Southern gas corridor and expansion of trade the forthcoming negotiations of Merkel in Baku

The issues of gas transportation from the Caspian region to Europe and the expansion of trade and economic relations will be the focus of the negotiations on August 25 between German Chancellor Angela Merkel and the leadership of Azerbaijan in Baku, reported the international news agency Reuters referring to a high-ranking German official.

"After criticism from US President Donald Trump, Merkel is looking for an alternative to Russian fuel, although she does not refuse to build a Russian gas pipeline Nord Stream 2, the agency reported. Berlin is interested in building the Southern Gas Corridor (SGC), which is part of strategy for diversifying energy supplies to Europe."
The first gas for SGC for Europe in 2020 will be gas from the Azerbaijani "Shah Deniz" field with reserves of 1.2-1.5 trillion cubic meters. The initial capacity of SGCs is 16 billion cubic meters per year with the possibility of doubling within seven years. Taking into account the second phase of development of "Shah Deniz" and the creation of three segments of the South Caucasus pipeline - the extended South Caucasus pipeline (in Azerbaijan and Georgia), the TANAP gas pipeline in Turkey and the European Trans-Adriatic Pipeline, the total cost of delivering gas from the Caspian Sea to Europe is estimated at $ 40 billion has been implemented by more than 75%.

"Nord Stream-2" with a capacity of 55 billion cubic meters per year was previously estimated at $44 billion, and, according to Gazprom's forecasts, will be put into operation by 2020. However, the US administration threatens the companies participating in the project with sanctions, while SGC calls an excellent alternative to Russian supplies. As the partner of the consulting company RusEnergy, oil and gas sector analyst Mikhail Krutikhin, "the project Nord Stream-2" is absolutely unnecessary project. "

"There were two motivations for this project for the Russian Federation: to punish Ukrainians by depriving them of transit and to allow them to profit from the contractors who build it." There is no other motivation for Russia. "Nord Stream 2" will never be paid off, if to take into account its investment component, the money will simply be written off. From the very outset it was clear that it is unprofitable," thinks M. Krutikhin.

Another analyst on gas supply in Eastern Europe, Mikhail Korchemkin, told ASTNA that " the SGC is intended to supply new volumes of gas from a new source, while Nord Stream-2 is going to redirect long-contracted volumes of Russian gas bypassing Ukraine."

"It is easier to turn old gas contracts of the Russian Federation to another route, than selling new volumes of gas, but the Kremlin's aggressive policy is advantages for the SGC." Such a foreign policy of Russia will hardly change, so the SGC will retain its political advantage, because of which the SGC project will not only be implemented in full, but it can be expanded," said M.Korchemkin. Germany is trying to balance its foreign policy and strategy for the purchase of hydrocarbons.

In September 2013 the German E. ON was among the nine European companies that signed an agreement with the Shah Deniz consortium on the purchase of Azerbaijani gas. This company will purchase a total of 40 billion cubic meters of gas within 25 years (term of the contract) in accordance with the agreement on the acquisition of Azerbaijani gas from the Shah Deniz field.

Since January 1, 2016, the gas trading business of E. ON has been run by Uniper. Since May 2016, Uniper, together with the State Oil Company of Azerbaijan (SOCAR), has been implementing a project for the production of a steam turbo-generator plant for the Ethylene-Polyethylene plant of the Azerkimiya production association, which is on the balance of SOCAR. In 2018 the government of Germany agreed to give a loan guarantee for a loan of Azerbaijan in a German bank in the amount of 1.2 billion euros (or $ 1.5 billion) to ensure the supply of Caspian gas. The loan to Azerbaijan, guaranteed by Germany, will be part of the SGC funding project. According to the State Customs Committee of Azerbaijan, Germany periodically buys oil and oil products from Azerbaijan. There are more than 200 German companies operating in different sectors of the economy in Azerbaijan.

Economic ties

The history of economic relations between Germany and Azerbaijan dates back to 1863, when the German company of the Siemens brothers built large copper smelters based on copper deposits located in the Gedabay region. Also, the company of the Siemens brothers built a cobalt plant in Dashkesan on the basis of cobalt deposits. Due to the increased activity of German industrialists, in the region, and especially in the current Gey-Gel and Shamkir regions, German colonies have appeared.

The modern history of the Azerbaijani-German trade and economic ties has been lasting for 26 years and is developing on a growing scale. In 1992 began mutual visits of Azerbaijani and German delegations. KfW, one of the top 10 banks in Germany, has been actively involved since 1994 in funding different projects in Azerbaijan.

In December 1995, during the visit of German Federal Foreign Minister Klaus Kinkel to Azerbaijan, a package of 23 documents regulating relations between the two countries in the economic, cultural and humanitarian spheres was signed.

In July 1996, the President of Azerbaijan made an official visit to Germany, which had a great influence on the development of economic relations between the two countries. meetings were held with the heads of large companies, representatives of business circles of Germany, businessmen in the financial and banking sector, which opened the way for German investments and international loans to Azerbaijan.

In December 2003, on the basis of the "Agreement on financial cooperation between the Government of the Republic of Azerbaijan and the Government of the Federal Republic of Germany", the German Organization for Investment and Development (DEG) entered the authorized capital of the Azerbaijan Microfinance Bank.

Ilham Aliyev paid a first official visit to Germany as the Azerbaijani president in August 2004, agreements on avoiding double taxation (with respect to taxes on profits and property), an agreement on financial cooperation between the Azerbaijani and German governments, a loan agreement on the allocation of financial help to create a loan guarantee fund and other important documents.

In September 2006, at an international forum in Berlin, Ilham Aliyev announced his intention to establish supplies of Caspian energy resources to European markets, which would make Azerbaijan a reliable partner in ensuring European energy security. On February 14-16, 2007, during the visit of the Azerbaijani President to Germany, Ilham Aliyev met with German Chancellor Angela Merkel.

On May 21, 2007, the German-Azerbaijani Business Forum was held in Baku with the support of the Federal Ministry of Economics and Technology of Germany, the German-Azerbaijan Business Association, the Embassy of the Federal Republic of Germany in Azerbaijan, the Ministry of Economic Development of Azerbaijan, and the Azerbaijan Export Promotion Foundation (AZPROMO). The increase in the export of German industrial products to Azerbaijan in 2006 was 8.6%, while the Germany itself bought mainly Azeri oil products.

In Germany, 2008 was declared the year of Azerbaijan.

In 2009, the Ministry of Economic Development of the Republic of Azerbaijan and the German Agency for International Cooperation GIZ, signed a Memorandum of Cooperation, according to which a joint Azerbaijan-Germany program was implemented to upgrade the skills of managing personnel in the business sphere.

On February 4-6, 2010 Ilham Aliyev's regular visit to Germany took place, within the framework of which Ilham Aliyev met with Angela Merkel, who addressed the German side for technology, and in response, expressed readiness to contribute to solving the problems of energy security in Europe.

Since December 2012, the Azerbaijan-Germany Chamber of Commerce has been operating. Its members are German companies with a portfolio of orders for the supply of industrial equipment to Azerbaijan worth over 900 million euros. It is noteworthy that such a Chamber in the CIS space in Baku became the second institution of this kind, after similar institution created in Moscow.

In February 2018, a large delegation of German companies - Siemens (a number of energy projects in Azerbaijan), Hazemag (production of industrial crushers), Gerb Pfeiffer and Cladius Peters (construction sphere), Herrenknecht (tunneling technologies), AIRBUS Group International (cooperation with " Azerkosmos "), CLAAS Global Sales (creation of special equipment for the agricultural sector). Thus, the interests of cooperation between the parties in the non-oil sphere were identified.

The 8th meeting of the high-level working group on trade and investment between Germany and Azerbaijan will be held in Baku in the autumn of 2018, and the export mission of Azerbaijan will be sent to Germany.

However, it is the fuel and energy complex and ICT that are key in the ties between the two countries, and in October the relevant business forum on cooperation of companies in these sectors of the economy will be held in Baku.

Germany is one of the five major foreign trade partners of Azerbaijan, and only in July 2018 Azerbaijan's exports to Germany amounted to $ 0.42 billion (an increase of almost 4%). In July, Azerbaijan purchased German products for $ 0.384 billion - one third of all imports from the EU.