World
Andrey Areshev
March 22, 2012
© Photo: Public domain

The story with Azerbaijan’s halted gas supplies to Russia on March the 7th gathers like a snowball and the new details are quite contradictory. 

According to the statement made by the State Oil Company of Azerbaijan Republic (SOCAR), it took 8 days to remove the consequences of a technical accident and on March the 15th gas supplies to Russia were resumed. A source with the Trend agency also said that the work on normalizing pressure in the pipeline network was completed and it was possible to resume gas exports from Azerbaijan to Russia: “Gas exports to Russia was resumed at night and at present there are no problems with gas supplies”.

At the same time, industry experts claim that the accident on March the 7th was the consequence of the condition of Azeri transportation infrastructure on the whole. The representatives of official Baku said that gas supplies to Russia would be resumed not later than on March the 14th and all the volumes, which Russia had not received, would be compensated (1) 

Regardless of these promises made by Baku, industry experts state: gas volumes at the entry to the Siazan gas compressor station are not enough to launch it and gas supplies to Russia have not been resumed. Since the beginning of March Russia has not received already 100 million cubic meters of gas.

A similar conclusion can be made by analyzing the data of the central dispatcher control office of the fuel and energy complex, obtained by the “Komsomolskaya Pravda” newspaper: since early March Azerbaijan has supplied up to 4.9 mln cubic meters of gas daily to Russia, while the daily norm was set at 7.6 mln cubic meters. The supplies were halted on March the 7th. In their turn officials in SOCAR do not name any concrete dates when the repairing of the gas pipeline on the border with Russia can be completed. This was due to bad weather and snowfalls, they said. 

Since the beginning of the year Azerbaijan has supplied 245.4 million cubic meters of gas to Russia, which 1/3 down in comparison with the same period last year (2 This was due to decline in gas exports in February by 8.7% on the month (3)

In October 2009, in Baku, SOCAR and Gazprom signed a sale purchase agreement (with an option for its prolongation). According to the annex to that agreement signed in September 2010, in 2011, Gazprom was to receive 2 billion cubic meters of gas and in 2012 more than 2 billion cubic meters of gas from SOCAR. An supplementary agreement on the increase in supply volumes up to 3 billion cubic meters was signed in Sochi on January 24. However, judging from the results of 2011, Russia has not received the volume it was to receive. This questions Azerbaijan’s ambitious plans on gas supplies for the future.

Let’s note, that this not the first time when gas supplies from Azerbaijan were halted due to force majeure circumstances. In early February, Azerbaijan halted gas supplies to Turkey and Georgia. Then it was linked with technical problems on the platform in the area of Shakh-Deniz gas field. Then, however, the gas supplies were resumed in 24 hours.

Analyzing the reports coming from Azerbaijan, the industry experts express an opinion that gas supplies to Russia were halted in March due to technical problems, which also occurred in the area of Shah-Deniz. But unlike February incident this time it took much longer to fix them. Although it is indeed too early to make any far-reaching conclusions, these two failures in a row speak for themselves. Only assumptions can be made about the factors of those halts – whether they were caused by the consequences of technical flaws on the platform or by poor skills of the personnel. 

It is interesting that the technical failures coincided in time with the ambitious statements made by the Azeri president about bright prospects of his country as an irreplaceable exporter of gas to Europe. Thanks to the development of new gas fields and construction of new pipelines, “in five-six years we will be able to supply gas to our partners in larger volumes. The current level of gas production and export is not sufficient for us. We have a stronger potential. I would like to note that at least in the next 100 years Azerbaijan will be an important supplier of gas to the European market”, Ilkham Aliyev said. As a result, “in the coming years Azerbaijan will make an important contribution to the energy security. Our country situated in the Caspian Sea region may become a reliable gas supplier to European consumers” (4 

It was planned to sign a memorandum on mutual understanding between Azerbaijan and Turkey on establishing a consortium to build the Trans-Anatolian gas pipeline (TANAP) to supply gas from the Shakh Deniz field to Europe via Turkey. According to Azerbaijan’s Energy Minister Natiq Aliyev, (as cited by Wall Street Journal), in the near future Baku and Ankara are to sign an intergovernmental agreement on the Trans-Anatolian gas pipeline. The shorter version of the Nabucco pipeline (Nabucco-West) from the Turkish-Bulgarian border to the Austrian Baumgarten is to become the extension of the Trans-Anatolian gas pipeline, he said. There were reports that the initial throughput capacity of the Nabucco pipeline (31 billion cubic meters) would be halved while the capacity of TANAP would enable it to annually supply 10 billion cubic meters of Azeri gas to Europe and to provide 6 billion cubic meters of gas to Turkey for its domestic needs.

While possible political motives behind the statements made in Baku are quite transparent it is the lack of any specific figures or their approximate nature which is striking here. It should be stressed that since October 2010, the data on the gas produced by foreign contractors in Azerbaijan has been classified (5 The information about the real reserves at such fields as Umid and Apsheron, as well as Babek, Nachkhyvan, Zafar-Marshal is quite contradictory. According to the estimates made by independent observers, the Azeri gas reserves (about 1.2 trillion cubic meters), which is often exaggerated by the authorities are not as significant as the reserves of other states of the Caspian region – Turkmenistan, Iran and Russia.

At present the main gas export flow – about 5 billion cubic meters of total 15 billion cubic meters of gas produced in Azerbaijan – goes to Turkey. But even of this volume is doubled (let’s theoretically imagine such a possibility) this won’t place Azerbaijan on the same level with the globally recognized gas exporters such as Turkmenistan (70 billion cubic meters), Iran (46 billion cubic meters) or Russia (350 billion cubic meters) (6. That is why the frequently announced estimates of the prospects of Azerbaijan’s gas production (50 billion cubic meters by 2025) seem to be exaggerated, to put it mildly. It is difficult even to figure out how these estimates were obtained.

An assumption can be made that there is a cause-and-effect relation between Azerbaijan’s commitment to ensure gas exports to Turkey and disruptions of gas supplies to other partners (in this case to Russia). What arouses a special concern is that in both cases when gas supplies were halted the Azeri company had no opportunity to compensate the halt in gas supplies from the Shakh Deniz field by using other gas fields. This throws doubts on Azerbaijan’s reliability as a gas supplier in general.

Leaving a possible political background of the incident on March the 7th and the maneuvers with the Nabucco project outside the context of this article, we should not ignore the stronger interest the US is now showing to Azerbaijan and Central Asia region. This may revive some “frozen conflicts” and it won’t be ignored by Moscow and Teheran. In particular, they cannot ignore an unprecedented military technical deal worth $ 1.6 billion closed between Tel-Aviv and Baku. It is very unlikely that Israel signed such a significant arms related deal without Washington’s consent (7). Let alone that a construction of military facilities in Azerbaijan amid the escalation of threats to Iran from Israel and the US won’t contribute to more efficient operation of gas transportation corridors.

Azerbaijan, which is advertising itself as almost the only supplier of gas to Europe in the future (now via the Trans-Anatolian gas pipeline and its European extension in the form of a shorter version of Nabucco), may fail to meet the expectations of the European consumers. The reliability of gas supplies from Azerbaijan is now doubtful.

____________________________________

(1) On the accident at the gas pipeline in Azerbaijan // http://www.fondsk.ru/news/2012/03/13/ob-avarii-na-gazoprovode-v-azerbajdzhane.html

(2) Two weeks halt in gas supplies from Azerbaijan to Russia // http://kp.ru/online/news/1109328/

(3) Azerbaijan decreased gas export by 8.7% in February // http://abc.az/eng/news/main/63338.html

(4) Azerbaijan prepares new investment program to become main gas exporter to Europe for 100 years // http://abc.az/rus/news/63148.html

(5) Azerbaijan classifies data on gas production at its main gas field Shakh Deniz // http://abc.az/rus/news/49541.html

(6) Alec Rasizade. Azerbaijan’s Prospects in Nagorno-Karabakh with the End of Oil Boom // Iran and the Caucasus 15 (2011). P. 314.

(7) N. Kolchugin. South Caucasus: which of regional states may back the US and NATO in possible war against Iran // http://www.arms-expo.ru/049051124050055049048048.html

The views of individual contributors do not necessarily represent those of the Strategic Culture Foundation.
Azerbaijan as gas exporter: ambitions vs. reality

The story with Azerbaijan’s halted gas supplies to Russia on March the 7th gathers like a snowball and the new details are quite contradictory. 

According to the statement made by the State Oil Company of Azerbaijan Republic (SOCAR), it took 8 days to remove the consequences of a technical accident and on March the 15th gas supplies to Russia were resumed. A source with the Trend agency also said that the work on normalizing pressure in the pipeline network was completed and it was possible to resume gas exports from Azerbaijan to Russia: “Gas exports to Russia was resumed at night and at present there are no problems with gas supplies”.

At the same time, industry experts claim that the accident on March the 7th was the consequence of the condition of Azeri transportation infrastructure on the whole. The representatives of official Baku said that gas supplies to Russia would be resumed not later than on March the 14th and all the volumes, which Russia had not received, would be compensated (1) 

Regardless of these promises made by Baku, industry experts state: gas volumes at the entry to the Siazan gas compressor station are not enough to launch it and gas supplies to Russia have not been resumed. Since the beginning of March Russia has not received already 100 million cubic meters of gas.

A similar conclusion can be made by analyzing the data of the central dispatcher control office of the fuel and energy complex, obtained by the “Komsomolskaya Pravda” newspaper: since early March Azerbaijan has supplied up to 4.9 mln cubic meters of gas daily to Russia, while the daily norm was set at 7.6 mln cubic meters. The supplies were halted on March the 7th. In their turn officials in SOCAR do not name any concrete dates when the repairing of the gas pipeline on the border with Russia can be completed. This was due to bad weather and snowfalls, they said. 

Since the beginning of the year Azerbaijan has supplied 245.4 million cubic meters of gas to Russia, which 1/3 down in comparison with the same period last year (2 This was due to decline in gas exports in February by 8.7% on the month (3)

In October 2009, in Baku, SOCAR and Gazprom signed a sale purchase agreement (with an option for its prolongation). According to the annex to that agreement signed in September 2010, in 2011, Gazprom was to receive 2 billion cubic meters of gas and in 2012 more than 2 billion cubic meters of gas from SOCAR. An supplementary agreement on the increase in supply volumes up to 3 billion cubic meters was signed in Sochi on January 24. However, judging from the results of 2011, Russia has not received the volume it was to receive. This questions Azerbaijan’s ambitious plans on gas supplies for the future.

Let’s note, that this not the first time when gas supplies from Azerbaijan were halted due to force majeure circumstances. In early February, Azerbaijan halted gas supplies to Turkey and Georgia. Then it was linked with technical problems on the platform in the area of Shakh-Deniz gas field. Then, however, the gas supplies were resumed in 24 hours.

Analyzing the reports coming from Azerbaijan, the industry experts express an opinion that gas supplies to Russia were halted in March due to technical problems, which also occurred in the area of Shah-Deniz. But unlike February incident this time it took much longer to fix them. Although it is indeed too early to make any far-reaching conclusions, these two failures in a row speak for themselves. Only assumptions can be made about the factors of those halts – whether they were caused by the consequences of technical flaws on the platform or by poor skills of the personnel. 

It is interesting that the technical failures coincided in time with the ambitious statements made by the Azeri president about bright prospects of his country as an irreplaceable exporter of gas to Europe. Thanks to the development of new gas fields and construction of new pipelines, “in five-six years we will be able to supply gas to our partners in larger volumes. The current level of gas production and export is not sufficient for us. We have a stronger potential. I would like to note that at least in the next 100 years Azerbaijan will be an important supplier of gas to the European market”, Ilkham Aliyev said. As a result, “in the coming years Azerbaijan will make an important contribution to the energy security. Our country situated in the Caspian Sea region may become a reliable gas supplier to European consumers” (4 

It was planned to sign a memorandum on mutual understanding between Azerbaijan and Turkey on establishing a consortium to build the Trans-Anatolian gas pipeline (TANAP) to supply gas from the Shakh Deniz field to Europe via Turkey. According to Azerbaijan’s Energy Minister Natiq Aliyev, (as cited by Wall Street Journal), in the near future Baku and Ankara are to sign an intergovernmental agreement on the Trans-Anatolian gas pipeline. The shorter version of the Nabucco pipeline (Nabucco-West) from the Turkish-Bulgarian border to the Austrian Baumgarten is to become the extension of the Trans-Anatolian gas pipeline, he said. There were reports that the initial throughput capacity of the Nabucco pipeline (31 billion cubic meters) would be halved while the capacity of TANAP would enable it to annually supply 10 billion cubic meters of Azeri gas to Europe and to provide 6 billion cubic meters of gas to Turkey for its domestic needs.

While possible political motives behind the statements made in Baku are quite transparent it is the lack of any specific figures or their approximate nature which is striking here. It should be stressed that since October 2010, the data on the gas produced by foreign contractors in Azerbaijan has been classified (5 The information about the real reserves at such fields as Umid and Apsheron, as well as Babek, Nachkhyvan, Zafar-Marshal is quite contradictory. According to the estimates made by independent observers, the Azeri gas reserves (about 1.2 trillion cubic meters), which is often exaggerated by the authorities are not as significant as the reserves of other states of the Caspian region – Turkmenistan, Iran and Russia.

At present the main gas export flow – about 5 billion cubic meters of total 15 billion cubic meters of gas produced in Azerbaijan – goes to Turkey. But even of this volume is doubled (let’s theoretically imagine such a possibility) this won’t place Azerbaijan on the same level with the globally recognized gas exporters such as Turkmenistan (70 billion cubic meters), Iran (46 billion cubic meters) or Russia (350 billion cubic meters) (6. That is why the frequently announced estimates of the prospects of Azerbaijan’s gas production (50 billion cubic meters by 2025) seem to be exaggerated, to put it mildly. It is difficult even to figure out how these estimates were obtained.

An assumption can be made that there is a cause-and-effect relation between Azerbaijan’s commitment to ensure gas exports to Turkey and disruptions of gas supplies to other partners (in this case to Russia). What arouses a special concern is that in both cases when gas supplies were halted the Azeri company had no opportunity to compensate the halt in gas supplies from the Shakh Deniz field by using other gas fields. This throws doubts on Azerbaijan’s reliability as a gas supplier in general.

Leaving a possible political background of the incident on March the 7th and the maneuvers with the Nabucco project outside the context of this article, we should not ignore the stronger interest the US is now showing to Azerbaijan and Central Asia region. This may revive some “frozen conflicts” and it won’t be ignored by Moscow and Teheran. In particular, they cannot ignore an unprecedented military technical deal worth $ 1.6 billion closed between Tel-Aviv and Baku. It is very unlikely that Israel signed such a significant arms related deal without Washington’s consent (7). Let alone that a construction of military facilities in Azerbaijan amid the escalation of threats to Iran from Israel and the US won’t contribute to more efficient operation of gas transportation corridors.

Azerbaijan, which is advertising itself as almost the only supplier of gas to Europe in the future (now via the Trans-Anatolian gas pipeline and its European extension in the form of a shorter version of Nabucco), may fail to meet the expectations of the European consumers. The reliability of gas supplies from Azerbaijan is now doubtful.

____________________________________

(1) On the accident at the gas pipeline in Azerbaijan // http://www.fondsk.ru/news/2012/03/13/ob-avarii-na-gazoprovode-v-azerbajdzhane.html

(2) Two weeks halt in gas supplies from Azerbaijan to Russia // http://kp.ru/online/news/1109328/

(3) Azerbaijan decreased gas export by 8.7% in February // http://abc.az/eng/news/main/63338.html

(4) Azerbaijan prepares new investment program to become main gas exporter to Europe for 100 years // http://abc.az/rus/news/63148.html

(5) Azerbaijan classifies data on gas production at its main gas field Shakh Deniz // http://abc.az/rus/news/49541.html

(6) Alec Rasizade. Azerbaijan’s Prospects in Nagorno-Karabakh with the End of Oil Boom // Iran and the Caucasus 15 (2011). P. 314.

(7) N. Kolchugin. South Caucasus: which of regional states may back the US and NATO in possible war against Iran // http://www.arms-expo.ru/049051124050055049048048.html