. Not only drilling wells on the shelf is a very costly process (again, the billions of dollars are involved), but the exploitation of new areas will also require appropriate infrastructure. And this also means additional investments.

But the common practice is that no investor will be interested in large projects of such kind, the realization of which takes years, without clear contractual guarantees. And these guarantees must be given by the potential buyer. In this case, the EU.

Let’s talk about it.

Hungary, Romania, Slovakia, Albania, Serbia and Croatia have already announced their desire to buy gas from the Caspian shores or increase its import. At the same time, they are all looking at Bulgaria, which, thanks to the increase of additional supplies of Baku gas, was able to reduce tariffs for its consumers by 10.2% at the height of the summer season. This is a positive experience.

However, the EU leadership does not care much about it. Why?

There are two main points here. First, the green agenda of Brussels, according to which Europe should refuse to invest in new hydrocarbon deposits and, in general, gradually give up fossil fuels. But the EU’s leadership and major leading countries are instead pushing ahead with renewable energy capacity development projects.

Second, liquefied natural gas (LNG), coming primarily from the United States. We will not go into the subject of whose interests Brussels bureaucrats are promoting and for whom they are really working. It sounds everywhere. And not only in Russia. Let us just note that according to Global Witness, the EU and the UK account for 67% of all American LNG exports. And the main recipients of raw materials are only five countries: the Netherlands, the UK, France, Spain and Germany — more than half of the total LNG exports from the US.

As for the interests of southeastern European countries, it seems that they will continue to be fed with promises to start financing projects within the framework of green energy programs. Especially since in case of a positive solution of the issue of purchasing Azerbaijani gas, they will have to invest in the construction of additional pipelines of local importance.

So, summarizing the above, let us suggest that the pause, which Brussels has been keeping for more than a year, may last for an indefinitely long time. And Baku seems to have less and less time….

A phrase of a Kiev propagandist came to mind, who after reviewing the situation on the front and inside Ukraine, and after news about the reduction of Western aid, said: «It looks like we’ve bet on the wrong horse». It just came to mind for some reason….