New opportunities for Azerbaijan-Romania energy cooperation Review by Caliber.Az

In the crisis year of 2022, Azerbaijan managed to reliably ensure the energy security of South European countries by consistently increasing the supply of "blue fuel" via South Gas Corridor (SGC). A special place among the partners of Azerbaijan in the Balkans belongs to Romania, business ties with which in recent years have acquired the nature of strategic cooperation. New vectors of Azerbaijani-Romanian cooperation were the subject of discussion during the Romanian parliamentary delegation's three-day visit to Azerbaijan. On the eve of the visit, the head of the Romanian delegation - chairman of the Chamber of Deputies Ion-Marcel Ciolacu talked about the prospects of bilateral business relations with Azerbaijani President Ilham Aliyev.

Last year Baku and Bucharest celebrated 30 years of diplomatic relations. It is symbolic that these relations are based on the friendship between the two peoples, commonality of views on current challenges of the day, respect for sovereignty and territorial integrity of both countries, and mutual political and economic interests. It is not surprising that the last few years have been fruitful for both countries in terms of building a stable and long-term business community.

Thus, Azerbaijan and Romania have signed more than 60 interstate and intergovernmental documents on cooperation during the last decade. Trade between the two countries has increased 2.4 times. The foundation of mutually beneficial Azerbaijani-Romanian relations is the energy and transport sector, and along with trade, transit, and mediation services, there is also a significant investment component. In particular, Azerbaijan's investments in Romania to date exceed $125 million, while Romanian companies have invested $30 million in the Azerbaijani economy. The bulk of Azerbaijani investments in the Romanian economy accounts for the energy sector, and most of the capitalization is ensured by investments of the State Oil Company of Azerbaijan Republic (SOCAR), which owns a retail network of 70 gas stations and three fuel depots in Romania. A certain amount of Azerbaijani capital is also involved in logistics, port infrastructure, oil refining, and real estate in that country.

The importance of further expansion of Azerbaijani-Romanian cooperation was once again confirmed by the meeting held on February 27 between Azerbaijani President Ilham Aliyev and Ion-Marcel Ciolacu, chairman of the Chamber of Deputies of the Romanian parliament. The Azerbaijani leader stated that Baku and Bucharest have good potential for the development of bilateral cooperation, in particular in the energy sector. The Head of State noted that in addition to the supply of Azerbaijani gas to the Romanian market, deepening relations in the energy sector involves the joint implementation of projects in the "green" energy segment, and much work remains to be done in this direction.

Emphasising Azerbaijan's strategically significant role in ensuring stability in the South Caucasus and a strategic partnership with the European Union, Ciolacu stressed the relevance of the intergovernmental agreement signed by Azerbaijan, Georgia, Romania and Hungary in December 2022 on the production and transmission of green energy to Europe through the construction of power lines on the Black Sea bed.

Azerbaijani crude oil exports have accounted for most of the bilateral trade in recent years, and this energy circuit will further expand with the recently signed agreement to deliver Azerbaijani natural gas to Romania. The export of Azerbaijani gas to that country's market has become possible after an increase in blue fuel supplies through the SGC and the completion of a network of interconnectors in the Balkan region.

It is worth recalling that the most important outcome of the IX ministerial meeting of the South Caucasus Gas Advisory Council, held in Baku at the beginning of February, was the signing of a 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 supply of about 1 billion cubic metres of gas. "Romania has expressed its commitment to participate in the 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 the growing consumption of our country," said Romanian President Klaus Iohannis, who took part in the Baku forum.

According to Radu Magdin, Romanian expert and Director of Smartlink Communications, the Azerbaijan-Romania gas contract signed in Baku once again confirmed the strategic importance of the energy partnership between Azerbaijan and the EU: "By 2030, Azerbaijan can meet the needs of Europe in gas from the current 2 per cent to about 10-15 per cent, and further expansion of the South Caucasus pipeline through the Trans-Caspian gas pipeline could increase gas supplies to Europe through this pipeline system. In the long term, gas supplied by the SGC, with Romanian support, could go to Moldova, Serbia, Hungary and other countries in the region, where construction of interconnectors and modernisation of distribution networks has been accelerated since last year.

Another important area of Azerbaijani-Romanian energy cooperation is envisaged to be renewable energy sources (RES). In particular, on December 17, 2022, Azerbaijan, Georgia, Romania and Hungary signed in Bucharest a strategic partnership agreement for the construction of a 1,000 MW, 1,195 km long submarine electric cable Black Sea Energy. This high-voltage line is designed to supply future green electricity to be generated in Azerbaijan (primarily through offshore wind generators on the Caspian Sea), transiting through Georgia and the Black Sea to Romania and on to Hungary and the rest of Europe. At present, the parties to the agreement have started developing a feasibility study for the project, which is expected to be completed as early as September this year, while the cable laying itself will take 3-4 years. Funding aspects of the project are expected to be decided on a multilateral basis, with the European Commission planning to provide €2.3 billion for the laying of the cable. "The Black Sea electricity cable project has promising prospects, and with well-developed electricity networks in the Balkans, it can integrate a growing share of green energy from Romania and Azerbaijan with significant EU support. And in the long term, there are opportunities for Baku and Bucharest to jointly invest in the development of the renewable energy generation sector," expert Radu Magdin stressed.

In the longer term, another Azeri-Romanian undertaking could also be realised: the construction of a liquefied natural gas plant, regasification terminals, and other facilities for the transportation of LNG across the Black Sea. A memorandum of understanding was signed last October during a visit to Romania by an Azerbaijani delegation led by Economy Minister Mikayil Jabbarov and Energy Minister Parviz Shahbazov, envisaging the involvement of a Romanian company Romgaz to develop a feasibility study for the relevant infrastructure.

Notably, the energy sector is key but by no means the only area where Baku and Bucharest plan to expand cooperation in the foreseeable future. The two countries intend to strengthen bilateral cooperation, including investment cooperation, in sectors such as digitalisation, agriculture, transport, and trade. In particular, with the outbreak of the Russian-Ukrainian war and the severance of logistical links based on Russian transport corridors, Romania intends to reorient its transit routes towards the Middle Corridor, including by strengthening cooperation with Azerbaijan. It is worth recalling that together with Bucharest, Tbilisi, and Ashgabat, Baku is involved in the development of the prospective Black Sea-Caspian Sea route, an initiative that is fully supported by the EU.