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Situation on the gas market and prospects for cooperation between Turkmenistan and Azerbaijan

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06 August 2021

Oil and gas market analysts have noted a surge in natural gas prices on European trading floors. The cost of 1,000 cubic meters of natural gas for delivery in July peaked at $ 464, the highest spot price since March 2018. Hot weather, which has settled in European countries since the beginning of summer, has spurred the demand for "blue fuel" for electricity generation. At the same time, the region still feels the effects of a cold winter that devastated the underground storage facilities. According to media reports, they are now less than 49% filled, which is below the average for the previous five years.

In addition, since July 31, Gazprom has reduced the injection of gas into underground storage facilities in Europe. The supply of liquefied natural gas (LNG) to Europe also began to fall, as well as the decrease in stocks in the storage facilities of the receiving terminals. Since the beginning of July, the European gas transmission system has received 12% (about 1 billion cubic meters) less regasified LNG compared to June, and in annual terms the decline was more than 22%. All these factors, together with the needs of a growing economy, have made the European market acutely scarce, causing a record rise in gas prices in Europe.

Experts believe that the current situation opens up good prospects for all countries exporting gas to Europe, including Azerbaijan, which in November last year began commercial supplies of its gas to Europe via the Southern Gas Corridor. The construction of the UGK was completed after the launch of the TAP in May 2020 - the final section of the gas transmission system from the Sangachal terminal on the Caspian coast in Azerbaijan to southern Italy with a length of about 3.5 thousand km. According to Azerbaijani experts, while maintaining the current dynamics of demand until the onset of winter, Azerbaijan can increase gas supplies to Europe above the planned volumes (5.5 billion cubic meters in 2021), which will bring additional foreign currency earnings to the republic.

Both Europe and Turkey are interested in increasing the supply of natural gas from the Caspian region, where, due to the economic growth, demand for gas has been steadily growing in recent years, reaching 48.2 billion cubic meters last year. In addition to Azerbaijan, Turkmenistan, which is a major producer and exporter of natural gas, constantly increasing its potential in these areas, can become a supplier of "blue fuel". So, according to the results of seven months announced at the government meeting, the growth rate of production of natural and associated gas will amount to 123.5 percent, according to preliminary data, and the export of "blue fuel" - 137 percent compared to the corresponding period last year.

Real prospects for the export of Turkmen gas through the Southern Gas Corridor are opened by the project of joint development of the Turkmen-Azerbaijani oil and gas field "Dostluk" in the Caspian Sea. After the signing in January of this year of the Memorandum of Understanding between the Government of Turkmenistan and the Government of the Republic of Azerbaijan on joint exploration, development and development of hydrocarbon resources of the Dostluk field in the Caspian Sea, interest in the Trans-Caspian gas pipeline project, through which large volumes of Turkmen natural gas could be supplied to European markets through connection to the export capacities of Azerbaijan. According to media reports, such global companies as BP, Total and Shell have expressed their interest in this project.

At a two-day meeting of the joint Turkmen-Azerbaijani working group on the implementation of the Memorandum on joint exploration, development and development of hydrocarbon resources of the Dostluk field, held in Ashgabat at the end of July, the parties considered the implementation of the agreements reached during previous meetings held in March and May of this year ... Particular emphasis was placed on stepping up joint work to attract partners, as well as investors for the successful implementation of a promising intergovernmental document.

The interest of potential investors in the face of large energy companies may be attracted by further steps of partners, and in particular the signing of a commercial agreement by Ashgabat and Baku on the implementation of a project to develop the rich Dostluk field. Political decisions expected from the upcoming trilateral summit of Turkmenistan, Azerbaijan and Turkey will also be of great importance in enhancing the energy partnership between the two countries, including in the European direction.