Azerbaijan Seeks New Energy Partners

In parallel with the dispute with Ukraine, the Russian gas giant Gazprom has been raising prices for clients in the South Caucasus, forcing Azerbaijan to seek to reduce its dependency on Russian supplies.



From the start of 2006, Gazexport, the Gazprom affiliate that supplies the countries of the South Caucasus, has almost doubled its prices.



Azerbaijan’s own Caspian Sea reserves provide five billion of the 12-14 billion cubic metres of gas it consumes every year, with the rest coming mainly from Russia.



On December 21, Azerbaijan signed a new agreement for 2006 under which Gazexport will supply 4.5 billion cu m of gas at the new tariff of 110 dollars per 1,000 cu m. Afterwards, President Ilham Aliev told journalists, “We simply had no other way out.” He added that the country was looking for alternative sources of gas, including Iran.



The Russian power giant UES is simultaneously proposing to raise the price of electricity supplies to Azerbaijan. “We are currently getting electricity from UES at a rate of 2.8 cents per kilowatt hour, while the new rate that’s being proposed is four cents,” Etibar Pirverdiev, head of the state energy company Azenergy told journalists.



“Azerbaijan can turn down electricity supplies from Russia and it’s possible we will do so.”



Pirverdiev said UES had explained that the new tariffs resulted from higher gas prices on the Russian domestic market, which made it more costly to generate electricity.



Dissatisfaction with the price hikes have prompted Azerbaijan to make new deals with its southern neighbour Iran. The day before the new contract was signed with the Russians, President Aliev met his Iranian counterpart Mahmoud Ahmadinejad for the inauguration ceremony of a pipeline supplying Iranian gas to the Nakhichevan region.



Nakhichevan is separated from the rest of Azerbaijan by Armenia and has had to rely on bottled gas since the Nagorny Karabakh dispute began 15 years ago, ending diplomatic relations and cutting the region off from Azerbaijani pipelines.



In Baku, the deal with Iran has been interpreted as being a consequence of Moscow’s energy policy.



Political analyst Rusim Musabekov said that Azerbaijan’s relations with both Russia and Iran were underpinned by economics. “I do not see any political motives behind the Russian decision to raise gas prices for Azerbaijan, as they have also raised prices for Armenia, their outpost in the South Caucasus region,” said Musabekov. “In the same way, the boost to energy cooperation with Iran is a consequence of Azerbaijan’s quest for advantageous energy alternatives.”



Iranian gas supplies to Nakhichevan are expected to leap from last year’s 52 million cu m to 250 and eventually 500 million cu m. The increased supply will be used to power the Babek power station, which has been out of service for years, and thus ease Nakhichevan’s chronic energy shortage.



“This station has been standing idle because of lack of fuel,” said Nazim Askerov, the chief engineer with Azenergy. “Beginning in February 2006, its four turbines, each with a capacity of 18 megawatts, will be switched on one by one. From May 2006, Babek will start working at full capacity, fuelled by Iranian natural gas.”



In a separate move, Azerbaijan intends to buy one billion cu m of Iranian gas in 2006, further reducing Baku’s reliance on Russian gas.



“Technical work is currently being under way, and a project to obtain Iranian gas via [the southern city of] Astara is in preparation,” said Alikhan Melikov, the head of Azerigas. The gas will be used to power the Alibairamli power station on the border with Iran.



Azerbaijan’s gas shortage should end in 2007 solved when a new pipeline will start operating, both satisfying domestic demand and exporting fuel from the Shah Deniz field in the Caspian to the Turkish city of Erzerum.



Armenia and Georgia will also be hit by the higher Russian price of 110 dollars per 1,000 cu m this year.



On December 29, Armenian foreign minister Vardan Oskanian said that the new price would be a severe blow to the economy. He told Kentron television that Armenia needed to review its entire energy and economic security policy in the light of the price hike. Armenia and Iran are already working on a new gas pipeline that is due to begin operating in 2007.



Vafa Guluzade, a former presidential foreign policy adviser in Azerbaijan, believes Moscow’s decision to raise gas export prices for its neighbours is really a ploy to put pressure on Ukrainian president Viktor Yushchenko ahead of that country’s parliamentary election in March. But he suggested that the policy would backfire.



“Moscow has used this tactic against Georgia and Moldova, and anti-Russian sentiments are on the rise in both these countries,” said Guluzade. “They put up the price for Azerbaijan and Armenia as cover for their real motives.”



Rufat Abbasov is a journalist and IWPR contributor in Baku.