Caspian Energy Insight: September 22, 2017
Oil prices continue to rise within the last week, ranging above $55. Accordingly, Azeri light is also performing well in international markets, $58, almost three dollars higher than last week.
RUSSIA, NORTHERN IRAQ, AND NEW ENERGY PROJECTS
Russian oil company, Rosneft, agrees to build a 30 bcm capacity gas pipeline with Iraq’s northern autonomous region, amid the tensions rising in the region with the looming independence vote. The Russian oil giant will also improve the region’s existing oil pipelines. While the regional parliament agreed to hold a referendum on September 25th for the region’s independence, several Western political actors are urging them to postpone the vote.
Amid protests from the central Iraqi government, Rosneft is already a buyer for the autonomous region’s oil exports. While Erbil government desperately needs funds now that oil prices are almost $60 lower than its price three years ago, Russia’s increasing commitment to do business with the regional government both in oil and gas sectors is economically essential.
The agreement between Rosneft and the Northern Iraq’s regional government is also significant for Russia’s internal dynamics. Historically, Gazprom is Russia’s main supplier of natural gas to European markets while Rosneft is now challenging this status quo by engaging with natural gas producers which can supply the gas to European markets.
From the Turkish and Azerbaijani perspectives, this could qualify as mixed signals. Azerbaijan would welcome any new natural gas pipeline that could potentially be part of TANAP and TAP to supply European customers. At the same time, the country is also trying to balance relations with Russia by increasing commercial ties with Europe (and the West in general) and further Russian involvement with potential Middle Eastern suppliers might not be the best case scenario.
Similar to Azerbaijan, for supply diversification, Turkey would also welcome a natural gas supplier that is not Russian with the republic being extremely dependent on Gazprom’s supplies. This new pipeline would also fuel Turkey’s aim of being a major natural gas hub in the region. Yet, Rosneft’s and therefore Russia’s share in such a pipeline could also be concerning. First, this new alternative will not be independent of Russian influence. Second, and maybe more importantly, Turkey will feel significance of Russian presence next door more and more. The two countries already have a troubling past regarding the Russian influence in Syria, with Turkish air force downing a Russian jet in 2015. Since then, the two countries mend their ties but Turkey might prefer not to have Russia’s further presence next to its borders, this time in Northern Iraq.
AZERBAIJAN, TANAP & TAP
On September 14th, at a signing ceremony held in Baku, Azerbaijan extended its contract on Azeri, Chirag, & Gunashli, till 2050. In the renewed version of the contract, the share of SOCAR increased by 13.4%, with other MNCs decreasing their share in proportion.
Aside from the future economic benefits from the giant energy deal for Azerbaijan, the country extended the strategic alliance with its energy partners which was first established in 1994. Before the signing of the first agreement in early 1990s, Azerbaijan was a struggling, newly independent country which extensively benefited from the agreement within the past 23 years. The agreement at the time not only enabled Azerbaijan to have a constant stream of revenues but also brought oil and natural gas extraction technology to flourish, made transition to a market economy possible, as well as establishing international alliances a reality.
Turkish president Erdogan also called the completion of TANAP as the peak point for the Turkish-Azerbaijani relations. Turkey has already been an essential partner of Azerbaijan to transport its oil and natural gas to the world markets. Azerbaijan is a landlocked economy and is reliant on Turkish transit while Turkey, an energy poor country, is benefiting from Azerbaijan’s friendship both economically and strategically.
Meanwhile, the US ambassador to Greece, Geoffrey Pyatt, highlighted the importance of TAP and the IGB pipeline connecting Greece and Bulgaria as essential energy networks in the region. These pipelines will help increase energy diversification and supply security for European customers.
Norway’s Scatec IS in talks to build Iran’s first ever solar plant. The company wants to build and operate a 120 MW firm that would later rise to 500 MW. The two countries have not yet signed a deal, but are in negotiations. Project would cost roughly $132 million per 100 MW installed. Iran’s 80 million inhabitants are heavily reliant on gas and oil, but air pollution is driving them to find new sources.
Meanwhile, U.S. Secretary of State Rex Tillerson said called out Iran to respect the regional peace and security although Iran is praised by international inspectors on its compliance with the nuclear deal. The US government still has another month to decide on its position regarding the sanctions while there is a clear divide between the US and its allies on Iranian sanctions. Iran’s Foreign Minister Javad Zarif, on the other hand, rejected any potential renegotiation of the deal that was initially reached back in 2015.
While Iran wants to keep the deal as is, the current US administration also wants to include clauses to keep Iran’s strategic actions in the region restricted. The Islamic republic is an active partner in Iraq and Syria as well as in Yemen. In all these three countries, it is not allying with US backed forces and the US is intending to limit Iran’s activities.