TRANSIT AGREEMENT

This year could mark a pivotal moment in the organization of Turkmen gas supplies to Europe through Azerbaijan and Türkiye. The foundation for this claim is the relevant agreements signed by the Turkish authorities in March with Turkmenistan and in May with Azerbaijan. Consequently, Ashgabat has signalled its willingness to supply natural gas to Türkiye for onward transport to European markets. In turn, official Baku, by finalizing a new gas cooperation agreement with Ankara, has reaffirmed its commitment to utilize its infrastructure and territory for the transit of Turkmen gas to international markets. Moreover, this agreement establishes the legal basis for initiating the expansion of the South Caucasus Pipeline Mainline (SCPM, Baku-Georgia-Türkiye border) and the Trans-Anatolian Natural Gas Pipeline (TANAP) to convey additional volumes of Azerbaijani gas to Türkiye and onwards to Europe. For Ankara, these new agreements with Azerbaijan and Turkmenistan represent a significant stride towards transforming the transit nation into the pre-eminent gas hub in the Black Sea region.

Orient Express

On March 1, 2024, within the Anatolian Diplomatic Forum's framework, the State Concern Turkmengaz and the Ministry of Energy and Natural Resources of Türkiye inked a Memorandum of Mutual Cooperation on developing a partnership in the natural gas sector. These accords were reached during a working visit to Türkiye by the head of the People's Council of Turkmenistan, Gurbanguly Berdimukhamedov, and his meeting with President Recep Tayyip Erdogan. Additionally, an interstate Declaration of Intent on cooperation in the hydrocarbon resources field was signed. These agreements signify a crucial step in bolstering the energy partnership between Turkmenistan and Türkiye, positioning Ankara as a potential key regional energy hub. Türkiye's Energy Minister Alparslan Bayraktar, highlighting these agreements' significance, stated that Ankara was prepared to facilitate Turkmen gas's transit to global markets. However, he did not detail how this would be accomplished. Turkmenistan boasts the world's fourth-largest natural gas reserves and the largest field, Galkynysh. Presently, Turkmen gas is procured by China (the primary importer), Russia, and Uzbekistan. Concurrently, Ashgabat is exploring the option of delivering gas to Türkiye via Azerbaijan as a diversification strategy, while also affirming its interest in the Trans-Caspian gas pipeline project's execution. The feasibility of gas supply to Türkiye on a reimbursable basis through Iran and a gas pipeline project to South Asia is also under consideration.

Route via Azerbaijan

The concept of channelling Turkmen gas to Türkiye via a pipeline across the Caspian Sea bed, connecting to the Southern Gas Corridor (SGC), is not novel. Over a decade since its proposal, Europeans, despite active negotiations with Turkmenistan, have not advanced this project's implementation. Various factors contribute to this, with financing likely being the primary hurdle. Ashgabat is unwilling to shoulder such a financial load, deeming it the end consumer's responsibility. Europe, meanwhile, has escalated its energy transition efforts, aiming to curtail future fossil fuel consumption, and is increasingly reluctant to fund hydrocarbon ventures. Furthermore, the EU prefers spot gas supplies over long-term contracts, positing that its need will span only 5-10 years. Who would consent to invest billions in constructing export infrastructure, especially with the risk of not recouping the costs? The fresh pact between Ashgabat and Ankara offers a glimmer of hope, as the signing demonstrates the Turkish side's capacity to negotiate complex matters. Nonetheless, it leaves unanswered how Türkiye plans to arrange Turkmen gas's transit through Azerbaijan. Given the stakes of establishing a hub for gas supplies to Europe, Ankara likely has a strategy in place. For Turkmenistan, executing this project presents benefits, chiefly access to new markets, export diversification, and an enhanced role in the global gas market. China's status as the principal buyer fosters stability, with Russia and Uzbekistan also among Turkmen gas recipients. Expanding the buyer pool enables Turkmenistan to set its terms. Realizing this project would notably boost the South Gas Corridor's competitiveness and Türkiye's prospects of creating a gas hub for re-export to Europe. Moreover, Ankara would gain an additional transport source, enabling it to exert pricing pressure on other suppliers. The natural gas collaboration between Turkmenistan and Türkiye could reshape Europe's energy landscape and liberate it from reliance on Russian gas, aligning with the EU's energy transition goals.

New gas alliance

As is known, the EU has entered into a memorandum of understanding with Azerbaijan, aiming to elevate Caspian gas supplies to 20 billion cubic meters annually. Yet, without Türkiye, achieving this objective is virtually unfeasible. Hence, the EU initially forged an agreement with Turkmenistan, followed by a new natural gas accord with Azerbaijan. The document was signed on 14 May by Turkish Energy and Natural Resources Minister Alparslan Bayraktar and Azerbaijani Economy Minister Mikayil Jabbarov. "Today's agreement mirrors the policy of executing long-term, expansive, and strategically insightful projects devised by both nations. Turkish-Azerbaijani cooperation aids in fortifying Europe's energy security," Jabbarov remarked. The agreement anticipates augmenting the capacities of TANAP and UKTM to establish the requisite conditions for achieving the goal. "Our relations are entering a new phase in the natural gas domain. This agreement guarantees the supply of additional Azerbaijani gas volumes and Caspian Sea gas resources to Türkiye until 2030. Furthermore, a portion of the gas will be channelled to Europe via Türkiye. A pivotal aspect is that within the agreement's framework, we have concurred on routing Turkmen natural gas to Türkiye through Azerbaijan and Georgia," Bayraktar expressed. In essence, it is also a transit agreement, facilitating Turkmen gas's exit through Azerbaijan and Georgia. To bolster higher Caspian gas supplies initially to the Turkish and subsequently to the European markets, Baku and Ankara will undertake joint studies to expand capacities at European connection points and gas links in Bulgaria and Greece. "This is the rationale behind signing this comprehensive agreement today," Bayraktar elucidated. The advantages for all involved parties are evident, with the sole expenses being the installation of additional gas compressor stations. Nevertheless, it will be imperative to negotiate financing with international financial institutions, hoping this process does not encounter banks' reluctance to finance hydrocarbon projects.

Growing interest

A robust and sustained demand for Azerbaijani gas persists in Europe, particularly in its eastern segment and the Balkans. The visits of Slovak Prime Minister Robert Fitzo and Bulgarian President Rumen Radev to Baku in May corroborate this. At April's end, Hungarian Foreign Minister Peter Szijjarto visited Baku, announcing that Hungary had commenced receiving Azerbaijani gas since April.

Bulgaria currently satisfies 55% of its gas requirements with supplies from Azerbaijan. Concurrently, discussions are in progress to amplify these supplies not only via Greece but also through Türkiye. The nation received 600 million cubic meters of gas from Azerbaijan in 2022 and 1 billion 250 million cubic meters in 2023. For 2024, the anticipated volume is set to reach at least 1.5 billion cubic meters. Bulgaria is counting on SOCAR and Türkiye to facilitate the pumping of additional gas volumes from the Caspian region under a long-term contract, enabling these supplies to penetrate the markets of Central and Eastern Europe. This expansion is expected to escalate SOCAR's gas sales in the Bulgarian market and bolster Bulgaria's status as a pivotal transit nation for Azerbaijani gas.

Slovakia is poised to become the seventh European and ninth global purchaser of Azerbaijani gas. Slovak Economy Minister Denisa Sakova has indicated that Slovakia is prepared to organize imports to cater to domestic demands and diversify gas supplies to adjacent European nations. She believes that this collaboration will pave the way for establishing transportation routes to Eastern and Central Europe, including Austria, the Czech Republic, and Hungary. This endeavour will be facilitated by the Solidarity Ring (STRING) initiative, endorsed by Azerbaijan, Slovakia, Bulgaria, Romania, and Hungary in the previous April. STRING aims to channel additional natural gas volumes from the Caspian Sea—up to 5 billion cubic meters annually—into the EU via the Southern Gas Corridor, utilizing the gas transmission infrastructure of the European signatories of this initiative.

Slovakia might commence receiving Azerbaijani gas as soon as this summer. However, with the transport capacity currently at full utilization, a challenging segment persists on the border between Romania and Hungary. As a result, European nations must proactively advocate for new interconnectors to facilitate gas receipt and transit to neighbouring countries.

Alternatively, Bratislava has proposed importing Azerbaijani gas to Slovakia via Ukraine through the Vertical Corridor. Slovak authorities suggest that this project could be designed to handle 20 billion cubic meters per year. The core principle is that to secure additional product volumes, each gas transport system operator—be it Bulgaria, Hungary, Romania, or another Vertical Corridor member—should enhance their system's capacity rather than constructing new pipelines. This approach is deemed more efficient and cost-effective. Regardless of the chosen path, Azerbaijan's role as a fuel source for these supplies remains indispensable.