Plans agreed last year by Azerbaijan and the European Union for Baku to double the volume of gas it sends to Europe to 20 billion cubic metres a year are on hold as European gas buyers have yet to confirm they'll take the gas.
Speaking to reporters at a round table meeting in the Turkish capital Ankara on September 14, Turkish Energy Minister Alparslan Bayraktar confirmed that his ministry had instructed the operator of the TANAP pipeline, which carries Azeri gas across Turkey to Greece, to prepare to expand the pipeline to its full 31 billion cubic metres a year capacity, in order to carry the extra 10 billion cubic metres a year.
But he added that, as far as he was aware, as yet neither the operators of Azerbaijan's main gas fields nor the operators of the three pipelines which carry the gas from Azerbaijan to European markets had received confirmation that the gas actually has a market in Europe.
"I'm not quite sure whether the European market is ready to receive more gas on a long-term basis from TANAP. " he said, explaining that he had discussed the issue many times with Azerbaijan's state oil company SOCAR which is a partner in all the country's gas fields and in the three transit pipelines that carry the gas to Europe.
"On the European side, I don't think they are giving a full-fledged long-term commitment for the off-taking of this additional gas. Without this commitment, I don't think the expansion is possible," he added, explaining that without commitments to purchase the extra gas, even the companies operating Azerbaijan's gas fields won't be able to invest to expand production to the extent needed to produce that extra gas.
Owned by Azerbaijan (58%), Turkey (30%) and BP (12%), TANAP is one of the sequence of three pipelines which make up the Southern Gas Corridor, the EU-backed gas corridor planned as far back as the 1990s and which finally began supplying up to 10 billion cubic metres a year of gas to Europe in 2020.
All three pipelines will need to be expanded to their full capacity to allow exports to reach 20 billion cubic metres a year, but that expansion will require substantial investment to install extra compressors, which in turn requires guarantees that there will be extra gas available to fill the expanded pipelines and that this extra gas can be sold.
The plans to double exports of Azeri gas to Europe were agreed under a memorandum of understanding between the European Union and Azerbaijan signed in July last year.
The agreement was signed in the wake of Russia's invasion of Ukraine the previous February and growing fears that the loss of Russian gas imports of upwards of 180 billion cubic metres a year would leave Europe starved of gas and suffering widespread power outages.
The wording however was not that of a formal commitment, signalling only that the two sides had agreed to "aspire" to support doubling Azeri gas exports to Europe to "at least 20 billion cubic meters of gas annually by 2027, in accordance with commercial viability and market demand".
But while Europe has faced unprecedented increases in energy prices, a continent-wide energy shortage has been avoided thus far thanks to greatly increasing imports of liquefied natural gas (LNG) and boosting power generation from other sources such as coal, nuclear and renewables.
This has left both sides facing a conundrum.
If there is no gas shortage, there is no guaranteed market for the extra gas Azerbaijan is supposed to supply, and no reason to invest in expanding either production or the capacity of the pipelines.
At the same time, it's still unclear just how much extra gas Azerbaijan will be able to supply, and when.
Current production capacity on the BP-operated Shah Deniz gas field which supplies the bulk of Azerbaijan's gas exports, is not able to supply the full 10 billion cubic metres of extra gas required.
BP has started drilling exploration wells in two deep reservoirs which may be able to provide more gas but it is unclear whether they will find commercially exploitable volumes.
But even if that happens, bringing those wells on stream will take time and require further investment which in turn will require some form of guarantee that the gas will find a market.
Also, France's Total Energies recently started production of around 1.5 billion cubic metres a year of gas from Azerbaijan's Absheron gas field.
That can be expanded to around 5.5 billion cubic metres a year but again that will require more investment, for which the operators will require commitments that the gas can be sold.
Azerbaijan has already managed to increase its gas exports to Europe to 11.4 billion cubic metres last year, and is expected to reach 11.6 billion cubic metres this year.
However Baku also has commitments to supply gas to its neighbours Georgia and Turkey as well as growing domestic demand, and last year's increased exports were realised in part by a complex gas swap agreement with Turkmenistan and Iran, which was recently expanded further and may be expanded again, and also in part by Azerbaijan importing Russian gas (in contravention of the Azerbaijan-EU deal's political intention of reducing the EU's dependency on Russian gas.)
Again it's unclear to what extent that "swap" deal could be expanded, and, even whether gas sourced from Iran could be used to provide exports to Europe given that Tehran is still subject to international sanctions.
Also unclear is whether Azerbaijan's military offensive to take full control of Nagorno-Karabakh will have any impact on EU relations with Baku, and hence on future gas trade.
Speaking on September 24 French President Emmanuel Macron accused Azerbaijan's authorities of being "uninhibited" and "threatening the border of Armenia." And on September 25, David McAllister, the chair of the European parliament's foreign affairs committee, suggested that the EU "should make it clear that any attempt to remove or coerce the Armenian population from the Nagorno-Karabakh region will have serious consequences for our relations with Azerbaijan." (Indeed it appears that the large majority of the region's population has decided to flee rather than live under Azerbaijani rule.)
A solution to the conundrum may come from Turkey, in the shape of Ankara's planned gas trading hub in northwestern Turkey, close to the country's four pipeline connections which already transit gas to Europe.
Although details have yet to be finalised and made public, what Ankara envisages is a trading point like the Title Transfer Facility (TTF) trading point in the Netherlands where gas arriving from multiple sources either by pipeline or as liquefied natural gas is traded.
Speaking at his round table meeting, Turkish Energy Minister Alparslan Bayraktar explained how he envisages gas from various sources by pipeline and LNG arriving in Turkey could be traded on Turkey's existing EPIAS energy exchange in Istanbul, which already trades gas for the Turkish market.
That, though, requires gas from multiple sources, which can be traded. Turkey currently has considerable excess LNG import capacity, and imports gas by pipeline from Azerbaijan, Russia and Iran.
With international sanctions likely to restrict transit of both Russian and Iranian gas to Europe through a Turkish hub, that potentially leaves just LNG and Azeri gas, offering a possible incentive for investment to boost both Azeri gas production, and the capacity of the pipelines to carry any extra gas to Europe.
This article first appeared on Eurasianet here.