Azerbaijan’s gas supply squeeze and the consequences for the Southern Corridor
This paper addresses the gas supply squeeze that has arisen in Azerbaijan. It covers the increase in demand in the domestic market, and Georgia and Turkey, and the unforeseen decline in the legacy state-operated fields, that have combined to produce the problem. It discusses the extent to which the shortage of supply may continue into the 2020s, and reviews previous estimates of Azerbaijan’s output in that decade. In any producing province, predicting the decline rate in post-plateau field production is prone to error – and in the case of Azerbaijan, the reduction in funds available for sustaining investment has exacerbated this issue. In the 1990s, Azerbaijan attracted major upstream companies to participate in the development of existing fields and in the exploration for new oil and gas discoveries. The implementation of the Azeri-Chirag- Gunashli and Shah Deniz projects can be regarded as successful outcomes of this process. In the 2000s Europe, from a policy perspective, intensified its search for alternatives to Russian pipeline gas imports. The ‘Southern Corridor’ was viewed by many as the key element in this strategy for gas supply diversification. Whilst Shah Deniz 2 gas will flow beyond Turkey to South East Europe and Italy, volumes are modest compared with the original Southern Corridor ‘vision’. This paper builds on previous publications by the OIES Natural Gas Research Programme that have addressed the reality of a lack of firm supply available to 2030 for this route. It is especially relevant as part of any assessment of Europe’s supply situation in the 2020s in a post LNG supply surplus era.