Evolving geopolitics: opportunity for Yerevan to access Azeri gas

By Azernews

With its rich energy resources, Azerbaijan has long been recognized as a country with a sufficient amount of oil & natural gas. Thanks to the successful continuation of the development of the Shah Deniz field and the commissioning of the Southern Gas Corridor at the end of 2020, the country has become one of Europe's important gas suppliers and is forming a new energy map of the continent. For well-known geopolitical reasons, serious difficulties have arisen in supplying Europe with energy resources, including gas supplies. Against the background of the disruption of the traditional supply mechanism, the continent wants to purchase large volumes of gas through new pipelines. With its rich reserves and modern transportation network, Azerbaijan is a country that is ready and able to meet Europe's growing needs with certain volumes and always pursues a fair energy policy.

Azerbaijan has achieved another important success in the oil and gas segment of its energy policy. This is the start of the development of the Absheron gas condensate field, located in the Azerbaijani sector of the Caspian Sea, about 100 kilometers southeast of Baku. "Shah Deniz" is the main gas field of Azerbaijan, but the potential of other fields is also quite large. For example, the Umid field has reserves of more than 200 billion cubic meters. On July 11, 2023, speaking at the meeting dedicated to the socio-economic results of the year chaired by President Ilham Aliyev, the head of state noted that with the start of the Absheron field exploitation, our country will exploit gas in a larger volume, perhaps SOCAR will soon start more active negotiations with its foreign partners on the development of the second phase of Absheron. Thus, from now on, our gas export plans will be realized faster and in greater volume.

Now it is possible to ensure the volume of gas exports of Azerbaijan from a new source. Here is another point that needs to be noted: the production of the first gas at the Absheron gas condensate field is inscribed in the history of Azerbaijan as an important event. Because earlier our main gas resource related to export was the Shah Deniz gas condensate field. Today we already have two large gas condensate fields.

Until now, Azerbaijan has been exporting gas produced at the Shah Deniz field to neighboring Georgia, brotherly Turkiye, and Europe. The first volumes of gas production at the Absheron field have shown that it will be used to export gas abroad.

It is of note that on September 20, 2014, on the twenty-third anniversary of the Contract of the Century, a groundbreaking ceremony for the Southern Gas Corridor project was held in Sangachal with the participation of heads of state. Turkiye and Georgia were the first to join the initiative, followed by Italy, Greece, Bulgaria, and Albania. Bosnia and Herzegovina, Croatia, and Montenegro became new partners. On November 30, 2019, the TANAP section connecting Europe was officially opened in Ipsala (Edirne Province, Turkiye). At this point, its construction was completed. Since December 31, 2020, the transportation of marketable natural gas has been carried out. Thus, Azerbaijan's rich gas resources were delivered to the markets of Turkiye and Europe via a short and safe route.

Furthermore, given that Azerbaijan's confirmed gas reserves amount to 2.6 trillion cubic meters, and the projected reserves are about 3 trillion cubic meters, this ensures Azerbaijan to be recognized as a reliable supplier of hydrocarbon resources in the next 100 years.

Since 2023, gas production has started at the Absheron field, which has a gas potential of over 300 billion cubic meters and is operated by Total. This factor will encourage Azerbaijan to increase gas imports in the near future as well.

Yerevan eyeing Azeri gas

A three-decade-long Garabagh conflict is almost over, and there is only the issue of peace talks with Armenia that remains outstanding. Given the fact that Azerbaijan has become the main power in the region, this is going to draw much of Armenia's attention to benefit from the abundance of energy supply. Armenia realizes that long-lasting conflict gives no benefit to either side amidst gas production and exports from Azerbaijan are expected to increase next year. While Azerbaijan is becoming one of the main energy suppliers of Europe, the pro-Western Armenians remaining outside of this loop look gruesome for the South Caucasus country that needs more energy in this very tough time.

Guided by this important factor, I would like to remind that Azerbaijani President Ilham Aliyev made an interesting statement in Sofia, where he said Azerbaijan is interested in exporting not only gas but also electricity to Europe and is interesting proposals in this regard.

"We can directly sell electricity to Europe in addition to gas. So trade proposals change from time to time. This shows that Azerbaijan always has offers for buyers in several directions and spheres. We are interested in the diversification of trade relations. This in itself is a positive thing. It will have a strong impact on strengthening and further diversification of Azerbaijan's economy," the President said.

After the signing of the peace treaty, restoration of communication between the countries, and trade relations, the sale of natural gas to Armenia may become a possible factor. If we recall, we will learn that during the Soviet period, Azerbaijan supplied gas to Armenia through two routes. Construction of the 1st route of the Hajigabul-Kazakhstan-Armenia gas pipeline launched in 1959. Thus, in February 1960 Azerbaijan supplied the first gas to Armenia. After that, in the second half of 1970, Azerbaijan supplied gas to Armenia through the Yevlakh-Barda-Askaran-Khankandi-Lachin-Gorus-Shahbuz gas pipeline. In the 1980s this gas pipeline was extended and connected to Yerevan. Gas supplies through these pipelines became an important factor in Armenia's energy security. The reason was that if one pipeline malfunctioned, the other continued to supply gas uninterruptedly. At the end of 1991, gas trade between Azerbaijan and Armenia stopped for geopolitical reasons. After the conflict with Azerbaijan, Armenia started buying gas from Russia.

According to oil and gas expert Ilham Shaban, most of the gas imported to Armenia is supplied by the Russian company Gazprom. 88% of the gas consumed by Armenia comes from Russia and 12% from Iran. From a commercial point of view, Armenia can indeed buy natural gas from Azerbaijan. To do so, the tariff offered by Azerbaijan to Armenia should be lower than the tariffs offered by Russia and Iran. However, the possibility of this is doubtful. Nevertheless, after the signing of the peace treaty, Azerbaijan may sell gas to Armenia in small volumes, as an important factor for Azerbaijan at the moment is to increase gas imports to Europe.