Armenian-Azerbaijani conflict poses risks to energy markets

Armenian-Azerbaijani conflict poses risks to energy markets

Armenian-Azerbaijani conflict poses risks to energy markets

BAKU / MOSCOW / YEREVAN (Reuters) – Military clashes between Armenia and Azerbaijan over Nagorno-Karabakh have not yet affected energy supplies from the region, but could affect oil and gas exports if the conflict escalates, analysts said on Monday.

Azerbaijan, rich in oil and gas, is particularly vulnerable to potential disruptions in energy exports, although foreign supplies do not travel along routes in the immediate vicinity of Nagorno-Karabakh.

The Metsamor nuclear power plant is located in Armenia, which is already in a high-risk zone due to the threat of an earthquake.

Yerevan in July warned of risks to the security of the region. Baku also said that due to the conflict, the supply of energy resources is under threat.

OIL

The main export route for oil from Azerbaijan is the Baku-Tbilisi-Ceyhan pipeline, which accounts for about 80% of oil exports from the country and which goes through Georgia and further to the Turkish Mediterranean coast. Its throughput capacity is 1.2 million barrels per day, or more than 1% of world oil supplies.

Currently, it supplies over 0.5 million barrels of oil per day.

Azerbaijan also exports oil through Russia through the Baku-Novorossiysk pipeline and through Georgia by rail, as well as through the Baku-Supsa pipeline.

“The Nagorno-Karabakh conflict worries the international community in part because of the threat to stability in the region, which serves as a corridor for major pipelines that carry oil and gas to world markets,” OilX consulting company said in a statement.

GAS

Azerbaijan plans to increase exports of natural gas to Europe.

BP (LON: BP) is the leader of an international consortium developing Azerbaijan’s giant Shah Deniz field, which is expected to first ship to Europe later this year.

The Shah Deniz I field, where gas has been produced since 2006, has a production capacity of 8 billion cubic meters. It is expected that production at Shah Deniz II will reach 16 billion cubic meters per year, with 10 billion cubic meters intended for Europe and 6 billion cubic meters for Turkey.

The S&P rating agency told Reuters that it regards the conflict as “smoldering”, so far without threats to energy supplies.

“We will monitor the implications for sovereign finances, energy flows and company liquidity in the event of further escalation of the conflict,” the agency said.

(Vladimir Soldatkin and Olesya Astakhova in Moscow, Nvard Oganesyan in Yerevan and Nailya Bagirova in Baku. Translated by Olga Vishnevskaya. Editor Anna Kozlova)

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