Azerbaijan, Europe outline priorities in gas and green energy cooperation
Anaysis by Caliber.Az

ANALYTICS  06 February 2023 - 14:02

For decades, European countries have been consistently strengthening cooperation with Azerbaijan in the sphere of oil and gas supply. However, dramatic events of the past year, which radically changed the realities of the Eurasian continent, immediately raised the Baku-EU partnership on energy security to the strategic level. Today, expanding supplies through the Southern Gas Corridor (SGC) is a single option for the Old World, and efforts to jointly develop green generation and energy exports from Azerbaijan are no less important. These issues were discussed in Baku on February 3 during the 9th Ministerial Meeting of the Advisory Board on SGC and the 1st Ministerial Meeting under the Green Energy Advisory Board.

With the conclusion of the "Contract of the Century" back in 1994, Azerbaijan laid the foundation for long-term energy cooperation with Western countries. The logical follow-up to this strategy was the signing in Baku in July 2022 of a new concept document, the 'Memorandum of Understanding on the Strategic Energy Partnership between Azerbaijan and the EU', envisaging a doubling of the capacity of the SCS, bringing annual supplies of Azerbaijani gas to more than 20 billion cubic metres (bcm) by 2027.

The memorandum opened a new chapter in energy cooperation between the European Union and Azerbaijan, European Commission (EC) President Ursula von der Leyen said, noting that the document laid the foundation for a long-term partnership in energy efficiency and joint projects on green energy production and export. Major developments on the energy track in the second half of last year confirmed the fruitfulness of this message: the Greece-Bulgaria Gas Interconnector (IGB) was put into operation and work on the Nis-Dimitrovgrad-Bulgaria-Serbia Interconnector Gas Pipeline (IBS) accelerated and is scheduled to come on stream this October. At the end of the last year negotiations with Serbia, Albania, Romania, Hungary and other Balkan states were intensified on the expansion of the Trans Adriatic Pipeline (TAP) infrastructure capacity, and expansion of other segments of the SGC gas pipeline to increase Azerbaijani gas supplies. Also on December 17, 2022, an intergovernmental agreement was signed on "Strategic Partnership for the Development and Transmission of Green Energy", envisaging the development of wind generation in the Azerbaijani sector of the Caspian Sea and the laying of an electric cable on the bottom of the Black Sea towards Southern Europe.

"Azerbaijan plans to double gas exports to Europe by 2027: this is quite feasible, as we have the resources for it, as well as the political will and a very high level of mutual trust," Azerbaijani President Ilham Aliyev said at the 9th Ministerial Meeting of the South Caucasus Consultative Council at Gulustan Palace in Baku on February 3. - Immediately after the signing of the memorandum of understanding with the European Commission to increase gas supplies to Europe, we began to actively work to find additional opportunities for the supply of more gas". The head of state stressed that Azerbaijan's natural gas reserves will last for at least 100 years.

Azerbaijani gas production and supply are increasing, which is proven by statistics: in 2021, Azerbaijani gas export was 19 bcm, in 2022 it increased to 22.6 bcm, and in 2023 the total external supply is expected to reach 24.5 bcm. At the same time, supplies to the European market this year will be at least 11.6 bcm.

Underscoring the importance of the memorandum signed last year with EC President Ursula von der Leyen, the head of state noted that the document on the strategic partnership in the field of energy is actually a clear roadmap for future bilateral plans. So, already today the prospects of increasing the capacity of the Southern Gas Corridor infrastructure, launched a little more than two years ago, are discussed: Trans-Anatolian Pipeline (TANAP) capacity will be increased from 16 to 32 bcm, and Trans Adriatic Pipeline (TAP) - from 10 to 20 bcm.

Meanwhile, Baku's strategic partners are deploying gas infrastructure in the Balkans to expand the geography of Azerbaijani gas supplies - construction of interconnectors and modernisation of distribution networks are accelerated. This work intensified in 2022, and subsequently, at the end of last year and the beginning of this year, relevant memorandums were signed on arranging supplies of Azerbaijani gas to Serbia, Hungary, and Romania.

"Romania has expressed its commitment to participate in efforts to develop and expand the energy corridor to new markets in Central and South East Europe. We are extremely interested in gaining access to additional volumes of Caspian gas to cover our country's growing consumption," said Romanian President Klaus Iohannis, who took part in the Baku forum. In this regard, the most important outcome of the 9th Ministerial Consultative Council Meeting on South East Europe was the conclusion of the contract on gas deliveries from Azerbaijan to Romania: according to the document signed between the State Oil Company of Azerbaijan (SOCAR) and Romanian Romgaz, the contract will be valid from April 1, 2023 to April 1, 2024, and provides for the delivery of around 1 bcm of gas.

A similar opinion on the prospects of gas diversification was expressed by the Hungarian Foreign Minister Peter Szijjártó, who believes that without Azerbaijani gas it is impossible to talk about real diversification of energy supplies to Europe. "Our goal is to establish the delivery of Azerbaijani natural gas as soon as possible and Hungary plans to start such purchases in the near future," the Hungarian FM said at a forum in Baku and emphasized that talks with Türkiye, which provides transit of Azerbaijani "blue fuel", were intensified in this regard.

According to Serbian Minister of Mining and Energy Dubravka Djedovic, Belgrade also expects to receive the first shipments of gas through the SGC in the next year, and in the future Azerbaijani gas can meet a third of Serbia's annual demand for this fuel.

It is obvious that the gas track today is the key to the expansion of energy supplies and getting the European economy out of the gas crisis that has been going on for about two years now. As President Ilham Aliyev said, in addition to the expected development of new fields and increased production from the existing Shah Deniz field, our country is working on a program of energy efficiency and reduction of domestic losses, and the formation of generation capacity in the renewable energy sector (RES). All this will combine to save additional volumes of gas for export.

The head of state noted that today together with investors - Masdar and ACWA Power companies two investment projects on production of solar and wind energy with total capacity of 470 megawatts are implemented in Azerbaijan. Another RES facility with a capacity of 240 MW will soon be launched by BP in the Jabrayil region. In total, the electricity capacity that Azerbaijan will create within one to one and a half years will be 710 MW and it will also save hundreds of millions of cubic meters of natural gas for export. At the same time, great potential has been identified for energy production in the Nakhchivan Autonomous Republic: negotiations are now underway to assess the possibility of building a 500 MW solar power plant there. Overall, there is 157 GW of wind energy potential in the Caspian Sea alone, 27 GW of onshore wind and solar energy, and up to 10 GW of wind and solar energy available in the liberated areas of the country.

Projects for the development of the RES sector in Azerbaijan are implemented in phases, mostly involving foreign investors and with subsequent export of this electricity to foreign markets, first of all to European countries. This topic was also announced at the plenary session "Green energy: supply of wind energy from the Caspian Sea to the European energy markets". Also, with the participation of Mikayil Jabbarov, head of the Ministry of Economy of Azerbaijan, and Kadri Simson, European Commissioner for Energy, discussions took place on the strategy for transition to green energy, efficient use of resources, and partnership development measures in this area.

"Last December, with the political support of the European Commission, Azerbaijan, Georgia, Romania, and Hungary made a historic decision to connect the Caspian Sea to Europe through a green energy corridor. At the initial stage, 3-4 GW of electricity is planned to be transmitted via this route. Further cooperation between Baku and foreign energy companies on RES projects with a capacity over 25 GW will enable our country to become in the near future an important and reliable partner for Europe in the supply of green energy and hydrogen," Azerbaijani Energy Minister Parviz Shahbazov said and noted that an agreement was reached with the European Commission to enhance joint activities for the development of the RES sector and transit of green power.

In turn, Commissioner Kadri Simson stressed that the EU is ready to support Azerbaijan in the development of untapped potential in the RES sector, deployment and integration of capacities, provision of know-how, and technologies, and attraction of private investment in these projects.

Caliber.Az