Azerbaijan eyes increased gas exports to Europe with support from US

Oil Price.com carries an article about Azerbaijani energy minister’s meetings with senior US officials that could be a significant step towards boosting Azerbaijani gas exports to Europe, Caliber.Az reprints the article.

Azerbaijani Energy Minister Parviz Shahbazov visited Washington on February 20-21. He held meetings with senior US officials and secured an agreement that could be a significant step towards boosting Azerbaijani gas exports to Europe. 

The sides "agreed to cooperate in the direction of US support for the expansion" of the Southern Gas corridor - the three pipelines that carry Azerbaijani gas exports to Europe, according to the Azerbaijani Energy Ministry's readout.

"We have considered opportunities to develop traditional energy partnerships at a new stage," Shahbazov said February 21 in a post on X, following a meeting with the US assistant secretary of state for energy, Geoffrey Pyatt.

No further details were given of the agreement, or of what form either the cooperation, or future US support for expansion of the Southern Gas Corridor may take.

Azerbaijan's Energy Ministry reported on February 21 that Shahbazov also met with US Secretary of Energy Jennifer Granholm.

Their meeting included discussions of possible bilateral cooperation on the supply of both gas and "green energy," with views exchanged on "energy security projects implemented by Azerbaijan as a traditional energy supplier," as well as the development of the Caspian-Black Sea-Europe and Central Asia-Azerbaijan-Europe green energy corridors."

Also discussed were issues related to the United Nations Climate Change Conference, COP29 which Azerbaijan will host in Baku between November 11-24, 2024.

Shahbazov's Washington trip could be viewed as primarily a courtesy call ahead of COP 29.

However, the Russian invasion of Ukraine has led to the near complete cessation of Russian gas exports to Europe, resulting in a surge of interest in transiting gas from both Azerbaijan and its fellow Caspian littoral state Turkmenistan to Europe.

As such, any high-level discussions between Azerbaijani and US officials have to be viewed as significant, especially as efforts to boost Azerbaijani gas exports to Europe appear to have hit something of a brick wall.

In July 2022, Azerbaijan and the European Union reached a landmark agreement to double Azerbaijani gas exports to Europe to 20 billion cubic metres a year by the end of 2027.

Progress has been slow with exports last year reaching only 11.8 billion cubic metres, and no decisions taken on the major investments needed to expand the capacity of the sequence of three pipelines that make up the Southern Gas Corridor which carries Azerbaijan's gas to Europe. 

Currently, the third pipeline in the corridor, the Trans Adriatic Pipeline (TAP) which carries the gas from the Türkiye-Greece border to Italy has a nominal capacity of just 10 billion cubic metres a year.

The consortium that operates the line announced in January last year that it was ready to expand capacity by just 1.2 billion cubic metres a year by 2026, a long way short of the extra 10 billion cubic metres a year promised to Brussels.

And no plans have yet been announced for the expansion of either the TANAP pipeline which carries the Azerbaijani gas across Türkiye, or the South Caucasus Pipeline (SCP) which carries the gas from Azerbaijan to Türkiye, both of which will need to be significantly increased.

Expanding the three pipelines will be costly, with all three lines requiring expensive new compressors and the SCP line also possibly requiring the laying of a new parallel pipeline. 

A decision on the necessary investments will need to be taken soon if Azerbaijan is to meet its promise to Brussels. 

Azerbaijani officials have complained that the investment has to be funded by orders for the extra gas Azerbaijan has promised to supply by 2027, but European buyers have been slow to commit.

Many have preferred to look instead to Liquid Natural Gas (LNG) delivered by ship, and which is already available from multiple sources and via multiple import terminals across Europe. 

Any public support or cooperation from the United States to help realize the pipeline expansions could help overcome buyer unwillingness to commit to a source of gas they remain unsure will be available. 

At least questions over whether Azerbaijan will be able to produce enough gas to meet both its export commitments and its growing domestic demand, without the need for imports from Turkmenistan, Iran or Russia, appear to have been answered.

Azerbaijan's imports of gas via a swap deal with Iran and Turkmenistan halted late last year with no apparent problems.

While they could yet be restarted if a new pricing agreement can be reached between Baku and Ashgabat, Baku appears to be under less pressure than it has been over the past two years.

Azerbaijan's main gas and oil producer BP confirmed on February 9 that it expects to start gas production from the deep gas field below its ACG oil field in Azerbaijan's sector of the Caspian, as soon as early next year.

Although BP has yet to confirm exactly how much gas the field will produce, the high cost of drilling wells 4,500m below the Caspian seabed suggests that the volume will be significant.