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Russia Gets Gassed

Has Europe found an alternative to exorbitantly priced Russian natural gas suppliers?

Deals signed in Azerbaijan, worth more than $35 billion, point to yes – and the actual value of signed investments could be even higher. Most importantly, it’s a chance for Europe to wean itself off of costly Russian natural gas suppliers.

If you haven’t heard of the former Soviet Republic, Azerbaijan is now an independent country occupying prime real estate along the oil-rich Caspian Sea. Azerbaijan’s cape peninsula, which extends out into the sea, allows for easy access to a bounty of concealed oil reserves.

Azerbaijan has gained traction on its own as an oil supplier independent of mother Russia, at one time becoming the U.S.S.R.’s largest oil supplier.

That is, until recently.

As you can see in the chart below, all is not as it once was in Azerbaijan…

With Azerbaijan’s oil production tapering off from its high in 2010, speculators predict that the dwindling oil reserves will outlive their cost-effectiveness in the next decade. The country is now concentrating its efforts on the next best thing – natural gas.

In order to be a noteworthy European natural gas supplier, Azerbaijan needed a foreign investment. Oil giants, such as BP plc (BP) and Statoil ASA (STO), granted that very wish. These companies have become much more invested in Azerbaijani natural gas operations in the recent multi-billion-dollar pipeline deal.

Vugar Bayramli, the Chairman of Azerbaijan’s Center for Economic and Social Development, said, “We will have direct access to the European market, and in the first year Azerbaijan will be able to export more than 10 billion cubic meters (bcm) of natural gas to the European market. At the same time, Azerbaijan will export more than 10 (bcm) of natural gas to the Turkish market.”

The three pipelines supplying Azerbaijani natural gas to European buyers won’t likely be finished for a few years.

But any change that aids Europe in moving away from Russian gas producer Gazprom (OGZPY) is a change worth waiting for.