Explainer: Russian-Armenian gas talks

Russian gas prices have risen in Armenia from $150 per thousand cubic metres to $165.

However, acting PM Nikol Pashinyan says the price hike will not affect ordinary citizens.

Negotiations around gas prices

Negotiations around the price of gas began in November last year. The previous gas agreement expired on 31 December 2018. A few days before the contract expired, Nikol Pashinyan went to Moscow to discuss the terms of the new contract. However, the parties did not reach an agreement during his visit. On 31 December Russia announced it would be raising the price of gas.

The PM’s press secretary Armen Yeghoyan explained why the price of gas for ordinary users would not change:

“The price of gas for consumers will remain the same by reducing others costs and increasing the efficiency of Gazprom Armenia,” he said.

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How are gas prices set?

On the Armenian-Georgian border, gas used to cost $150. However, by the time Armenian gas reached consumers, it cost about $290 per thousand cubic metres.

In Armenia, the only supplier of natural gas is Gazprom Armenia. For a long time, the price of gas has been the subject of controversy in Armenia. Many believe that the price difference at the border and for the end user is too great. However, Gazprom Armenia has repeatedly stated that it operates at a loss.

Iranian gas

After coming to power, “revolutionary” prime minister Pashinyan announced that he was counting on cheaper Russian gas. However, after the price increase, the acting prime minister said that the country was considering the possibility of purchasing Iranian gas.

Armenia currently receives a small amount of Iranian gas through the Armenian-Iranian gas pipeline via a barter system – Armenian electricity for Iranian gas. However, the authorities have for many years declared that Russian gas is cheaper.

Experts’ opinions

Energy expert Vahe Davtyan believes that Russia continues to be the most optimal gas market:

“Analyses of the gas market show that Iranian gas at the border costs around 180-185 dollars per 1000 cubic metres. It would be another thing if a political decision were to be made to reduce the cost of Iranian gas for the Armenian market. The other issue is the quality of Iranian gas, which is of much lower quality than Russian gas.”

Davtyan says that Iranian gas might be even more expensive because it would be transported in Armenia via Russian pipes and infrastructure. Consequently, prices for Iranian gas will be set by Russian Gazprom, that is, Russia or, at least, with Russia’s consent.

“The import of Iranian gas cannot be considered a real [method of] diversification, or an alternative. What is important is not the origin of gas – that is, where it comes from, from which country it is exported. The infrastructure by which the gas is supplied is important. There can be no Iranian alternative, because Iranian gas flows through the infrastructure of Gazprom, and any decision we make regarding gas imports from Iran to Armenia would be made with the consent of Russia,” said Davtyan.

In Armenia, many people believe that by raising prices, Russia is putting pressure on Armenia. However, Davtyan believes that in this case there is no political component:

“It is wrong to consider the revision of gas prices at the border in the domestic political context, to link it with international relations. Russia is taking drastic steps in its energy policy, unilaterally declaring a sharp increase in the price in the case of Georgia and Ukraine as well.”