The article was published in World Energy Weekly (October 9, 2023 issue), a publication of Petrostrategies, a French think-tank specializing in energy issues.
Turkey is increasing its gas sales in Europe, while Baku, on the contrary, is struggling to do likewise
The chances that gas exports from Azerbaijan to the European Union (EU) could be doubled seem to be seriously compromised, only fifteen months after the plan was announced in Baku by the President of the European Commission (EC), Ursula von der Leyen, and Azerbaijan’s President Ilham Aliyev, in July 2022. Desperately seeking alternatives to Russian gas, the EU had hoped to be able to count on Azerbaijan to export 10 bcm/annum more gas to Europe as from 2027. At the time, Ursula von der Leyen had described the Caucasian country as a “crucial” and “reliable” partner”. But a lot has changed since then. Gas consumption in Europe is declining (it was down by 13.5% in 2022 and by 11% during the first half of 2023), while the supply (especially that of LNG) is increasing, including in the Mediterranean basin, which suggests that a glut may emerge in 2027. European utilities are reluctant to sign longterm purchase contracts for an energy source that they deem to be threatened by the energy transition.
The resurgence of violence in the South Caucasus has also changed Azerbaijan’s image for many Europeans. The German Minister of Foreign Affairs has thus accused the country of having “broken” its “repeated assurances” to its European interlocutors not to attack Nagorno-Karabakh. The Azerbaijani army invaded the enclave on September 19, forcing its indigenous population to leave and erasing twenty-five centuries of Armenian presence on the land in question. Today, many European leaders no longer view Baku as a “reliable” partner. In the European Parliament (and in the media), the EC has been accused of having sent the “wrong signals” to a country which may have thought that it could do as it pleased, as its gas was needed. Even Azerbaijan’s gas potential is subject to doubt, as the country is known to import Russian gas for its domestic needs while also relying on gas from Turkmenistan to boost its own exports.
Turkish Energy Minister Alparslan Bayraktar acknowledged these commercial difficulties in Ankara on September 14: “I’m not quite sure whether the European market is ready to receive more gas on a long-term basis from TANAP. On the European side, I don’t think they are giving a fullfledged long-term commitment for the off-taking of this additional gas”, he said. TANAP is the pipeline that carries Azeri gas through Turkey to the Greek border. From there, the TAP gas pipeline transports it to Brindisi in Italy. The fact that Turkey is increasingly establishing itself as an unacknowledged competitor to Azerbaijan on the European gas market makes the Turkish minister’s statement all the more interesting. With the start of production on its giant Sakarya field in the Black Sea, Turkey is selling increasing quantities of gas in Eastern and Central Europe, a market in which Azerbaijan would like to win a foothold. Over the last few months, Turkeys Botas has signed sales contracts for 4.3 bcm of gas in the region: 1 bcm to Moldova, deliverable between October 1, 2023, and March 31, 2025; 1.5 bcm to Romania, also before March 31, 2025; and 1.8 bcm/annum to Bulgaria over thirteen years. Then there’s another 275 MMcm of gas, deliverable to Hungary in the spring and summer of 2024. And various volumes of gas have been sold to Greece since 2007.
Ankara is hoping to become a regional gas hub, supplying Europe with gas
The position of Turkey, its strongest political and military ally, can justifiably intrigue Azerbaijan. Ankara is hoping to become a regional gas hub, and is therefore trying to attract as much gas as possible into its territory, from all possible sources. Making the most of its recent reestablishment of diplomatic ties to Israel, it is trying to convince the latter to export gas to Europe via Turkey. Ankara also hopes that Iraq will one day decide to develop its reserves in Kurdistan and lay a gas pipeline to Turkey. While Iran already has a gas export pipeline to Turkey, it is only operating at around 60% capacity. The Turks are also considering concluding an agreement on the hub project with Russia, as has been suggested by Vladimir Putin himself. The latter, of course, wants to increase his gas exports to Turkey, and from there to Europe. But this prospect is rejected by the EU, which has warned Ankara against such projects.
Russian gas is one of the points of friction between Azerbaijan and Turkey. Thus, last April, Baku signed a MoU to sell four Central European countries (Bulgaria, Hungary, Romania and Slovakia) up to 9.5 bcm/annum of gas. Ankara was supposed to be one of the signatories to the MoU, but withdrew, as the agreement explicitly excluded the presence of any Russian gas in the planned trade. Baku and its four Central European partners also want to build a gas pipeline, known as Solidarity Ring, and to rely on the Trans Balkan gas pipeline by reversing its flow. Ankara has no desire to reverse the flow, as it receives Russian gas through the pipeline and doesn’t want to give it up. It has therefore advised the five countries in question to build interconnections to the TAP pipeline and use it instead.
In terms of gas, Turkey’s advantages would make more than one of the world’s gas-importing country green with envy. In addition to its geographical position (which is the main basis of its hub project), Ankara also has substantial gas reserves, recently discovered in its territorial waters. The recoverable resources of the Sakarya field and its neighboring structures already amount to 710 bcm (although this figure hasn’t been verified by independent sources). Exploration is continuing, and Ankara can justifiably hope to discover further gas reserves in the Black Sea. Phase 1 of the Sakarya development has almost been completed: production has just started, with a planned plateau of 10 MMcm/d. In 2028 or 2029, Phase 2 should make it possible to increase production to 40 MMcm/d, or nearly 14.6 bcm/annum. However, gas consumption in Turkey is decreasing: it fell by 10% in 2022 (to around 53 bcm) and by another 10% during the first half of 2023. What’s more, several import contracts are set to expire within the next few years: they involve the purchase of more than 37 bcm/annum of gas. In total, Turkey’s gas import contracts currently total more than 51 bcm/annum. It can therefore make its suppliers compete with each other, while pressuring them to trade their gas via the proposed hub.
As is evident, Ankara has a much stronger negotiating position than Baku, which has only one possible growth market: Europe. Azerbaijan is keen to sell further volumes there, before gas is displaced by renewables or other suppliers to win the few potential customers that remain. Its haste is understandable, as its oil production and exports will start to decline again in a few years’ time, when the pressure in the reservoirs of the ACG fields (which is currently maintained by massive gas injections) falls again. Azeri oil production has already halved since it peaked in 2012. Baku is trying to preserve its sources of revenue from hydrocarbon exports as much as possible.
