Azerbaijan-Turkmenistan: growth on the energy track Caliber.Az review

The geopolitical confrontation that has intensified in the last two years has played the role of a trigger that has accelerated multilateral and bilateral business cooperation in the Caspian region. The energy and transportation-logistics projects, including those covering Azerbaijani-Turkmen cooperation, remain the core of the integration vector.

Currently, Baku and Ashgabat have intensified negotiations on the continuation of swap gas supplies this year. Within the framework of the bilateral business agenda, issues of expanding transport and logistics cooperation along Trans-Caspian routes are being considered, as well as the prospect of Turkmenistan joining the international project of the Black Sea Energy underwater energy cable is being studied.

Last year was remembered for a noticeable breakthrough in business relations between Azerbaijan and Turkmenistan: thus, according to the State Customs Committee of the Republic of Azerbaijan, from January to November 2023, the trade turnover between the two countries amounted to 738.966 million manats (nearly $435 million), an increase of 73 per cent relative to the corresponding figures of the previous year. Today, Turkmenistan ranks sixth in the list of countries to which Azerbaijan exports oil products, and the volume of our exports increased fourfold during the reporting period last year.

In general, the trend towards expanding the transhipment of oil cargoes, as well as an increase in bilateral trade, has been observed since the beginning of 2019 within the framework of the LapisLazuli route initiated by Baku and Ashgabat, which united the transport flows of Afghanistan, Turkmenistan, Azerbaijan, Georgia and Türkiye.

Since then, the volume of transit of mineral raw materials, building materials, fertilizers, textiles, dried fruits and other agricultural products, various container cargoes with a multimodal transportation scheme has significantly increased between the countries. These cargoes are transported by ferries and other dry cargo vessels in both directions along the Baku-Turkmenbashi-Baku sea line.

Transhipment of oil cargoes and the growth of bilateral trade remain long-term promising directions for Baku and Ashgabat. However, the basis of Azerbaijani-Turkmen business cooperation over the past decade and a half is still the initiatives on the transit of hydrocarbons, fuels and petroleum products.

In particular, during the pumping of Turkmen oil through the Baku-Tbilisi-Ceyhan (BTC) pipeline, which started back in 2010, a total of slightly less than 35 million tonnes of Turkmen oil were exported to world markets. In the three quarters of 2023, the volume of transit of Turkmen oil via BTC exceeded 2,263 million tonnes, which is more than 26.4 per cent more than in the corresponding period of 2022.

According to experts, taking into account the current geopolitical realities (oil transit through the territory of Russia is somewhat difficult), the expansion of crude oil transit from the Central Asian region through the territory of Azerbaijan has significant prospects.

The results of 2023 have not yet been summed up, however, according to preliminary data, the total volume of Kazakh and Turkmen oil transshipped via BTC from January to November 2023 amounted to about 4,781 million tonnes, with more than two-thirds of the volume accounted for by Turkmen raw materials.

The next most important component of the Azerbaijani-Turkmen energy transit is tanker and ferry-rail transhipment of petroleum products and fuel through Azerbaijan, mostly sent to the Black Sea oil terminal in the Georgian port of Kulevi, with subsequent export to the world market. This cooperation developed very actively in 2022: moreover, in parallel with the traditional fuel transit, gasoline and other types of Turkmen petroleum products were also purchased for the domestic needs of Azerbaijan.

During the period of repair and modernization works and the forced shutdown of the Heydar Aliyev Oil Refinery. Azerbaijan has increased fuel imports, including through purchases in Turkmenistan. Last year, the domestic fuel market did not experience a shortage. Besides, in eight months, the supply of Turkmen petroleum products and fuel through our country exceeded 640,000 tonnes, slightly decreasing in comparison with the same figures of 2022. But in terms of transit supplies of Turkmen fuel oil and kerosene, a significant increase was recorded last year.

In the last two years, Azerbaijani-Turkmen business ties have been replenished with a relatively new gas track. The matter particularly concerns the trilateral agreement on the organization of swap supplies of natural gas, concluded by Azerbaijan, Turkmenistan and Iran in November 2021.

Thus, since January 2022, Baku and Ashgabat have established successful swap operations, transshipping an average of 4.5-5 million cubic metres of Turkmen gas to the northeastern regions of Iran, and then through a cross-border gas pipeline connecting the northwestern regions of the Islamic Republic with Azerbaijan, the corresponding volume of Iranian gas was supplied. According to Iranian sources, swap shipments have been increased to 7-7.5 million cubic metres per day since last summer.

According to the data published by the National Iranian Gas Company (NIGC) on January 7, Azerbaijan and Turkmenistan have now intensified negotiations on the continuation of gas supplies in 2024. "The supply of Turkmen gas to Azerbaijan under the swap scheme through Iran has been temporarily stopped, and Baku and Ashgabat are negotiating the resumption of supplies after an agreement between the two countries has been reached," NIGC reports.

Experts believe that swap operations are of interest to all parties, in particular, Azerbaijan can use the gas supplied under the swap for domestic needs (supply of thermal power plants, plants, including for the production of carbamide fertilizers, methanol), and export the corresponding volumes of its own gas to the capacious markets of Türkiye and the EU.

Accordingly, the hitch that arose in January 2024 will soon be overcome. Moreover, the project participants do not rule out doubling the volume of gas pumping in the future: the potential for increasing the swap through the Serakh gas line fully allows this – the throughput capacity of this pipeline system reaches 20 million cubic metres per day.

However, the potential of Azerbaijani-Turkmen energy projects is not limited to the listed projects. During the talks in Ashgabat last October, representatives of the State Oil Company of Azerbaijan (SOCAR) discussed with their Turkmen colleagues the prospects for expanding cooperation in the field of transit, joint exploration and development of hydrocarbon resources, and the implementation of other promising projects.

In the medium term, Baku and Ashgabat plan to jointly develop gas deposits at the Dostlug offshore field, and in the longer term, they may become partners in the transit of Turkmen blue fuel within the framework of the Trans-Caspian gas pipeline project.

Another promising vector of partnership between Baku and Ashgabat is cooperation in the framework of the export of electricity through the Black Sea Energy underwater electric cable along the bottom of the Black Sea. The strategic partnership Agreement on the Black Sea Energy project was signed by Azerbaijan, Georgia, Romania and Hungary on December 17, 2022, and in 2023 Bulgaria joined the project, Serbia is also ready to participate in this endeavour.

The project with an initial budget of $2.3 billion will be ready by 2029: an energy line with a length of 1,195 km and a capacity of 1,000 MW is designed to supply electricity generated in the renewable energy segment from Azerbaijan to Europe.

In the future, it is planned to expand the supply of electricity through the underwater energy bridge by connecting the countries of Central Asia, including Turkmenistan and Kazakhstan recently announced their readiness to participate in this project.

Turkmenistan has already officially expressed its readiness to supply electricity to Azerbaijan and Türkiye through the Caspian Sea: the Turkmen energy system has long been redundant, and this Caspian country supplies electricity to Uzbekistan, Kyrgyzstan, and carries out energy exchanges with Iran. Moreover, Ashgabat is consistently investing in increasing export generating capacities: recently, the foundation of a new 1,574 MW power plant was laid near the port of Turkmenbashi.