THE CHILD OF VICTORY

The year of 2020 has become a real success for Turkey. The commissioning of the Russian Turkish Stream gas pipeline, the discovery of the largest reserves of natural reserves in the Turkish part of the Black Sea, the start of supplies of Azerbaijani gas to Europe via the Southern Gas Corridor (SGC) are just a partial list of projects that the country has managed to implement in 2020.

A cherry on top was the signing of a memorandum on the construction of a new gas pipeline from the Turkish province of Igdir to the Nakhchivan Autonomous Republic (NAR) of Azerbaijan. The project is relatively small both in terms of its size and the volumes of supplies, yet its strategic importance is hard to overestimate.

Apart from ensuring gas supplies to Nakhchivan, the pipeline will become a new page in the history of gas cooperation between Baku and Ankara.

Historical background

NAR does not have a common border with the mainland Azerbaijan and borders with Iran, Armenia and Turkey. Currently, the gas supplies to NAR (300-400mcm annually) is provided through swap transactions between Azerbaijan and Iran in accordance with the 2004 agreement. Azerbaijan supplies Iran with 1.2-1.3mcm of gas daily in return for 1mcm from Iran to NAR.

However, to ensure the energy security of NAR, a bilateral gas supply from Iran and Turkey is relevant. After a series of discussions with Ankara, in July 2010, Azerbaijan signed an agreement with Turkey on the transportation of gas from Turkey to Nakhchivan and the construction of a gas pipeline. Accordingly, Turkey is going to ensure the transportation of 500mcm of gas to Nakhchivan free of charge. However, the works have not been started.

At the end of February 2020, discussions were resumed between the presidents of Azerbaijan and Turkey during the official visit of Turkish leader Recep Tayyip Erdogan to Baku.

“We will build a 160 kilometre-long gas pipeline from Igdir to Nakhchivan. (from Nakhchivan to the Turkish border and from Igdir to the border with Nakhchivan, R+). Nakhchivan will receive gas from Iran and Turkey. This will significantly improve the gas supplies to Nakhchivan,” Mr. Erdogan said summing up the outcome of the negotiations.

In June, Turkish state-run gas company BOTAŞ announced a tender for geodetic, cartographic, expropriation (preparation of maps and other documents for the right of way) and engineering works in Igdir as part of the project.

Finally, on December 15, the signing ceremony of the Memorandum of Understanding on the supply of natural gas to Nakhchivan took place in Ankara. The document was signed by the Turkish Minister of Energy and Natural Resources Fatih Dönmez and Azerbaijani Energy Minister Parviz Shahbazov.

“The signing of the memorandum is the first step in the implementation of this project. We hope that it will be implemented as soon as possible. The Igdir-Nakhchivan gas pipeline will be designed for the annual supply of 500mcm of gas, or 1.5mcm daily,” Mr. Dönmez said.

Azerbaijani gas from Turkey

The Igdir-Nakhchivan gas pipeline will fully meet the needs of the autonomous republic with a population of 500,000 people and an annual gas demand of 500mcm.

“Azerbaijani gas will be supplied from Turkey to NAR via this gas pipeline. SOCAR and BOTAS will be involved in the implementation of the project, and the Ministry of Energy of Azerbaijan and the Ministry of Energy and Natural Resources of Turkey will make every effort for its successful implementation,” F. Dönmez said.

The pipeline will begin in Igdir and end in the Azerbaijani town of Sadarak. In Turkey, the length of the gas pipeline will be approximately 85 km, and it will connect to the main gas pipeline from Eastern Anatolia to Igdir. Under the project, it is also planned to build a gas metering station covering an area of 20,000 sq.m in Dilucu, Turkey.

According to the calculations of the Turkish side, the construction of the pipeline will take 12 months and will be completed in 2022.

“We assume that the tender for the construction of the Ygdyr-Nakhchivan gas pipeline will be completed in the first quarter of 2021. Our objective is to finish the construction within 12 months,” F. Dönmez said.

He said that after the February 2020 agreement between the presidents of Azerbaijan and Turkey, BOTAŞ was entrusted with engineering research. “BOTAŞ completed these works in October. Currently, we prepare to hold a tender for the construction of a gas pipeline,” F. Dönmez said.

According to Baku, the memorandum signed with Turkey guarantees cooperation between SOCAR and BOTAŞ in technical, commercial, administrative, legal and other issues within the framework of the pipeline construction project. “With the gas from Turkey and Iran, Nakhchivan will be able to diversify supplies and improve its energy security, to fully satisfy its growing demand for energy,” Mr. Shahbazov said.

The parties have so far refrained from commenting on the cost of the pipeline construction. The mechanism for financing the project is also unclear, but it can be assumed that BOTAŞ will bear the costs of the Turkish section, and SOCAR, respectively, in the NAR.

Victory in Garabagh and Nakhchivan

F. Dönmez believes that the Igdir-Nakhchivan gas pipeline project is another result of Azerbaijan's victory in Garabagh. “With the victory of Azerbaijan in Garabagh, the importance of Nakhchivan and the region has increased. The Turkey-Nakhchivan gas pipeline project is also a contribution to the stability ensure by Azerbaijan’s victory in Garabagh. This project will further spur the development of Nakhchivan’s economy. The region will be open to numerous initiatives and investments. It will further strengthen the Turkish-Azerbaijani brotherhood and strategic partnership. We will make great progress in ensuring the security of natural gas supplies and resource diversification. Our brothers from Nakhchivan will have an uninterrupted supply of natural gas to homes, schools and hospitals. This gas will heal one of the wounds of Garabagh and will be delivered to the region through Igdir. Thus, it will ensure the safe supply of natural gas to Nakhchivan, as it was before the occupation of Garabagh,” F. Dönmez said.

In terms of the diversification of supplies, the significance of the pipeline project for Azerbaijan is very high. This will remove dependence on a single source of gas supplies to Nakhchivan, which initially carries certain risks in the form of disruptions in transportation for technical or other reasons. In addition, dependence on one source negatively affects the balance of prices pushing the buyer to agree to the terms of the supplier.

According to experts, with the diversification of natural gas supplies, Nakhchivan can receive larger volumes of natural gas at more favourable prices. This will also decrease the cost of industrial products produced in the republic, which ultimately will give the region an additional competitive advantage. Industrial development, in turn, will contribute to the development of the economy, the creation of new jobs and an increase in employment.

Also, the gas from Azerbaijan will be directly supplied to Nakhchivan via the Ygdyr-Nakhchivan pipeline. At this time, Azerbaijani gas is supplied to Iran, and Iranian gas goes to Nakhchivan. This means that all issues regarding gas quality and other technical aspects will be controlled directly by the supplier, Azerbaijan.

Bonus for Georgia

As agreed, Azerbaijan will deliver additional 500mcm through SGC increasing the overall annual volume of supplies through the pipeline to 16.5bcm. This gas will next be injected to the BOTAŞ grid in Turkey, which through its own pipeline will supply part of the gas to Igdir, and then through a new gas pipeline to Nakhchivan.

Considering that the SGC gas supplies from Azerbaijan to Turkey go through Georgia, it is not difficult to guess that Georgia will also benefit from the transit of additional 500mcm through its territory. Settlement of payments with Georgia can be made by analogy with the settlement scheme for gas transit from the Shah Deniz field.

Azerbaijan is currently the main exporter of natural gas to Georgia. The supplies are part of SOCAR’s production volumes from its own fields in Azerbaijan. In addition, Georgia also receives gas via the South Caucasus pipeline from the Shah Deniz field (5% of the total volume of pumped gas, R+).

In total, Georgia is very optimistic about deepening cooperation with Azerbaijan in the gas sector. With the completion of the SGC construction, more Azerbaijani gas will pass through Georgia. At the same time, the country will be able to buy Azerbaijani gas at a more favourable price to meet its demand for gas.

By the way, in December Baku and Tbilisi agreed on the supply of 200mcm of gas from Azerbaijan to Georgia at preferential rates. The Georgian government expects that the agreement will make it possible to maintain the stability of the price of natural gas for the Georgian population for a longer period of time. The so-called social gas in Georgia will be directed to the needs of the population and to generate electricity at thermal power plants.

Thus, the construction of the Igdir-Nakhchivan gas pipeline will strengthen the trilateral energy cooperation between Azerbaijan, Turkey and Georgia.

Perspectives for Iran

As for Iran, the term of the agreement with Azerbaijan on swap gas supplies to Nakhchivan is 25 years. Whether they will continue after the commissioning of the Igdir-Nakhchivan gas pipeline or after the expiration of the agreement is a question for the future.

However, gas cooperation between the two countries is unlikely to be affected by the construction of a new pipeline, as other forms of cooperation may be established. Iran can well return to discussions with Azerbaijan the joint development of fields in the Caspian Sea as soon as the US lifts off the sanctions.

In addition, Baku came up with a new initiative to build a power plant on the border with Iran on the territory of Azerbaijan, which will run on Iranian gas (!).

This issue was discussed during the December 22 meeting of Minister Shahbazov with the Iranian Energy Minister Reza Ardakanian and Oil Minister Bizhan Zanganeh in Tehran.

It is assumed that the electricity produced at the plant will be supplied to both Iran and third countries.

This and other projects implemented between the two countries will hopefully strongly strengthen the energy cooperation and contribute to the development of the region, which after Azerbaijan's victory in Garabagh, in the words of the Turkish Energy Minister, “has become a region where they talk about projects, not about wars, occupation or refugees."