Newspaper: Azerbaijan ready to supply gas to international hub in Türkiye

Azerbaijani Deputy Minister of Energy Elnur Sultanov has said that Azerbaijan will be ready to supply gas to the planned gas hub in Türkiye if such supplies are beneficial to foreign companies operating in the country.

Sultanov made the remarks on the sidelines of the 15th Verona Eurasian Economic Forum, which is being held in Baku this year.

The deputy minister explained that the main share of gas production in the country falls on the Shah Deniz international consortium, rather than on the Azerbaijani State Oil Company (SOCAR), Vedomosti informs.

“This is a new initiative [for us], we, of course, will consider it. Gas in Azerbaijan is mainly produced by an [international] consortium, rather than by Azerbaijan. SOCAR is participating there, but it is a consortium, which includes BP, Lukoil, an Iranian company, and the most important thing for them is the economic justification for this project. If it is possible to earn money on this, they will be ready,” Sultanov added.

The official has not specified the supply volumes.

According to the Azerbaijani authorities, proven gas reserves in the country reach 2.6 trillion cubic metres. The biggest gas production project in Azerbaijan is the project to develop the Shah Deniz field.

The consortium includes UK’s BP (29.99 per cent, project operator), SOCAR (21.03 per cent), Russian Lukoil (19.99 per cent), Turkish TPAO (19 per cent) and Iranian NICO (10 per cent).

Gas production in the field began in 2006. According to the Azerbaijani State Statistics Committee, gas exports as part of the project increased by almost 44 per cent to 17.6 billion cubic metres in 2021.

Another big Azerbaijani field is Absheron. Production should begin there in 2022. SOCAR and the French Total company are the project participants in equal shares. Other promising deposits of the country are Shafag-Asiman, Nakhchivan, Umid-Babek, Karabakh and Ashrafi.

Sultanov added that Azerbaijan plans to increase gas supplies to the European Union (EU) by 40 per cent to 11.5 billion cubic metres in 2022. The supply of Azerbaijani gas to Europe reached 8.2 billion cubic metres in 2021.

Azerbaijani gas is supplied to Europe through the Southern Gas Corridor, which includes the Baku-Tbilisi-Erzurum gas pipeline, the Trans-Anatolian Natural Gas Pipeline (TANAP) and Trans-Adriatic Pipeline (TAP).

Up to 16 billion cubic metres of Azerbaijani gas is supplied to Türkiye through TANAP per year, gas is supplied further to the EU via TAP with a capacity of 10 billion cubic metres.

The shareholders of TANAP are SOCAR - it owns 51 per cent, SOCAR Turkiye Enerji (7 per cent), the Turkish state-owned company Botas (30 per cent) and BP (12 per cent).

Azerbaijani President Ilham Aliyev said in September 2022 that TANAP's capacity could be increased to 32 billion cubic metres of gas per year.

According to the Azerbaijani Ministry of Energy, the total volume of natural gas exports from the country in 2021 increased by 40 per cent and amounted to 18.9 billion cubic metres, of which exports to Türkiye amounted to 8.5 billion cubic metres, in the EU - 8.2 billion cubic metres. Gas production in Azerbaijan increased by 18 per cent to 43.9 billion cubic metres in 2021.

Russian President Vladimir Putin said at the Russian Energy Week International Forum-2022 on October 12 that the missing volumes of Russian gas envisaged for Europe (due to damage to the Nord Stream and Nord Stream 2 gas pipelines and sanctions against the latter) "may be transferred from the Baltic Sea to the Black Sea," and "the biggest gas hub for Europe" could be created in Türkiye.

This idea was discussed at the talks between Russian President Vladimir Putin and Turkish President Recep Tayyip Erdogan on October 13.

President Erdogan announced on October 14 that he had instructed to work out the issue of creating an international gas hub in the country.

He said that construction "should start without delay".

The president noted that the most suitable place is Thrace, a part of the historical region in the eastern Balkans belonging to Türkiye. There is an onshore section of the Russian gas pipeline "Turkish Stream" is here.

Experts think that the creation of the hub may take from 2 to 10 years, the cost of the project is $7-10 billion.

Senior analyst at BCS Global Markets Ronald Smith notes that Azerbaijan has big gas resources in its sector of the Caspian Sea.

He said that the factor limiting gas exports is the lack of infrastructure.

Finama analyst Sergei Kaufman reminds that for the past six months, the Azerbaijani representatives have been regularly declaring plans to increase gas supplies to Europe through Türkiye.

“In particular, it is planned to double the capacity of TANAP, bringing it to 32 billion cubic metres per year, and exports to the EU should reach about 20 billion cubic metres. It is planned to do this by 2027,” he notes.

Kaufman notes that Türkiye and Azerbaijan have historically good bilateral relations, which "raises the likelihood of Azerbaijan's participation in a potential gas hub".

He said that the issue of increasing gas exports to Europe is of fundamental importance for Azerbaijan, while participation in the Turkish gas hub is a secondary issue.

The EU is also interested in increasing gas supplies from Azerbaijan, the expert said.

Leading analyst at the National Energy Security Fund Igor Yushkov notes that the main idea of the hub in Türkiye is to trade gas there.

He said that this means that the matter rests in short-term contracts, so there will be no guarantees of supplies and return of investments for Azerbaijan.

The expert draws attention to the fact that the volumes of gas produced by the country for export to the EU have already been contracted under long-term agreements (eight billion cubic metres per year to Italy, one billion cubic metres to Greece and Bulgaria), so the matter rests in additional volumes. This requires huge investments in the development of deposits - "billions and tens of billions of US dollars".

In turn, Smith added that Western companies operating in Azerbaijan would be happy to participate in this project if it would help them monetise their investments in the country.

“However, Russia’s involvement in the gas hub project in Türkiye could complicate the situation for political reasons,” the analyst added.

Meanwhile, Kaufman said that difficulties can arise only if there are attempts to use the Turkish hub for the parallel export of Russian gas, which the EU plans to refuse.

Vedomosti sent inquiries to the biggest companies producing gas in Azerbaijan.