For the countries bordering the Caspian Sea, gas has always been a major economic resource and, in most cases, one of the biggest contributors to their national budget. Today, having a major supply of gas, and having access to export infrastructure, is becoming even more important. Europe is the main destination goal as Brussels tries to diversify and lock in long-term energy supplies and with a big emphasis on green energy, for which gas is one of the most important inputs.
As the Russia-Ukraine conflict rolls on and COP29 approaches, gas has become a lot more important than simple economics; being on the right side of the supply-demand equation is also very good politics as Azerbaijan and Kazakhstan already know and are using this to their respective advantage. In the case of the former, Baku faced considerably less criticism of its actions to recover Karabakh after agreeing to double gas supply to the EU by 2027, while Astana is seeing a big rise in investment projects with Europe. Turkmenistan, sometimes referred to as the Hermit State because of its avoidance of most international contacts other than regional, is also now waking up to the economic and political advantages that it can gain from its huge gas reserves.
For Europe, the Caspian gas connections are becoming more important as Brussels looks to increase its energy security and reduce the possibility of having to return to Russian gas supplies when the Ukraine conflict ends and sanctions start to ease. The EU also wants to secure more green energy and is looking at Azerbaijan and the Central Asian states as a potentially big supply source. That supply will also depend on their being a lot more gas available as well as the infrastructure to get it across the Caspian and into Europe.
Azerbaijan has agreed to boost exports to the EU from the 11.8 billion cubic meters (bcm) exported in 2023, to 20 bcm in 2027. It also agreed with Turkey to increase supply from 10.2 bcm (2023) to 16 bcm by the end of the decade, although that may now be reduced as Turkey has secured more LNG supply from ExxonMobil and others. That implies at least an increase in production of 14 bcm within the next 3-6 years. Added to that will be the additional gas required to fuel the planned increase in green electricity production which Azerbaijan aims to contribute to the proposed Green Energy Corridor project. In total, it is expected that an additional 15-20 bcm will be required by the end of the decade.
The additional gas is expected to be found with A) the expansion to the Shah Deniz field phase 3 extension, B) the planned growth in the Absheron field, and C) additional imports from Russia. This latter point was discussed between Presidents Vladimir Putin and Ilham Aliyev in Baku in late August, and while no details were disclosed, it is known that Putin offered to sell more gas to Azerbaijan, at a discount to the price it sells to the EU, to cover the domestic market and free more Azerbaijani produced gas for export. This also improves Moscow’s position with Azerbaijan as it is, in fact, creating an annual budget subsidy for the country.
In Kazakhstan, the Energy Ministry estimates that by the end of the decade, gas production will increase to 90.7 bcm per annum, of which commercial gas will amount to just over 35.1 bcm. Based on Energy Ministry estimates, the country faces a growing gas deficit even for domestic demand (a lot of the gas produced is re-injected into the oil fields), and to that will need to be added the extra gas to produce green electricity for export to Europe, and to supply gas to China under existing export contracts. Here also, Moscow is expected to agree to a higher volume gas supply contract with Astana and at a discount to the market price. This also provides an annual subsidy for the Kazakh economy and helps strengthen political relations between the two neighbours and opportunities for other trade deals.
Kazakhstan is planning to process more of its gas to support value creating industries, especially in chemicals. Currently it lacks its own gas processing capacity and sends raw gas for processing to Orenburg in Russia. The Ministry of Energy is reportedly working with Shell in assessing the potential development of two new natural gas processing plants. On August 26, the Kazakh Energy Minister Almassadam Satkaliyev met senior Shell officials for talks on pushing forward plans for a 2.5 bcm gas plant for Kashagan and a 4.5 bcm plant for Karachaganak. There is also reported investment talks with Qatar – which is moving into several areas of the Kazakh economy with over $20 billion worth of deals agreed so far – to build a gas processing facility.
Turkmenistan has the world’s fourth-largest gas reserves but is significantly restrained from exploiting the full potential of the reserves because of both geography and the nature of its controlled economy. In gas terms, it is on the wrong side of the Caspian Sea, has no access to an international seaport, and has investment and capital restrictions which make it difficult for foreign investors to work in Turkmenistan. But, as is seen with investment from, e.g. South Korea and the United Arab Emirates, this is not impossible provided the terms are agreed at the highest level of government.
Turkmenistan has several priorities when it comes to the further development and use of its gas resources. These include:
- finally building the long talked about Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline. So far, there is strong support for the project from Pakistan and the government in Kabul. The Afghanistan section reportedly started construction in early September with very confident statements from both Ashgabat and Kabul. But there is no clarity on the level of security issues in Afghanistan and the threats made by the IS-K group against this, and other, projects muted for the country. It is also unclear if India will commit to a long-term gas supply that needs to transit Pakistan.
- to send more gas to China via the proposed 4th line of the Central Asian pipeline, although the existing three lines carry much less gas than their capacity.
- to send gas to Europe via the proposed Trans-Caspian gas line. There is, however, compelling evidence that Azerbaijan is not interested in the project because it has enough of its own gas – especially if it imports more Russian gas – to fill the gas pipes to Europe.
- to send gas to Iraq and Turkey.
- to use more gas at home to increase the production of green-electricity for export to Europe via the Azerbaijan Green-Corridor project.

Turkey previously talked about importing gas from Turkmenistan, assuming that could be done via an Iranian swap and not requiring a sub-sea pipeline to Azerbaijan. But recently, it seems as if Ankara has cooled to the idea. This is not for economic or logistics reasons but because of annoyance that Turkmenistan has not yet agreed to join the Organization of Turkic States, the expansion of which is President Recep Tayyip Erdogan’s lifelong ambition.
Then there are the two proverbial elephants sitting on the northern and southern shore of the Caspian, Russia and Iran. Moscow is now engaged in an effort to replicate its (relative) success in switching oil exports from Europe to Asian markets for gas while Iran is struggling with a dangerous shortage of energy and the inability to use its vast gas reserves effectively because of sanctions.
Also, Moscow is using a strategy of offering purchase price discounts, at least over the medium term, to secure long-term gas supply agreements in Central Asia and with China. It is also very focused on efforts to find a way to get gas to the Indian market, which President Putin says is the main long-term goal in replacing the lost European market. For Putin, more gas sale contracts, even at heavily discounted prices for several years, is not only good long-term for business but also very good medium-term for politics. His key energy priorities appear to be:
- Rebuild gas export volumes with greater destination diversification.
- Expand LNG production – from 34 mln tons last year to 100 mln tons by 2035.
- Build a Trans-Caspian (North-South) route to Iran and swap the gas for Iranian gas in the proposed gas hub to be built in the Gulf.
- Build a gas line from the Iranian hub to India or to feed an LNG plant (possibly in Oman).
- Send more gas to China, likely via a new 35 bcm transit via Kazakhstan rather that the proposed but long-delayed Power of Siberia 2 pipeline.
- Accept gas export price discounts for several years to secure long-term supply agreements in Russia’s near-abroad (Central Asia and Caucasus) and for strategic export target countries.
In the Caspian region, the main project is to build a new north-south subsea gas line to northern Iran. Both countries have signed an MOU covering the broad outline of the project – a 30-year agreement covering over 100 bcm of Russian gas supply annually and allowing Russia to swap most of this gas at a proposed new gas hub in the Gulf, and close to the South Pars field, which Russia may then be able to send further south to India.
This agreement, should it move forward to reality, would certainly fit the cliche of game-changer for the Caspian as a major gas interconnector, although not without problems. Not least is the fact that Iranian gas is sanctioned and while Russian piped gas is not, so many other sanctions make it difficult to secure equipment and outside expertise.
Another issue is that, for the project to proceed, approval from the other littoral states is needed. Under the terms of the 2018 Caspian Sea agreement, only the still stalled Trans-Caspian Gas Pipe from Turkmenistan to Azerbaijan is allowed and all other oil or gas pipes would need to be signed off by all of the littoral states. But here again, expect Moscow to rely on the combination of good business and good politics as the three other states all have something they also need:
- Kazakhstan – may look for approval to build an oil pipeline from Tengiz to Baku. It is trying to reduce dependency on the CPC pipeline, to the Russian Black Sea port of Novorossiysk and is looking for a new route for the additional 250-300,000 barrels expected from the major Tengiz expansion.

- Azerbaijan – President Aliyev may look for Russian support, and an Iranian non-interfere commitment, to pressure Armenia to agree to the Zangezur Corridor transit deal. It has already secured a deal to import more cheap Russian gas, for use in its domestic market, and which would allow Azerbaijan to send more of its own gas to the lucrative European market.
- Turkmenistan is potentially more problematic as this deal may dilute the deal it has agreed with Iraq and Iran (Turkmenistan agreed to send gas to Iraq via an Iranian swap) and limit its future options for selling gas to Turkey, and to Europe, if Iran also offers better terms and easier pipeline access to Ankara.
The growing importance of gas as a source of green energy and the legacy of the Russia-Ukraine conflict has created a much bigger opportunity for the Caspian Sea states to make money and to improve their geopolitical importance, especially with Europe, and provided Brussels does not care to look too closely at Moscow’s role behind the stage curtain. For Russia and Iran, the two most sanctioned countries in the world, the changing Caspian gas backdrop also creates the opportunity to work together to solve respective problems and to advance respective energy sector ambitions.
As far as all governments in the five Caspian Sea littoral states are concerned, the stage curtain which separates the public performance from the complicated production behind, most definitely has a golden leading edge.