Azerbaijan - key player in Europe's energy security
EU Reporter article

ECONOMICS  29 April 2024 - 13:32

The Brussels-based news website EU Reporter has published an article highlighting Azerbaijan's role in ensuring Europe's energy security. Caliber.Az reprints the piece.

The Old Continent stands on the brink of significant change. Current geopolitical instability compels European leaders to seek alternative energy sources. In these new realities, increasing attention is drawn to a reliable and ambitious country on the shores of the Caspian Sea - Azerbaijan.

A land of fire, ancient traditions, and vast prospects, Azerbaijan boasts not only a millennia-old history, unique nature, and rich culture but also immense reserves of various natural resources, including natural gas. With each passing day, the role of this small Caspian republic in ensuring Europe's energy security becomes increasingly significant.

The oil and gas resources of the Caspian Sea have long attracted the attention of global powers. On September 20, 1994, the historic "Contract of the Century" marked a significant milestone in the region's energy geopolitics. Initiated and led by the then-president of Azerbaijan, Heydar Aliyev, this contract stands as one of the most crucial agreements in terms of its political, economic, and strategic significance. The "Contract of the Century," worth $7.4 billion, involved 13 major international oil companies from 8 countries - Azerbaijan, the United States, the United Kingdom, Russia, Türkiye, Norway, Saudi Arabia, and Japan.

Over the years, Azerbaijan has proven itself to be a reliable and honest partner, supplying not only oil but also gas to Europe. The Caspian blue fuel has become the key to stability for several European countries. Responding to the growing needs of the region, the parties agreed to increase gas supplies to Europe to 20 billion cubic meters per year by 2027. The corresponding memorandum was signed in the summer of 2022 by President Ilham Aliyev and President of the European Commission Ursula von der Leyen.

EU and Azerbaijan seal strategic partnership agreement on energy security

"You are indeed a crucial energy partner for us and you have always been reliable. You were a crucial partner not only for our security of supply, but also in our efforts to become climate neutral,” said Ursula von der Leyen at the signing of the memorandum.

Confirmed natural gas reserves in the country amount to 2.6 trillion cubic meters, with projected reserves estimated at around 3 trillion cubic meters. The main source of natural gas from Azerbaijan to Europe is the giant Shah Deniz field, but in the future, other fields such as Babek, Umid, Karabakh, and Absheron are also planned to be involved. The first gas and condensate from Absheron were obtained in July 2023, and gas production is set to begin this year as part of the project to develop the Azeri-Chirag-Deepwater Gunashli block. Initially, it is planned to produce about half a billion cubic meters, but volumes could increase fivefold in the future.

Today, Azerbaijani gas is received by Georgia, Türkiye, Greece, Bulgaria, Romania, Hungary, Serbia, and Italy, and through Italy - several major energy companies from Germany, the United Kingdom, France, and Switzerland. Albania, Bosnia and Herzegovina, Montenegro, Croatia, Slovakia, and North Macedonia are also interested in purchasing gas. Additionally, Romania is interested in purchasing liquefied natural gas (LNG) from Azerbaijan. This promising project involves the production of LNG at the SOCAR terminal in one of the Black Sea ports of Georgia and its delivery in liquefied form to the Romanian port of Constanta.

Such high demand for Azerbaijani gas is not surprising: investors are attracted by the reliability, stability, and developed infrastructure of Azerbaijan. Even during the pandemic, when trade and logistics chains were disrupted and some countries unilaterally terminated contracts, Azerbaijan fulfilled all its obligations. The policy of long-term contracts allows Azerbaijan to ensure predictability and reliability of supplies.

"So, today, we can all witness the Southern Gas Corridor has already changed many lives and made Europe safer. While Europe is ramping up its energy supplies, the Southern Gas Corridor by no doubt will remain one of the few stable and competitive sources of pipeline gas delivered to the EU,” said Albanian Prime Minister Edi Rama during the Southern Gas Corridor Advisory Council Ministerial Meeting in March of this year.

For years, Azerbaijan has invested in the development of oil and gas infrastructure, and the crown jewel of these efforts was the opening of the Southern Gas Corridor, stretching about 3500 km. The corridor consists of three parts - the South Caucasus Pipeline (SCP), the Trans-Anatolian Pipeline (TANAP), and the Trans-Adriatic Pipeline (TAP). Gas is pumped from the Shah Deniz field to the Georgia- Türkiye border via the South Caucasus Pipeline, and from there, one branch is supplied to Turkish consumers in Erzurum through the BOTAŞ system, while the other branch passes through TANAP to Turkish consumers in Eskisehir and then connects to TAP, through which gas flows to European countries - Greece, Bulgaria, and Italy.

The supply of Azerbaijani gas to Europe has also strengthened Italy's role in this area. Adolfo Urso, Minister for Enterprise and Productivity of "Made in Italy," noted in an interview with "Il Messaggero" that "in the future [Italy – ed.] will be able to become a gas hub, including through doubling the capacity of the TAP pipeline." Azerbaijan has already become the second-largest gas supplier to Italy after Algeria.

Overall, the route for delivering Azerbaijani gas is becoming increasingly diversified. For example, in Greece, the IGB interconnector is connected to TAP with a capacity of 3 billion cubic meters (with the potential to expand to 5 billion cubic meters), through which 1 billion cubic meters are delivered to Bulgaria annually. There is also consideration for the construction of the Ionian-Adriatic pipeline - another interconnector with a capacity of 5 billion cubic meters per year. It is envisaged to pass through Albania, Montenegro, Bosnia and Herzegovina, and Croatia.

The stability and reliability of the Azerbaijani partnership are particularly valuable in today's turbulent times. EU countries are increasingly interested in Azerbaijani gas as a long-term and stable source. Last year, deliveries reached 11.5 billion cubic meters compared to 8 billion in 2021.

Taking these factors into account, the EU and Azerbaijan are unlocking new facets of the potential for energy cooperation each year. After the signing of the Memorandum of Understanding on Strategic Partnership between the EU and Azerbaijan in the summer of 2022, in April 2023, a Memorandum of Understanding on Cooperation between the gas transmission operators of Bulgaria, Romania, Hungary, Slovakia, and the Azerbaijani state company SOCAR was signed. The initiative, called the "Solidarity Ring," opens up new opportunities for cooperation for additional gas supplies to Europe through enhanced gas transmission systems.

The supply of Azerbaijani gas to Europe is a large-scale and long-term project. To constantly keep abreast of the energy pulse, annual meetings of ministers within the framework of the Advisory Council of the Southern Gas Corridor have been organized in Azerbaijan since 2015. The latest session, attended by representatives from 23 countries, 6 international organizations, and 44 companies, took place in early March of this year.

The Advisory Council plays a significant role not only in coordinating activities within the Southern Gas Corridor but also in discussing the further steps of participating countries in ensuring energy security. Being an essential mechanism, the Advisory Council helps to adequately respond to modern challenges, and for this reason, ministerial meetings on green energy have been held within the council for the past few years.

“The Southern Gas Corridor has evolved to become a forum for cooperation also on renewables and electrification. This is an extraordinary result and is proof of how this project is forward looking and open to the future. We have made clean energy a key part of EU-Azerbaijan bilateral relations”, – noted Kadri Simson, the European Commissioner for Energy Affairs and co-chair of the Advisory Council of the Southern Gas Corridor, during the latest session.

In December 2022, the governments of Azerbaijan, Hungary, Georgia, and Romania signed an agreement in Bucharest on strategic partnership in the development and delivery of green energy. The agreement entails laying a cable on the bottom of the Black Sea for transmitting electricity with a capacity of 1 GW. The cable is intended for supplying electricity produced in Azerbaijan through Georgia and the Black Sea to Romania for further transportation to Hungary and other European states.

In the near future, Azerbaijan will become not only a supplier but also a transit country for renewable energy sources to Europe from Central Asian countries. In November of last year, Azerbaijan, Kazakhstan, and Uzbekistan agreed to establish a joint venture for exporting green energy to Europe. The agreement was reached at a meeting of energy and economy ministers of the three countries held in Baku.

In this context, the Southern Gas Corridor can play an important role in the green energy transition. During the transitional period when renewable energy sources cannot fully replace fossil fuels, the Southern Gas Corridor can guarantee the stability of energy supplies. Additionally, natural gas is a cleaner fossil fuel compared to coal and oil, meaning its use leads to lower greenhouse gas emissions.

Azerbaijan's contribution to diversifying energy sources and strengthening Europe's energy security is significant. The strategic partnership between Azerbaijan and the EU in this area will continue to evolve, contributing to the stability and sustainable development of the entire region.

Azerbaijan is not just a gas exporter but also a potential exporter of energy from renewable sources. It is a country striving for economic diversification and investment in the future. Investments in the development of the oil and gas sector are accompanied by long-term strategic reforms aimed at increasing transparency and improving the business climate. Azerbaijan has proven itself to be a responsible player in the global energy market, ready for long-term cooperation and joint solutions to global challenges.

In the history of oil and gas diplomacy, Azerbaijan has already made its bright and significant mark. Today, its role in ensuring Europe's energy security is becoming increasingly important. Caspian gas not only warms the homes of Europeans but also ignites the flame of hope for a stable and prosperous future.

Caliber.Az