Azerbaijan's gas to help Europe's soft underbelly win the "winter war" Caliber.Az analysis

Azerbaijan is consistently enhancing business cooperation with the countries of Southern Europe. The Balkan region is the basis of a long-term export strategy within the framework of blue fuel supplies through the Southern Gas Corridor (SGC). For almost three years Azerbaijani gas has been exported to Italy, Greece and Bulgaria, and this year supplies have been established to Romania and Hungary.

The memorandum of understanding was signed on November 14, between the State Oil Company of Azerbaijan (SOCAR) and Serbia's Srbijagas aimed at cooperation in the field of natural gas supplies was another step in this direction. The agreement envisages supplies of reduced natural gas (LNG), cooperation on gas storage and trading, as well as the construction of a gas-fired thermal power plant in Serbia.

The sanctions standoff between the collective West and Russia, which has been going on for two years now, still poses high risks for Europe, which has experienced a severe energy crisis and is trying to ensure its security through the supply of hydrocarbons from alternative sources.

One of Europe's reliable partners in the diversification of natural gas supplies is Azerbaijan, which signed a Memorandum on Strategic Energy Partnership with the European Union in July 2022. According to this document, it is planned to double the export of Azerbaijani blue fuel to more than 20 billion cubic metres by 2027-2028, which will increase the coverage of new countries with Azerbaijani gas supplies.

Luca Schieppati, Managing Director of the TAP AG consortium, speaking at RCS Academy's Green & Blue Talk in early October, told about the success of these plans: "Since the launch of TAP, more than 28 billion cubic metres of Azerbaijani gas has been transported to Europe. As for doubling the capacity of TAP - the pipe has already been laid and the doubling works will not take long, at least in the Italian section"

It should be noted that cooperation between Baku and Brussels on the gas track has become possible thanks to the joint project of Azerbaijan, Türkiye and the EU on the Southern Gas Pipeline, within the framework of which an integrated pipeline system with a length of 3,500 kilometres was created.

It has become an important tool for the diversification of energy supplies to Europe. In particular, from December 31, 2020, Azerbaijani blue fuel will be exported to Italy, Greece, and Bulgaria, and from January 2023 to Romania. In July the first pilot delivery to Hungary took place. Among non-European countries, Azerbaijani gas is bought in Türkiye and Georgia.

According to some forecasts, by 2030 Azerbaijan will be able to significantly increase gas supplies, meeting the gas needs of European countries from the current 2-3 per cent to about 10-15 per cent. This work is being carried out through steps, including increasing the resource base for supplies. Thus, in January-October 2023 Azerbaijan increased gas production by 4.2 per cent to 40.1 billion cubic metres compared to the same period last year.

At the same time, Azerbaijani gas supplies to the EU increased by 5.9 per cent in the first eight months of this year, and a total of about 12-12.5 billion cubic metres of blue fuel will be exported to Europe by the end of this year. During the reporting period, Azerbaijan exported over 7 billion cubic metres of gas from the Shah Deniz field to Türkiye, which is 22.9 per cent more than the corresponding figures of the previous year.

In turn, to expand supplies through the TAP component of the South Gas Pipeline System, the construction of new interconnectors in Southern and Eastern Europe has been accelerated for the second year already. Also, compressor stations and gas distribution networks are being modernised in the countries where Azerbaijani gas will be supplied soon.

To accelerate these projects, a memorandum of understanding was signed in April this year to promote cooperation between SOCAR and its partners, gas transmission system operators - Bulgarian Bulgartransgaz, Romanian Transgaz, Hungarian FGSZ, Slovakian Eustream - to supply additional gas volumes from Azerbaijan to Europe through the modernised Solidarity Ring (STRING).

In turn, the construction of the 170-kilometre Nish-Dimitrovgrad Bulgaria-Serbia Interconnector Gas Pipeline (IBS) is expected to be completed soon. Once the Bulgarian and Serbian gas transmission systems are connected, taking into account the IBS interconnector's design capacity of about 1.8 billion cubic metres per year, it will be possible to export Azerbaijani gas not only to Serbia but also to Hungary and other neighbouring countries.

Ahead of the start of supplies of blue fuel to the Serbian market, Azerbaijani Energy Minister Perviz Shahbazov met with Serbian Minister of Mines and Energy Dubravka Djedovic-Handanovic in Baku on 15 November. They took part in the ceremony of signing a memorandum between the ministries, as well as a strategic gas contract between the energy companies of the two countries - SOCAR and Srbijagas.

"Serbia will become a new partner of Azerbaijan in the issue of diversification of the European gas market: by supplying about 400 million cubic metres of Azerbaijani gas per year under the new contract, Serbia will become the eighth buyer of blue fuel supplied by our country," Shahbazov said during the ceremony.

In turn, the Serbian Energy Minister reminded that the agreement provides for the supply of Azerbaijani natural gas to the country as early as 2024 with the possibility of increasing the volumes in subsequent years.

"Thanks to the supply of Azerbaijani gas to Serbia through the IBS interconnector, which is expected to be put into operation shortly, we will achieve our strategic goal of diversifying the sources of supply, including strengthening our role as a transit country in the delivery of gas to Central European countries," she stressed.

Another participant of the ceremony, SOCAR President Rovshan Najaf, expressed a similar opinion: in his opinion, the signed gas contract will open a new chapter in cooperation between SOCAR and Srbijagas.

In addition to direct supplies of natural gas, the memorandum provides for the study of opportunities for additional LNG supplies to Serbia, as well as cooperation with SOCAR in the field of gas storage facilities and joint participation in gas trading operations. Finally, Azerbaijan State Oil Company may participate in the construction of a gas-fired power plant in Serbia.

In general, the important role of friendly relations between the Presidents of Azerbaijan and Serbia was emphasised during the meeting, contributing to the comprehensive development of relations based on strategic partnership and mutual benefit. The sides discussed wide opportunities for cooperation not only in the gas sector but also in promising endeavours in the electricity sector.

Belgrade and Baku intend to strengthen their strategic partnership within the framework of the project of laying the Black Sea Energy electric cable with a capacity of 1,000 MW and a length of 1,195 kilometres under the Black Sea, connecting Azerbaijan, Georgia, Romania and Hungary. This energy bridge will supply "green" electricity generated in Azerbaijan to Europe, and Serbia is ready to connect its energy system to the Romanian and Hungarian distribution networks, which will ensure sustainable electricity supplies in the future.

It should be noted that back in September last year, Serbia's state energy company was negotiating the purchase of 2,600 MWh of electricity from Azerbaijan, and negotiations are underway with Ankara on the transit/swap of this electricity through the Turkish energy system.