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Controversial Russia-Azerbaijan Gas Deal Raises Questions For EU

Azerbaijan has begun importing gas from Russia under an agreement that should enable Baku to meet its own domestic demand, but raises serious questions about its recent agreement to boost exports to Europe.

State gas producer and exporter in Russia Gazprom announced on November 18 It started supplying gas to Azerbaijan’s state gas company SOCAR on November 15 and will supply up to 1 billion cubic meters until March 2023.

Neither the Azerbaijani Energy Ministry nor SOCAR responded to questions from Eurasianet seeking confirmation of the agreement, the details of which remain unclear.

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in statement The Azerbaijan News Agency quoted “SOCAR” as having cooperated with “Gazprom” for a long time, and that the two companies “are trying to improve their infrastructure by organizing the mutual exchange of gas flows.”

The deal was signed just before the peak demand period in the middle of winter, during which Azerbaijan will seek to maintain supplies to its domestic gas customers while fulfilling its export commitments to Georgia and Turkey, as well as its recently expanded trade with Europe.

Exports to Europe through the Southern Gas Corridor were to reach 10 billion cubic meters this year, but under a new level. Memorandum of Understanding with the European Union signed in JulyBaku agreed to increase exports to 12 billion cubic meters.

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That increase was intended to help Brussels offset the loss of Russian gas supplies, which Moscow cut off in retaliation for EU sanctions imposed in the wake of Russia’s invasion of Ukraine.

While the deal was heavily touted in both Brussels and Baku, it was not made clear exactly where the extra gas would come from.

Compliance problems surfaced as early as September, when Azerbaijani Energy Minister Parviz Shahbazov announce That Azerbaijan will export only 11.5 billion cubic meters to Europe this year, without any hint as to why the export target will shrink.

Even where this modest additional volume will come from remains unclear.

A source close to the consortium that owns the giant Azerbaijani Shah Deniz gas field, which currently supplies all of Azerbaijan’s gas exports, confirmed to Eurasianet that no new export contracts have been concluded and that the field is currently contracted only to supply 10 billion cubic meters. Pre-approved.

Now, the news that Azerbaijan will import gas from Russia this winter indicates that Baku intends to use Russian gas to supply its domestic market in order to free up the gas and enable it to fulfill its obligations to Brussels.

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Sanctions imposed by the European Union against Russia do not apply to Azerbaijan, which remains free to import as much Russian gas as it wants.

But the new deal runs counter to the political intent of the July agreement, which was specifically agreed to increase the volumes of Azerbaijani gas flowing to Europe to help the EU reduce its dependence on Russian gas.

Long term effects

The fact that some of those imports from Azerbaijan are being facilitated with Moscow’s help suggests that Brussels’ diversification efforts may be in vain, and not just in the short term.

Under the deal signed in July, Baku also agreed to double exports through the Southern Gas Corridor to 20 billion cubic meters annually by 2027 – the maximum that the existing pipeline network can carry.

This increase would be expensive and take time to achieve, requiring the addition of new compressors to existing pipelines as well as huge investments in Azerbaijani gas fields to produce the needed gas.

So far, no investment decision has been made to expand the three pipelines that make up the Southern Gas Corridor that carry Azerbaijani gas to Europe, while questions remain about where the additional 10 billion cubic meters of gas per year will come from.

BP confirmed earlier this year that the giant Shah Deniz gas field it operates is unable to supply the additional 10 billion cubic meters needed.

Azerbaijan has some other small gas fields, but production from them is not expected to be sufficient to meet Baku’s pledge to Brussels, which raises the possibility that gas will be sourced from other countries in the region.

This revived long-held hopes that Azerbaijan could transport gas from its neighbor across the Caspian Sea, Turkmenistan, which has the sixth largest gas reserves on the planet.

Relations between Baku and Ashgabat have improved significantly over recent years, and have reached their peak A pioneering trilateral gas swap agreement With Iran in December 2021, according to which Turkmenistan has pledged to supply between 1.5 and 2 billion cubic meters of gas annually to northeastern Iran and a similar amount of gas will be supplied from northwestern Iran to Azerbaijan.

Widely hailed as a rare and remarkable example of regional cooperation, that agreement has been seen as a potential short-term source of additional gas for Europe.

However, the current status of the deal is not clear. Azerbaijan’s unexpected need to import Russian gas raises suspicions that this agreement may have fallen through Deterioration of relations between Baku and Tehran.

There are other options for delivering Turkmen gas to Europe. Turkish officials confirmed this in July Ankara was looking at three options To transport Turkmen gas transported from Azerbaijan through the Southern Gas Corridor to Europe.

It is believed that one of these options is File Project supported by the United States To gas pipelines that are currently being flared from some of Azerbaijan’s onshore Caspian oil fields from where they can be exported.

But with no news of any progress on any of the potential options, the possibility is rising – such as its commitment to deliver 12 bcm of gas to Europe this year – Azerbaijan may also be unable to deliver on its promise to double exports to 20 bcm by 2027. .

By Eurasianet.org

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