Europe can lose part of Azerbaijani gas

By S.Aliyev

In 2010, Azerbaijan will produce over 28 billion cubic meters of gas, the republic will have free volume of fuel for export. Along with the traditional markets of gas sale such as Georgia and Turkey, this year Azerbaijan starts supplying gas to new markets - Russia and Iran.

Next week Azerbaijan and Iran are expected to sign a long-term five-year contract, with a possibility to prolong the supply of Azerbaijani gas to the country. However, the representatives of the Iranian side say that Iran is ready to acquire up to five billion cubic meters of Azerbaijani gas per year.

According to data provided by BP, in 2008 the gas production in Iran made up 116.3 billion cubic meters of gas, while consumption comprised 117 billion cubic meters. Azerbaijani gas will be delivered to the northern regions of this country that are far from major gas fields.

In 2010, Azerbaijan will transport about 1.1 billion cubic meters of gas to Russia. This volume more than twice exceeds the earlier figure which was predicted at 500 million cubic meters. This gas will be delivered to supply the southern regions of Russia.

Increasing the supply of Azerbaijani gas to Russia and starting gas supplies to Iran firstly should strengthen the processes in Turkey and the EU, which see Azerbaijan as one of the major countries for energy security.

> Caspian Region Map
For a long time Azerbaijan and Turkey have been continuing negotiations to conclude a transit agreement, which is necessary for the gas export to the EU. However, despite that over 10 rounds of negotiations have been held, no practical results have been achieved.

Availability of free gas volumes allows Azerbaijan to enter new markets such as Russia and Iran. And the absence of a transit agreement with Turkey makes it difficult to transport Azerbaijani gas to the European countries. Because of the lack of concrete results in the negotiations with Turkey, Azerbaijan more often raises the issue of alternative routes of gas supplies to Europe. For example, it is considered to establish gas compress terminal on the Black Sea Kulevi terminal (owned by SOCAR) and its further transportation by ship to Romania or Bulgaria and onward to the European pipeline system.

In addition, a question was raised about the possible export of Azerbaijani gas to one of the largest developing markets in the world - China. Implementation of this project is possible by getting connected to the Kazakhstan-China pipeline. The gas demand in China began to increase sharply from mid 1990 of the last century. In 1995, gas consumption was only 17.7 billion cubic meters. According to BP, in the beginning of 2009, the gas demand in the country reached 80.7 billion cubic meters, which is 15.8 percent higher than consumed in 2007. The share of gas demand in China in 2008 made up 2.7 percent of the total global demand.


> Kazakhstan-China Pipeline Map
Thus, the delay in making a decision on a transit agreement for the transportation of Azerbaijani gas via Turkey not only increases the attractiveness of alternative routes for the transportation of gas to Europe, but also other directions of export. Important role in this regard is also played by the processes around the South Corridor pipeline routes, which are supposed to deliver Caspian gas to Europe.


> South Stream On The Map Of Europe


> Specifications of the South Stream Project
The absence of concrete decisions and actions to implement projects to deliver gas from the Caspian region leads to the fact that suppliers are looking for new markets, which today are ready to purchase fuel.

As for Azerbaijan, if formerly the focus on the beginning of the export of Azerbaijani gas was made on the second stage of the development of Shah Deniz field, which will be commissioned after 2014, today Azerbaijan already has free export gas volumes.

The unresolved issues with the transit of gas through Turkey and the lack of concrete actions of investors to create new export pipeline routes can lead to the fact that if not the entire volume of Caspian gas intended for export to Europe, its small part will be redirected to other markets which are willing to accept and pay for gas right now.



> Nabucco Pipeline Map

Nabucco gas pipeline project is worth €7.9 billion. Participants of the project are Austrian OMV, Hungarian MOL, Bulgarian Bulgargaz, Romanian Transgaz, Turkish Botas and German RWE companies. Each of participants has equal share to the amount of 16.67 percent. Construction of gas pipeline is planned to be launched in 2011, the first supplies - in 2014. Maximal capacity of the pipeline will hit 31 billion cubic meters per year.  Nabucco Gas Pipeline International shareholders will invest 30 percent of total cost of the project, the rest 70 percent will be paid owing to loans.

Azerbaijan-Russia pipeline

Azerbaijan exports gas to Russia via the Mozdok-Kazi-Magomed pipeline, whose capacity is 5 million cu m of gas per year. Until 2007, Azerbaijan imported 4.5 billion cubic meters of gas. In 2008, Azerbaijan refused to import gas. The medium-term contract (with the possibility of extension) was signed in Baku Oct. 14. It covers 2010-2014. Under the contract, the Azerbaijani side will annually supply gas amounting to no less than 500 million cubic meters to Russia. The contract did not specify a limit to the gas supply volume. SOCAR will notify the opposite side of the amount the company can deliver for the next six months.
Azerbaijan-Iran pipeline

Azerbaijan and Iran are connected with the Gazi-Magomed-Astara-Bind-Biand gas pipeline length 1,474.5 kilometers, including 296.5 kilometers in the territory of Azerbaijan. Its design capacity was 10 billion cubic meters a year, now it is lower. This route is a branch of the Gazakh-Astara-Iran pipeline commissioned in 1971. Three compressor stations, including in Gazi-Magomed, Aghdash and Gazakh, were built on its route. The transmission system is designed to pressure 55 atmospheres. The pipe's diameter is 1200 mm. Modernization of the infrastructure will allow to deliver about 5 millions of Azerbaijani gas (1.8 cu m per year) to Iran. Now the infrastructure allows to deliver about 500 million cubic meters of gas per year.