Silk Road Reporters: Azerbaijan’s Economic Diversification
On 17 March, the presidents of Azerbaijan, Georgia, and Turkey met in Kars to commemorate the start of the construction of the Trans-Anatolian Pipeline (TANAP). This 1,850-kilometer pipeline will run from Azerbaijan as an expansion of the extant South Caucasus Pipeline (SCPx) running through Georgia to the SCPx terminus in Erzurum. Thence, TANAP will run to Eskishehir in west-central Turkey and thence to the Greek border. It is planned that this pipeline will then continue to Italy via Greece and the Trans Adriatic Pipeline. The intent of this eleven billion dollar pipeline is to bring Shah Deniz II offshore natural gas from Azerbaijan to western Turkey which will consume six billion cubic meters (BCM). From there the remaining 10 BCM will be transported to Europe.
With Turkey opening to Turkmen, Iranian, and Russian gas, the question of profitability remains for gas from Azerbaijan. With the renegotiation of the “take or pay clause” from the Turkish-Azeri, Turkish-Russian, and Turkish-Iranian gas contracts, Turkey may continue to seek competition to erode the profitability of Azerbaijani gas. This will hinder the transitional period from oil to natural gas. Thus, investors and Caucasus-watchers should expect bumps along the road to a new normal in Azerbaijan.
The transition from oil to natural gas is quite difficult. Oil, as it is an easily transportable commodity, is priced on a global markets most notably as Brent Crude. The transport of oil is relatively simple compared to natural gas as oil tankers as well as oil pipelines are commonplace and have been functioning for many years. For natural gas it is a different question. Either natural gas has to be piped as in the TANAP example or shipped via tankers. Natural gas requires highly specialized Natural Gas liquefaction plants connected to pipelines to cool the natural gas so that it might be transported efficiently. while Liquified Natural Gas (LNG) tankers are still fairly new. There are additional security questions to LNG tankers while security has to be monitored along the length of pipelines.
Read the full article from Joshua Noonan HERE