Gazprom Buys Natural Gas from Azerbaijan

Eric Watkins
OGJ Oil Diplomacy Editor

LOS ANGELES, June 30 -- Russia’s OAO Gazprom, in an apparent effort to exert greater control over the European Union’s energy supplies, signed an agreement to import natural gas from Azerbaijan and transport it to Europe.

Under its agreement with State Oil Co. of the Azerbaijan Republic (SOCAR), Gazprom has secured the supply of 500 million cu m/year of gas starting Jan. 1, 2010.

Gazprom Chief Executive Officer Alexei Miller, who this week accompanied Russia’s President Dmitry Medvedev on a flying visit to Baku, acknowledged the amount of gas as small but, eyeing future growth potential, said, "Well begun is half done."

That view was apparently endorsed by Azerbaijan’s President Ilham Aliyev who said, "We plan in the future to increase supplies as the volume of Azerbaijani natural gas production goes up.”

Aliyev noted the “commercial character” of the contract and played down any political overtones that might be read into it. "It is very important because the theme of gas relations has been groundlessly politicized lately," said Aliyev.

“For us this is an opportunity to enter a new market. The agreement fully meets our interests and has a good future,” Aliyev said.

The Russian president also played down the political dimensions of the agreement, saying it was necessitated by the need to develop bilateral cooperation between the countries and to ensure energy supplies.

Medvedev said it was “extremely important” that “the two countries that consider energy resources as one of the main riches have not only come to agreement but see big prospects not for political reasons but out of mutual benefit.”

Medvedev said, “This is the energy security we have been talking so much lately,” adding, “Such exemplary agreements can serve as an example for others to follow.”

European unease
Despite the assurances of both presidents, the agreement between them is likely to stir some unease in Europe—especially following Gazprom’s agreement with Nigeria last week, also regarding gas supplies.

In fact, the formation of the 50-50 joint venture of Gazprom and Nigerian National Petroleum Corp. (Nigaz) has caused concerns in Europe’s capitals which see Nigerian gas as a way of reducing their dependence on Russia, which already supplies up to half the gas consumed by the EU.

Nigaz intends to explore for gas and to develop infrastructure for its development and transport—even including a section of pipeline that could form part of a proposed trans-Sahara pipeline to export gas directly to Europe.

The EU even has pledged political and economic backing for the trans-Sahara pipeline, but in the absence of a Western consortium to emerge to fund and build the project, Gazprom looks to step into the gap.

Boris Ivanov, head of Gazprom International, played on Europe’s concerns, saying, "We will take part in building the first segment of gas pipeline from southwestern Nigeria northwards.”

Underlining Gazprom’s determination to be Europe’s supplier, regardless of European sentiments, he said, "If [the] trans-Sahara pipeline is realized, it [the Gazprom segment] will be its first segment."

Meanwhile, concerns in Europe over the agreement between Moscow and Baku will be focused on supplies for the Nabucco pipeline, which is designed to bolster the EU’s energy security by circumventing Russia and carrying gas directly to Europe from Azerbaijan’s Shah Deniz field in the Caspian Sea.

However, according to Miller, also in words calculated to cause concern in the capitals of Europe, Gazprom has been promised priority in buying gas from the second phase of the Shah Deniz field—the very source Europe is counting on as a main point of supply for the Nabucco line.

Azerbaijan expects to reach production of 9 billion cu m/year by 2010 within the first stage of Shah Deniz 1, while Shah Deniz 2—expected to come online in 2014—might produce 10-15 billion cu m/year according to state officials.

How much of that will go to Russia remains to be seen. While the Russians appear eager to play on European anxieties, independent analysts suggest that Baku is unlikely to jeopardize its independence from Moscow by supplying Russia with large amounts of gas, especially at the expense of its political allies in the EU.

Contact Eric Watkins at hippalus@yahoo.com.
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