Azerbaijan, EU strengthen energy cooperation Analysis by EU Reporter

The EU Reporter has published an analysis arguing that the volumes from Azerbaijan will help South East European countries decrease their dependence and diversify gas sources. Caliber.Az reprints the article.

The Russia-Ukraine war has disrupted natural gas supplies to European energy markets and caused greater volatility in energy markets. Europe was not prepared for being cut off from raw materials from Russia, especially natural gas, making last winter and the upcoming one a challenge for citizens and political systems.

According to a March 2022 analysis conducted by the Polish Economic Institute, the European Union (EU) was 25 per cent dependent on oil, solid fuel and natural gas supplies from Russia - writes Shahmar Hajiyev, Senior advisor at the Center of Analysis of International Relations and Liliana Śmiech, Vice President of Warsaw Institute.

The ongoing war has also sparked a renewed debate regarding the European Union's ability to be self-reliant when it comes to energy imports from Kremlin. One of the results of these talks was the development of the REPower EU strategy. It not only highlights the process of diversifying natural gas supply sources and routes but also includes a target of the decarbonization of the EU gas market.

Natural gas will be gradually replaced by green hydrogen and biomethane. It is also worth noting that most European countries, especially in South East Europe (SEE), are much more dependent on Russian natural gas supplies, therefore to diversify their energy supplies, they need alternative energy sources and reliable energy partners which are very crucial for long-term energy security.

In this context, during recent years, the EU and Azerbaijan accelerated the energy cooperation by signing important documents which support not only the export of fossil fuels but also renewable energy sources from Azerbaijan to the European energy markets.

To be clear, the “Memorandum of Understanding on a Strategic Partnership in the Field of Energy” (MoU) signed on July 18, 2022, opened up new opportunities for both sides. For Azerbaijan, the country will increase its share of Azerbaijani gas transmitted to Europe via the Trans Adriatic Pipeline (TAP) and reach at least 20 billion cubic meters (bcm) per year by 2027.

Another important opportunity for Azerbaijan is the export of green energy to Europe. By this, the country will support the REPowerEU plan that was mentioned earlier, which is based on three pillars: saving energy, producing clean energy and diversifying the EU's energy supplies. It is worth noting that the Memorandum of Understanding outlines a shared goal between the EU and Azerbaijan to expedite the growth and application of renewable energy production and transmission.

This collaboration aims to leverage the synergy of the EU's green energy transition and Azerbaijan's considerable unexplored renewable energy resources, with a special focus on the offshore energy industry. Both the EU and Azerbaijan recognized the significance of renewable hydrogen and other renewable gases as a viable means to curtail greenhouse gas emissions in sectors and applications challenging to decarbonize, such as power generation and industrial processes.

Upon signing the MoU, they committed to ongoing discussions regarding the enhancement of production capacity, transportation, and trading of renewable hydrogen and other renewable gases. They also plan to explore its usage across multiple areas like energy storage and industrial procedures, while ensuring fair bilateral trade and investment.

Further, the importance of the Global Methane Pledge was acknowledged by both parties, emphasizing the joint responsibility to make the natural gas supply chain more efficient, eco-friendly, and climate-conscious. Accordingly, the MoU endorses the development of systems to gather natural gas that might otherwise be emitted, flared, or discharged into the environment.

As a continuation of energy cooperation Azerbaijan intensified negotiations with SEE countries to help them to diversify energy supplies and routes. The “Agreement on a strategic partnership in the field of green energy development and transmission between the Governments of the Republic of Azerbaijan, Georgia, Romania and Hungary”, which has been signed in Bucharest creates a green energy platform between South Caucasus and Europe. This green energy deal is highly important for South East European countries because the electricity mix of these countries mainly relies on fossil fuels.

Therefore, imports from Azerbaijan will allow them to balance the electricity mix by reducing natural gas for electricity production.

Touching upon the EU-Azerbaijan energy cooperation, it is worth noting that Azerbaijan eyes deeper cooperation with SEE countries, which have a high dependence on a single supplier of natural gas. President Ilham Aliyev’s recent visits to Romania, Bulgaria, Albania, Serbia and Bosnia & Herzegovina support strategic partnerships with these countries. On the background of such developments, a memorandum of understanding between the transmission system operators (TSOs) of Bulgaria, Romania, Hungary, and Slovakia and the State Oil Company of the Azerbaijan Republic (SOCAR) was signed in Bulgaria’s capital Sofia on April 25, 2023.

This document highlights the strategic importance of Azerbaijani gas for the region and is seen as an important step in future cooperation, including in projects relating to renewable energy sources and hydrogen.

Moreover, with this agreement, Azerbaijan joined the so-called “Solidarity Ring initiative” to promote energy cooperation in the context of the ongoing war in Ukraine. This agreement supports natural gas imports in reverse flow via the Trans-Balkan pipeline. This route can guarantee energy security for SEE countries.

For Europe, energy cooperation with Azerbaijan is an effective way to support the energy security of countries which have a high dependence on a single energy supplier. Even with an extra gas volume from Azerbaijan, it will not be enough to fully substitute Russian gas, however, the volumes from Azerbaijan will help SEE countries decrease their dependence and diversify gas sources. For this reason, it is a very valuable gas source, and towards this end, the EU priorities gas interconnectors across to receive the increased volume of Azerbaijani gas via the TAP pipeline. Substantial progress in ensuring gas interconnectivity has been made over the last decade.

Several new cross-border interconnectors have been built, particularly in Central and South-East Europe. These new interconnectors have been essential in linking previously isolated infrastructures of the Baltic states and South-East Europe to the rest of the European market.

Completed in late 2022, the first quantities of natural gas through the Interconnector Greece-Bulgaria (IGB) were transited at the beginning of the gas day from the TAP pipeline. The interconnector is part of the Vertical Gas Corridor – Greece – Bulgaria - Romania - Hungary providing access to natural gas from the Southern Gas Corridor (SGC) and LNG to South Eastern and Central Europe as well as Ukraine.

In the end, Europe may emerge strengthened from the outbreak of war in Ukraine. According to the DISE Energy report, Europe must strive for complete independence from Russian gas, save energy, including natural gas, urgently improve energy efficiency and rapidly develop renewable energy. To this end, cooperation between Azerbaijan and the EU will support Europe’s long-term energy security.

Azerbaijan’s energy strategy aims to expand the export geography of its natural resources, and the natural gas production capacity of the country will allow it to reach at least 20 bcm of gas deliveries to the European energy markets by 2027.