Armenia to increase gas spending by $400 million due to loss of Russian supplies

Alexey Belogoryev, Research and Development Director of the Institute for Energy and Finance, commented to TASS on whether Armenia could abandon the import of Russian gas, and what this threatens for its economy.

According to Belogoryev, the problem for Armenia is not only the price of gas, but also how to replace fuel from Russia. Direct supplies from Iran, Azerbaijan or Turkey and transit of Azerbaijani gas through Georgia are possible options, but they are all expensive, and transporting gas from Azerbaijan or Turkey carries a great political risk for Armenia itself.

"The only politically acceptable replacement is Iran, especially since it has been supplying gas to Armenia for a long time, since 2009, as part of a barter for electricity. Even if we imagine that Iran will find extra gas somewhere (2.2-2.5 billion cubic meters per year), it will take at least three years and several hundred million dollars to eliminate bottlenecks in the gas transportation infrastructure. A realistic price range for such gas would be $280-350 per thousand cubic meters, meaning it would be up to twice as expensive as current Russian supplies. That is, Armenia's additional gas import costs will amount to $230-400 million per year, depending on the contractual formula and market conditions," the expert believes.

At the same time, Armenia's economy is one of the most gas-intensive in the world, Belogoryev stressed. About 96% of households in the country are gasified, for them gas is often a non-alternative source of energy for heating, cooking and water heating.

"At the same time, the country does not produce gas at all, being completely dependent on imports. Therefore, Armenia should not allow interruptions in gas supplies and it is highly desirable to restrain the growth of prices for them. Any Armenian government is forced to proceed from this objective necessity," he added.

"The marginality of these exports for Gazprom is achieved through further gas supplies to retail consumers due to the monopoly position of Gazprom Armenia CJSC in the domestic market of Armenia. Therefore, the key issue in gas relations between Russia and Armenia is not the price of supplies, but the fate of Gazprom Armenia," he concluded.