Trend Commentator: Europe Wastes Time And Gas

By Seymur Aliyev

Azerbaijan has always been famous for its oil industry. In the last four years, it has been strengthening its position in gas exports. Azerbaijan's gas exports are as important as its oil and oil products. Proof of this can be seen in the recent signing of extentions to the contract for Azerbaijani gas supplies to Russia. They involve a doubling of fuel supply up to two billion cubic meters in 2011 and a further increase in 2012.

The supply of gas to Russia and its increase have been primarily dictated by economic feasibility. This includes availability of ready infrastructure, real value calculated according to a special flexible formula, and the lack of transit countries in between. Azerbaijan has repeatedly declared its lack of political motivation in exporting its energy resources and its commitment to the objectives of economic efficiency, its own energy security and the diversification of supply routes.

Azerbaijani President Ilham Aliyev has recently said that we have never considered our activity in the gas sector as an opportunity for unwarranted competition. We do not proceed from political motives in this case, but from motives that are purely economic and practical. Today the conditions that exist between Russian and Azerbaijani companies in the gas sector suit us. I hope they also suit Russia.

Therefore, if all concerned parties treat this only from the standpoint of economic feasibility and if the artificial politicization of these projects is reduced to a minimum, I am sure that the interests of all concerned will be taken into account.

The increase in gas transportation to Russia does not mean the rejection of other routes. Azerbaijan has always adhered to, and will continue to adhere to, multiple supply routes of its energy resources. This, above all, leads to a lack of dependence on one transportation route, improves sales and gives access to different markets.

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Today, the country's proven gas reserves are estimated at two trillion cubic meters, and potential reserves are thought to amount to five trillion cubic meters. This year Azerbaijan will produce about 30 billion cubic meters of gas. Azerbaijan is expected to significantly increase its export potential through the development of the second stage of the Shah Deniz gas condensate offshore field after 2016. Peak production is expected to hit 8,6-9 billion cubic meters during the first stage, which is already underway. Implementation of the second stage of the project will increase annual production from the field up to 25 billion cubic meters.

Azerbaijan transports its gas not only to Russia but to Turkish and Georgian markets, as well as supplying Iran to provide the Nakhichevan Autonomous Republic with gas. It is expected that commercial supplies of Azerbaijani gas to Iran will be launched by late 2010. Iran has expressed its desire to purchase up to five billion cubic meters a year with a possible increase of up to 10 billion. A desire to buy Azerbaijani gas has been expressed by Syria and Jordan. Turkey intends to increase its supply.

The "Southern Energy Corridor" can be considered a promising route for the export Azerbaijani gas.

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These ideas envisage the construction of such pipelines as Nabucco, ITGI and the Trans-Adriatic gas pipeline. Azerbaijani liquefied and compressed gas transportation via the Black Sea to Romania and Bulgaria with further shipment through gas transportation lines in Europe is being considered.

The large number of different routes, of course, opens up great opportunities for Azerbaijan to supply its own gas to various markets. But the process itself should make potential buyers think not only of Azerbaijani gas, but fuel from other producers in the Caspian region. Primarily, this relates to gas pipeline partners in the "Southern Energy Corridor".

Delays in the process of implementing pipeline projects increase the economic viability of other routes to deliver Caspian gas, and increase the number of potential buyers and the market. The project of transporting Azerbaijani gas in the opposite direction - to China through Kazakhstan -  was not proposed in vain amid these various projects. The example of Azerbaijan also applies to other countries that have significant reserves of hydrocarbons in the Caspian region and Central Asia, including Kazakhstan, Uzbekistan, Iran and, above all, Turkmenistan.

European consumers must understand that there will be always buyers if there is a product such as gas which is in demand today. Potential customers in Europe do not have much time to make specific decisions and begin active operations to create pipeline routes.