Translated material
No concessions
Gazprom and Botas continue to operate under the same conditions
Based on the results of the discussion of the gas agenda during Dmitry Medvedev’s official visit to Turkey , the parties, apparently, remained at their own conclusions. Ankara did not achieve a single new concession from Moscow - a price reduction or permission to re-export gas. Probably, this is precisely what can explain the fact that after two years of persistent and fruitless negotiations on gas, Turkey agreed to make peace with Azerbaijan .Turkish Prime Minister Recep Tayyip Erdogan is going to sign an agreement similar to surrender in Baku early next week. Ankara undertakes to pay extra for Azerbaijani gas supplied in 2008-2009 at a price of $120 per thousand cubic meters (the amount of the additional payment is not disclosed, but could, according to indirect data, range from $0.8 to $1.2 billion), and also establish an acceptable tariff for the transit of raw materials that Baku intends to export to Europe. Azerbaijan, through President Ilham Aliyev, previously spoke of its readiness to provide Turkey with a discount on additional volumes of gas (20-30%).
Yesterday, receiving the Russian leader, Mr. Erdogan was hospitable and courteous. “As for gas and oil supplies to Turkey, Russia will cover 70% of Turkey’s needs for these sources, and we are now making efforts to make this a reality,” he said at a joint press conference with Dmitry Medvedev. The sincerity of his words is evidenced by the fact that recently the Turkish Ministry of Energy announced a new medium-term strategy in the fuel and energy sector. The document, in particular, assumes the diversification of import sources with the goal of limiting the maximum share of one supplier to 50% already in 2015. If rapid economic growth does not suddenly begin in Turkey, which will provoke a surge in demand for gas, then for Gazprom this policy statement will mean the loss of part of the market.
A Gazprom representative says that there were no plans to sign any documents yesterday. He called Turkish media statements about a ten percent discount “nonsense.” Adjustments to contracts in accordance with market conditions were made at the end of last year. The newspaper’s interlocutor refused to disclose details (at the same time, it should be noted that the “take or pay” level in contracts for the supply of Russian gas to Turkey has been at around 75% since 2003 and does not fall into the category of new “adjustments”).
In this light, the statements of Russian officials that Gazprom's supplies to Turkey in 2010 will increase 1.5 times, to 30 billion cubic meters, are also untenable. The volume of contractual obligations under the three large agreements really amounts to 30 billion cubic meters, but Turkish counterparties can take 22.5 billion cubic meters without any sanctions (an increase of 12%). Moreover, at the end of the year, one of the contracts (for 6 billion cubic meters annually), signed back in Soviet times, expires. It has not yet been possible to extend it, and if on May 16 Mr. Erdogan signs obligations to purchase additional volumes of Azerbaijani gas, then the need to renew the contract may no longer be necessary. Then Russian gas supplies will be limited to only 24 billion cubic meters, and Ankara’s minimum withdrawal obligations will be only 18 billion cubic meters.
True, it cannot be ruled out that Gazprom is ready to sacrifice part of its share in the Turkish market in order to weaken the position of the Nabucco project, which is focused on supplying Caspian and Middle Eastern gas to Europe. After all, if Turkey itself needs additional volumes from Baku, then Azerbaijan’s ability to export to the EU will thereby decrease.
We should also not forget about the high competition for free volumes of Azerbaijani gas. In addition to Nabucco, Gazprom and three export routes to Europe are also vying for gas from the second stage of the Shah Deniz project (total 8-14 billion cubic meters of gas per year). The Russian concern entered into a contract with the Azerbaijani SOCAR for the purchase of gas according to the European price formula without volume restrictions. The seller has the right to offer any amount of gas he has (1 billion cubic meters is planned for this year), and the buyer must purchase it on the terms specified in the contract. Thus, other contenders for Azerbaijani raw materials have been given a price standard.
In addition, during the dispute with Turkey, Baku conducted intensive negotiations with Georgia and Romania on the supply of 6 billion cubic meters of gas through one of the Georgian ports in liquefied form. Yesterday an agreement was signed to create a joint venture to prepare a feasibility study.
Also yesterday, a Swiss government delegation came to Baku to lobby for the supply of Azerbaijani gas to Italy through Turkey, Greece and Albania via the Trans-Adriatic Gas Pipeline (TAP) with a capacity of 10-11 billion cubic meters per year. The project wants to be implemented by a joint venture between the Swiss EGL and the Norwegian Statoil. In the near future, we should expect the activation of two other hunters for Azerbaijani gas - the Italian Edison, which is promoting an alternative infrastructure project between Greece and Italy (Poseidon with a capacity of 8-10 billion cubic meters), and, of course, Nabucco (from Turkey to Austria with a capacity of 31 billion cubic meters), which also does not yet have guarantees of loading. Such competition creates a unique situation for Azerbaijan individually - a seller's market in conditions of obvious oversaturation of the European market with gas from other sources. This promises difficult price conditions for buyers.