Will Armenia solve its gas problem at expense of Russia?

Will Armenia solve its gas problem at expense of Russia?

Armenia is holding talks with Russia aimed at decreasing the border price and the consumer price for Russian natural gas in Armenia, the acting Armenian energy infrastructures and natural resources minister Garegin Baghramyan said.

Baghramyan said that the negotiation is being held with Russia’s Gazprom and the republic's energy ministry.

Russia currently supplies gas to Armenia for $150 per thousand cubic meters, but the acting minister said earlier that it could be $140.

In 2013, Gazprom and Gazprom Armenia signed the contract for up to 2.5 billion cubic meters of Russian gas to be supplied annually to Armenia in 2014–2018.

According to the Armenian energy ministry’s figures, the natural gas import from Russia has grown 7% in 2017 to 1 billion 996 million cubic meters, and from Iran 2.9% to 382,700,000 cubic meters. 

The total consumption of natural gas in Armenia has grown 5.3% in 2017.

Armenia has an alternative - the Iranian gas, but it has to be at least 10% cheaper than the Russian gas so that it would be beneficial for Yerevan to purchase it, Director General of Gazprom-Armenia CJSC Grant Tadevosyan said during the meeting of commission dealing with gas prices.

According to Tadevosyan, the Iranian gas calorific value per thousand cubic meters is 7,900 kilocalories, while the same value of the Russian gas it is not less than 8,200.

“That is, when it is burned, more heat is generated. Therefore, if Russian gas costs $150 per thousand cubic meters, Iranian gas, with other things being equal, should cost $ 135 for it to be profitable,” News.am cited him as saying.

At the same time, he added that this issue, in principle, is the subject of negotiations of the governments.

According to the Armenian-Russian agreements, the basis calorific value off Russian gas should be 7,900 kilocalories per thousand cubic meters. At the same time, if the calorific value is higher, an additional factor will have to be added to the existing tariff. However, for Armenia this rule is temporarily not valid until the end of 2018 only.

A scientist of the Institute for Economics of the RAS, Alexander Karavaev, and energy security expert Vahe Davtyan told VestnikKavkaza that the negotiations on discount for Russian gas started by Yerevan are primarily political in nature.

“On the one hand, it seems to be that this issue is of strategic nature, but on the other hand, does Moscow now feel confident that Yerevan will no longer test bilateral relations for strength? If there is no such feeling, Gazprom will delay negotiations with Yerevan until the end of the period of uncertainty associated with the extraordinary parliamentary elections and a complete change of power in Armenia. Accordingly, if a discount is provided, it means that those who determine Russia's policy towards Armenia are completely satisfied with Pashinyan," the scientist of the Institute for Economics of the RAS stressed.

The economist agreed that the negotiations will be conducted exclusively in a political manner and not depend on the economic arguments of both parties. "Theoretically, Gazprom can afford to lower the price due to the difference between the budgeted oil prices ($50 per barrel of URALS) and market prices ($70-80), and because of the low cost of Russian gas production ($20- 22 per thousand cubic meters), and because of Armenia’s participation in the EEU, but it’s very difficult to predict how the negotiations will end, how the parties will operate with these factors and whether they will apply to them at all,” Vahe Davtyan concluded.