Azerbaijan has developed gas exchange

Gazprom will additionally supply up to 1 billion cubic meters of gas to Azerbaijan this winter. The terms of the contract are not disclosed by the parties. An agreement on seasonal gas exchange is already in force between Moscow and Baku: Azerbaijan can supply gas to the Russian Federation in the summer, and the Russian Federation to Azerbaijan in the winter, when it is traditionally more expensive. Analysts say that with the help of the additional contract, Azerbaijan is trying to free up additional domestic gas volumes for export to the EU at the expense of imports from Russia.

On November 15, Moscow began supplying natural gas to Azerbaijan under a new contract signed between Gazprom Export and the Azerbaijani state company Socar, Gazprom reported on November 18. The delivery period is until March 2023, their volume will not exceed 1 billion cubic meters, the terms of the deal were not disclosed.

Between 2021 and 2023, a contract is already in force between Moscow and Baku on the seasonal exchange of natural gas: Baku will supply gas to the Russian Federation in the summer, and in winter, similar volumes of gas will be supplied from the Russian Federation to Azerbaijan. With this agreement, the countries resumed cooperation on gas supplies, suspended since 2019 (volumes were not disclosed). Then, after the launch of the second phase of Shah Deniz, Azerbaijan refused to buy gas from Russia for many years.

The new contract for the supply of gas until March 2023 is the volume that Azerbaijan will release on the domestic market for export, believes Maria Belova from Vygon Consulting.

In recent years, Azerbaijan has been intensively increasing production for export to Georgia and Turkey from the Shah Deniz field. Natural gas production in the country in 2021, according to BP, increased by 23%, to 31.8 billion cubic meters, consumption amounted to 12.7 billion cubic meters (an increase of 2.4%), the rest of the volumes – more than 19 billion cubic meters – were completely selected for export.

Shah Deniz production (both phases) should peak at 26 billion cubic meters. m of gas per year (at the same time, with an increase in production in phase-2, a systematic decrease occurs within phase-1), says Sergey Kapitonov, an expert at the Center for Energy Transition and ESG Skoltech. In addition, about 10 billion cubic meters. m of natural gas is produced at other fields. The difference with the state statistics of Azerbaijan, according to which this year it is expected to produce about 46 billion cubic meters. m, is explained by the fact that in the Azeri-Chirag-Guneshli group of oil fields, the main volume of gas production falls on associated gas, which is then injected into the reservoir. “Thus, Azerbaijan’s gas balance in terms of production, domestic consumption and exports is almost ‘zero’,” states Mr. Kapitonov.

Against the backdrop of a decline in deliveries to the EU from Russia, Azerbaijan seeks to increase high-margin deliveries to Europe.

In October, the head of Azerbaijan, Ilham Aliyev, said that the country has the opportunity to double the export of natural gas to the EU to 18 billion cubic meters by 2027 (in 2021, exports to the EU countries amounted to 8.2 billion cubic meters). But this year, even taking into account the growth in production, Azerbaijan may not have enough free volumes for export.

According to Sergei Kondratyev of the Institute of Energy and Finance, Azerbaijan is now trying to maximize natural gas exports ahead of the winter season with traditionally high domestic demand. “Thus, Azerbaijan is trying to free up additional volumes by importing Russian gas,” he said. The Russian Federation has an infrastructure that allows transferring up to 3 billion cubic meters a year to Azerbaijan.

Baku would be interested in purchases for Gazprom’s gas portfolio, especially during the peak winter period, Sergei Kapitonov agrees. For Gazprom, however, it will not be a problem to supply gas to Azerbaijan, especially since Kazakhstan’s gas, which is more logistically close, can be used for this. “In the case of Azerbaijan, it is unlikely that we can talk about significant commercial benefits, but rather about strengthening strategic cooperation, especially against the backdrop of Azerbaijan becoming an important exporter for Turkey and the countries of Southern Europe,” says Mr. Kapitonov. “Strategically for the medium and long term It would be extremely important for Russia to cooperate with Azerbaijan and Iran within the framework of the concept of creating a gas hub in Turkey.” For example, he notes, Gazprom’s gas could saturate the domestic market of Azerbaijan, as well as be supplied to Turkey, while Azerbaijani gas would be supplied to the premium European market.

Tatyana Dyatel