Situation on gas market: Prospects for Turkmenistan-Azerbaijan cooperation

Oil and gas market analysts have noted a surge in natural gas prices on European trading platforms. The price 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 engulfed European countries since early summer, spurred the demand for gas in electricity generation. At the same time, the region still feels the effects of the cold winter that devastated the underground storage facilities.

Report informs that the storage facilities are filled by less than 49%, which is lower than the average value for the previous five years.

Besides, since July 31, Gazprom has reduced gas pumping into underground storage facilities in Europe.

The supply of liquefied natural gas (LNG) to Europe also began to fall, as well as the stocks in the storage facilities of the receiving terminals. Since the beginning of July, the European gas transportation system has received 12 percent (about 1 billion cubic meters) less regasified LNG compared to June. In annual terms, the decline was more than 22 percent. All these factors, together with the needs of the growing economy, made the European market experience an acute shortage, 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.

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, a major producer, and exporter of natural gas, constantly increasing its potential in these areas, can become a gas supplier. So, following seven months’ results announced at the government meeting, the growth rate of natural and associated gas production will amount to 123.5 percent, according to preliminary data, and the export of gas - to 137 percent compared to the corresponding period last year.

Real prospects for the export of Turkmen gas via 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 governments of Turkmenistan and Azerbaijan on joint exploration 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 the markets, increased. Europe 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.

Further steps of partners may attract the interest of potential investors represented by major energy companies, particularly the signing of a commercial agreement by Ashgabat and Baku on the implementation of the 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.