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Has Russia agreed to compete with Azerbaijan on Europe’s gas market?

After the launch of the second part of the Southern Gas Corridor – Trans Adriatic gas pipeline (TAP) that will supply the Azerbaijani gas to Europe, President of Russia Vladimir Putin came out with a significant statement while being on a visit to Greece. Judging by that statement, Moscow is not going to impede the construction of that gas main and has put up with the fact that Azerbaijan will be supplying gas to the south of Europe.

Vladimir Putin just said that he lays the stress on the North Stream 2 that will link Russia and Europe via the Baltic Sea.

It may seem that the Southern Gas Corridor project will not affect Russia, as the supplies of the Azerbaijani gas will be launched in late 2019, first, and will cover only 20% of Europe’s demand. 

However, it is the first insight into the risks Russia has faced, as at least Turkmenistan and Iran (the country has the second largest gas reserves after Russia) may join the supplies to Europe.

What about Azerbaijan, where the gas epoch is replacing the one of oil? Rovnag Abdullayev, SOCAR CEO, says the Southern Gas Corridor is not a rival to Russia, as Azerbaijan will not be supplying so much gas to Europe to compete with Russia.

On the other hand, Russia and the West perceive Azerbaijan as the so-called “non-bloc” country that avoids being involved into any geopolitical games. Therefore, it is probable that Baku, despite its desire to make money on exports of its own gas reserves, will stay equally far from the Big Powers and keep balance between them in conditions of the new geopolitical realities caused by the Southern Gas Corridor. The Trans Anatolian Natural Gas Pipeline (TANAP) will an end Turkey’s dependence on the Russian gas, said Natiq Aliyev, Azerbaijan’s Minister of Energy at the 23rd International Conference “Oil and Gas of the Caspian Sea.” Aliyev informed those present at the event of the projects implemented in the energy sector of Azerbaijan.

“TANAP is of vital importance for the regional and European energy security. Additional 6 billion cubic meters of gas that to be supplied to Turkey next week will help reducing that country’s dependence on the Russian gas,” the Azerbaijani minister said adding that the Azerbaijani gas will be cheaper than the Russian and Iranian ones.

Aliyev recalled that TANAP project is estimated at $9.3 billion, while 80% of the necessary pipelines have already been delivered to the sites and the construction activities continue.

Natiq Aliyev said Turkmenistan and Kazakhstan will have an opportunity to join the pipeline in future to supply their gas to Europe.

Natural gas can be supplied from Central Asia to Europe through three routes: via Russia, Iran and then via the Caspian Sea to Azerbaijan and farther. The Russian route is inadmissible to Europe and it is not clear yet if Iran is still in disgrace.

The Southern Gas Corridor appears to be the only option, which will pose a threat for Russia, if Central Asia joins the gas exports to Europe via it. However, this project seems to be interesting to Europe.

Brussels may contribute to the Baku-Ashkhabad talks for transit of the Turkmen gas via the Trans Caspian gas pipeline to Europe, says Charles Hendry, the former UK Trade Envoy Azerbaijan, Kazakhstan and Turkmenistan. Talking to journalists in Baku, Hendry said it is upon the governments of Azerbaijan and Turkmenistan to agree to supply the Turkmen gas to Europe via Iran and Turkey or via the Caspian Sea through the Trans Caspian pipeline and farther through TANAP and TAP. Hendry said EU may help the sides discuss the issue.

In his words, Turkmenistan supplies a significant volume of gas to China. Discussions are underway to supply the gas via TAPI to Afghanistan, Pakistan and India.  However, Europe is also interested in importing the Turkmen gas, Hendry said while he was envoy in Azerbaijan in 2012-2015. 

“We expect gas from the Caspian Sea to come to Europe in 2020. But the Southern Gas Corridor could be expanded to transport more than 10 billion cubic meters of gas per year, as originally planned. In the future we can get more gas from both the Caspian and Central Asia, and more precisely from such countries as Turkmenistan,” said Maroš Šefčovič, Vice-President of the European Commission. In his words, TAP will be the key instrument of Europe’s energy security.

At present, Russian Gazprom is the largest supplier of gas to Europe. In 2015, Gazprom supplied 158.6 billion cubic meters from Russia to Europe (including Turkey) accounting for 30.9% of the total European market. TAP is a balancer for the European market, says Vyacheslav Kulagin, the Head of the Center for International Energy Markets, the Energy Research Institute of the Russian Academy of Sciences. “The countries the gas pipeline will reach will receive price discounts, but it will not have any serious impact on them. The countries in the south of Europe need gas but there are no guarantees that the new pipeline will be loaded at full,” Kulagin says.

Will Russia lose its domination in the gas market in Europe with the upcoming success of the Trans Adriatic gas pipeline? Will it overshadow Gazprom’s ambitious projects like South Stream and North Stream? EADaily’s correspondent in Baku asked Ilham Shaban, the head of the Center for Oil Studies, for answers to these questions.

Ilham Shaban said Shah Deniz Consortium has been choosing the route for supplying gas to Europe carefully and for a long time. “At first, four and then two gas pipelines were fighting for the Azerbaijani gas. Consequently, the optimal route – TAP – was chosen, as TAP suggested the most optimal length, transit prices and the sales market,” the expert said.

In his words, the Trans Adriatic gas pipeline will not replace the South Stream or any other gas pipeline from Russia to Europe. “Its capacity is lower manifold. It is for maneuvering gas supplies inside Europe. Besides, Gazprom and partners (BASF, E.On, ENGIE, OMV and Shell) are expected to launch a pipeline with a capacity of 55billion cubic meters by the end of 2019 to supply gas to Germany via the Baltic Sea. Another project of Gazprom is Poseidon – a gas pipeline to Greece via the Black Sea with a capacity of 12billion cubic meters. Therefore, Azerbaijan will in no way compete with Russia in the European market, while Turkmenistan and Iran can. Moscow will use all this diplomatic power not to let those countries to the European markets. However, as we know, Iran will hardly listen to anyone, but Moscow can exert pressure on Turkmenistan. In short, gas wars on the continent will continue,” Shaban said.

So far, the Azerbaijani gas supply to Europe is incomparable with the Russian one. Yet, Azerbaijan pursues its own economic and geopolitical goals by exporting gas to Europe, which does not affect Russia’s gas strategy.

Zaur Rasulzade for EADaily

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