Gas market of Moscow and Baku

 

In the last two weeks Russian and Azerbaijani media have been flooded with information about discords between Moscow and Baku over the South Stream project, killed off by Russian President Vladimir Putin in Ankara. The information appeared right after Azerbaijani President Ilham Aliyev’s interview with Russia 24. Russian media have been offering informative and analytical articles about the disadvantage of Azerbaijan’s Southern Gas Corridor as an alternative to South Stream. Azerbaijani media have been casting doubts about the prospects of the new Russian project as inferior to the Trans-Anatolia Pipeline (TANAP) for delivery of gas to Europe.

Overall, it created a picture of competition between the Azerbaijani and Russian pipeline projects. Official statements by the European Union prioritizing the Southern Gas Corridor as an element of energy security only added heat to the two-week debates. Russia and Azerbaijan appeared to be direct competitors on the European gas market, as though they had not been developing political and economic relations in the last 1.5 years.

Azerbaijani gas cannot cover all Europe’s demands for gas in the near future. Gazprom said last year that Europe consumed 145.7 billion cubic meters (41 billion were consumed by Germany). The Southern Gas Corridor will only supply Europe with 10 billion cubic meters of gas in 2019. Ilham Shaban, the head of the Center for Oil Studies, said that Azerbaijan will only be able to supply 20 billion cubic meters of gas to Europe annually. Moreover, the demand for gas in Europe should rise by 2019.

When designing South Stream, Russia was not searching for new markets, it was protecting its old markets from economic and political risks in Ukraine. The so-called Turkish Stream will have the same function, so it is not a bigger competitor to the Southern Gas Corridor than South Stream. Both pipelines will be connected with Greece. The Trans-Adriatic Pipeline will run from Greece to the west, through Albania to Italy. The Turkish Stream will most likely be a copy of the cancelled Nabucco, running north, from Greece to Bulgaria and Serbia (instead of the Nabucco route to Romania), to Hungary and Austria.

Last year the State Oil Company of the Azerbaijan Republic (SOCAR) bought DESFA, the Greek pipeline operator, and took control of all Greek pipelines. Azerbaijani pipes in Greece will be more convenient for Russia than European ones, and Russia will presumably have easier times coming to an agreement with Azerbaijan than the European Union.

Transit through Turkey will increase the cost of Russian gas for European consumers. Baku will have a good moment to raise prices for its own gas and gain more income from exports to the EU. Both Russia and Azerbaijan take advantage of the situation.

The last two weeks, Russian and Azerbaijani media have recently been flooded with information about discords between Moscow and Baku over the South Stream project killed by Russian President Vladimir Putin in Ankara. The information appeared right after Azerbaijani President Ilham Aliyev’s interview with Russia 24. Russian media have been offering informative and analytical articles about the disadvantage of Azerbaijan’s Southern Gas Corridor with an alternative to the South Stream. Azerbaijani media have been casting doubts about prospects of the new Russian project inferior to the Trans-Anatolia Pipeline (TANAP) for delivery of gas to Europe.Overall, it created a picture of competition between Azerbaijani and Russian pipeline projects. Official statements of the European Union prioritizing the Southern Gas Corridor as an element of energy security only added heat to the two-week debates. Russia and Azerbaijan appeared as direct competitors on the European gas market, as though they had not been developing political and economic relations in the last 1.5 years.Azerbaijani gas cannot cover all Europe’s demands for gas in the near future. Gazprom said last year that Europe consumed 145.7 billion cubic meters (41 billion were consumed by Germany). The Southern Gas Corridor will only supply Europe with 10 billion cubic meters of gas in 2019. Ilham Shaban, the head of the Center for Oil Studies, said that Azerbaijan will only be able to supply 20 billion cubic meters of gas to Europe annually. Moreover, the demand for gas in Europe should rise by 2019.When designing the South Stream, Russia was not searching for new markets, it was protecting its old markets from economic and political risks in Ukraine. The so-called Turkish Stream will have the same function, so it is not a bigger competitor for the Southern Gas Corridor than the South Stream. Both pipelines will be connected with Greece. The Trans-Adriatic Pipeline will run from Greece to the west, through Albania to Italy. The Turkish Stream will most likely be a copy of the cancelled Nabucco, running north, from Greece to Bulgaria and Serbia (instead of the Nabucco route to Romania), to Hungary and Austria.The State Oil Company of the Azerbaijan Republic (SOCAR) bought DESFA, the Greek pipeline operator, last year and took control of all Greek pipelines. Azerbaijani pipes in Greece will be more convenient for Russia than European and Russia will presumably have easier times coming to an agreement with Azerbaijan than the European Union.Transit through Turkey will increase the cost of Russian gas for European consumers. Baku will have a good moment to raise prices for its own gas and gain more income from exports to the EU. Both Russia and Azerbaijan take advantage of the situa