23/11/2017 |

“Gazprom” returned to Azerbaijan


Azerbaijan 11 years later returned to buying gas from Gazprom. The country, which aspires to become a European supplier, lacks raw materials due to a drop in production at the largest Shah Deniz field. So far, Baku will purchase 1.6 billion cubic meters of gas a year, but in the future it may increase volumes by more than three times. As a result, experts note, the diversification of gas supplies to Europe through the Southern Corridor will be a fiction – the gas there will also be Russian.

OOO Gazprom Export and the State Oil Company of Azerbaijan (SOCAR) signed a contract on November 21 to resume supplies of Russian gas to the country. The document began operating on November 22, Gazprom said. The volume of deliveries will make 1.6 billion cubic meters of gas a year, the price conditions of the party do not disclose. Russia and Azerbaijan tried to agree on deliveries in 2015, but then the contract was never signed. In May 2016, SOCAR announced that the company wants to buy up to 5 billion cubic meters of gas from Gazprom per year, but the deal did not come to the agreement again. Azerbaijan’s internal demand for gas is 10 billion cubic meters per year.

Azerbaijan stopped buying Russian gas in 2006, when the country launched a large Shah Deniz field with reserves of 1.2 trillion cubic meters of gas. Moreover, since 2010, Russia has already started buying gas from SOCAR for gas supply to Dagestan. However, the experience was unsuccessful: shipments were often suspended due to repairs and gradually declined. So, in 2013 they amounted to 1.4 billion cubic meters, in 2014 – only 0.2 billion cubic meters, and in 2015 stopped. The main reason was that Azerbaijan did not have a real surplus of gas: SOCAR had to pump gas from Shah Deniz back into the reservoir to increase oil production.

Now the field produces about 9 billion cubic meters of gas, and from the third quarter of 2018 production is planned to increase by 16 billion cubic meters, to 25 billion cubic meters. But all additional gas is contracted for deliveries along the Southern Gas Corridor, which provides for the transportation of 16 billion cubic meters from the Caspian region through Georgia to Turkey (6 billion cubic meters) and Europe (10 billion cubic meters). The route includes gas pipelines TAP and TANAP, and also involves the expansion of the South Caucasus gas pipeline.

Thus, there is practically no gas for domestic consumption of Azerbaijan, and a new contract with Gazprom was inevitable. This could force Russia to buy more gas from Georgia, which is now almost completely covering its 2.5 billion cubic meters of demand through supplies from Azerbaijan. The country refused to contract with Gazprom in 2007, receiving until January 1, 2017 Russian gas only as payment for transit to Armenia (10% of total purchases). But after the completion of the contract, Gazprom began demanding that gas be paid for in cash. As a result, after long negotiations, the parties signed a two-year agreement on the supply of gas, which in part will be paid in part by money in the first year, partly by transit, and in 2018 will be fully transferred to cash ($ 185 per 1,000 cubic meters). However, the authorities of the country negatively regard the prospects of purchases from Gazprom, which Tbilisi hoped to address only as a last resort, calling a possible alternative to buying in Iran.

Deputy Head of FNEB Aleksey Grivach notes that the growth of demand in the domestic market of Azerbaijan and the decline in domestic production in the country showed that it can not really fulfill its obligations on deliveries. SOCAR will have to turn to Russia for gas at least at peak times. This, the expert believes, proves that the diversification of gas supplies in Europe at the expense of the Southern Corridor is a fiction, since in order to supply gas to European consumers, Azerbaijan will buy it in Russia.

Author: Olga Mordyushenko

Article in Russian: Kommersant

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