Turkey pays for Azeri gas with 35 % less than market price

Turkey pays for Azeri gas with 35 % less than market price

Turkey pays only % 280 per thousand cubic meter (tcm) to Azeri gas which is 2/3 of market price said CESD sources at State Oil Company of Azerbaijan Republic (SOCAR).  Why SOCAR still officially denies publicly announcing what price Turkey currently pays for Azeri gas, although gas agreement between Azerbaijan and Turkey signed a half year ago, is the low price paid by Ankara- CESD sources added.

CESD sources also confirmed that terms of the agreements directly determined by Turkish side, Azerbaijani delegation was able to have slight revising, only when the contract signed in the fall, 2011. First, price of gas exporting to Turkey is 35 % less than market price. Second, there is still dispute how difference between market and real price will be compensated. Turkey imported 6 billion cubic meters (bcm) of gas from Shah Deniz-I, paying $120/thousand cubic meter (tcm), well below the current market prices by previous agreement.  Turkey has continued to import natural gas from Azerbaijan although the gas supply agreement expired in April 2008.  Considering that Turkey is currently paying to Russian gas $420/tcm and 425$/tcm for Iranian gas. Azerbaijan has instead the same price, too.  Azerbaijan asked Turkey to pay around $1.5 to $2 billion to compensate for price differences.  CESD sources confirm that Turkey will pay around $ 1,0 billion compensation instead of $ 2 billion Azerbaijan asked. Third, Azerbaijan has targeted normalizing of relations with Turkey by accepting Turkish offers on gas export. Azerbaijani side hopes that gas agreement will give “warm wind” to relations with Turkey which is very important for official Baku from both strategic and political aspects

Meanwhile, Russia does not consider last agreement as main step for Nabucco negotiations, but official Moscow believe that Azerbaijan will compromise with Russia, too. Russia persists increasing of amount of gas export from Azerbaijan. Moscow hopes for 4 billion cm annual gas export from Azerbaijan in the near future and reach 6 billion cm by 2018. Since Turkey will export 10 billion cm gas from Azerbaijan it means official Ankara most probably will address to Russian market in the near future to cover domestic gas consumption. In this case, Russia will be able to keep monopoly position in the region.  It is expected that Moscow will increase pressure to Azerbaijan not taking part in Nabucco project.

Azerbaijan is not in easy position to make decision related to regional projects even after gas agreement with Turkey. In fact, Nabucco promises strategic benefits to Azerbaijan as well. Azerbaijan has to select a route for the supply of gas to be produced during the second stage of developing Shahdaniz, the country’s largest gas field in the Caspian Sea.  According to projections, production will be brought up to 25 billion cubic meters per year under the second stage of Shahdaniz development, which is expected to produce first gas in 2017. The Shahdaniz field holds estimated reserves of 1.2 trillion cubic meters of gas. Existing pipelines cannot fully transport Azerbaijan’s increasing gas to the world market.

Las agreement gives proof that building of new pipeline will be on the agenda in near future. Azerbaijan exports 3 billion m3 gas to Russia and the maximum power of this pipe is 6-8 billion m3 depending on condition of the pipeline. Azerbaijan exports 1 billion m3 gas to Iran and is not going to increase this number as a result of technical and political grounds. The Baku-Tbilisi-Arzurum pipeline has a capacity of transporting 8.8 billion m3, and it is possible that in the coming years this amount will reach up to 20 billion m3. Even in the best case scenario Azerbaijan still needs a new pipeline to transport its additional gas.

© CESD, 2012


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