Turkmenistan, Hungary formulate gas deal: Azerbaijan’s role and significance

Economy Materials 20 August 2023 22:00 (UTC +04:00)
Turkmenistan, Hungary formulate gas deal: Azerbaijan’s role and significance
Maryana Ahmadova
Maryana Ahmadova
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BAKU, Azerbaijan, August 20. Today, in Budapest, Hungary and Turkmenistan have reached an agreement on the gas supply. The next step for this, is to hold commercial negotiations.

Turkmenistan’s political will is rather obvious. Now, what is more interesting, how exactly the supply is going to be provided.

As Hungarian Foreign Minister Peter Szijjarto said earlier, a pipeline of 300-kilometers length with a capacity of 30 billion cubic meters per year needs to be constructed, and the capacity of pipelines in Southeastern Europe needs to be expanded.

The mentioned pipeline is the Trans-Caspian Gas Pipeline, and today’s talks are a clear proof that Turkmenistan is finally willing to develop this project that has been frozen for many years.

Azerbaijan’s role in this regard is also rather clear. By providing transit through its territory, Azerbaijan will be adding to its already huge contribution to securing stable energy supply to Europe.

However, although Azerbaijan has been supporting the idea itself, the country has stated its position rather clear, that it will not be providing any financing to this project.

At the same time, Azerbaijan is currently working on expanding the capacity of the Southern Gas Corridor, which has been one of the main gas feeders for Europe since its commencement in 2020.

In this context, the Trans-Caspian Gas Pipeline presents an intriguing opportunity. This project seeks to link Turkmenistan's Turkmenbashi and Baku through a subsea pipeline, connecting to the Southern Gas Corridor. By doing so, it could access significant Turkmen gas reserves and provide gas to both Turkey and Europe.

Experts say, that the construction cost for this connector varies around $30 billion. They are also convinced that the Turkmen authorities must engage with European gas companies, including the clear choice of SOCAR as the intermediary.

Turkmenistan should seize this opportunity promptly, as the window for attracting foreign investment in fossil fuel projects, regardless of their size, is gradually closing. Simultaneously, given the EU's need to replace the volumes of Russian gas that are no longer available, the alliance might consider supporting this investment. However, the shift from hydrocarbons to renewable sources significantly affects the support from international financial institutions. Currently, funding for the pipeline must come from the private sector or participating governments.

Azerbaijan, on its part, has firmly stated its position on the project. While not the primary sponsor of the gas pipeline's construction, Azerbaijan is consistently ready to provide its territory and assist in gas transit. Through its forward-looking oil and gas strategy, Azerbaijan has cemented its reputation as a globally recognized and reliable energy partner. As the country continues to adhere to this approach, its position will only strengthen.