Oil, natural gas, renewables represent major segments of Azerbaijani energy policy Article by The Diplomatic Courier

Writing in The Diplomatic Courier, Nikola Mikovic, correspondent, researcher and analyst working in Serbia and covering the foreign policy of Russia, Belarus and Ukraine, describes Azerbaijan’s energy potential.

Following the European Union’s “energy divorce” from Russia, Azerbaijan has established itself as a significant exporter of oil and natural gas to several European countries. The South Caucasus nation now aims to become a key source of green energy for Europe, according to the article.

During World War II, Azerbaijan accounted for 75 per cent of the oil produced in the Soviet Union. After the breakup of the USSR, the Caspian nation decided to focus on oil exports. And that decision proved to be very fruitful.  

This year Azerbaijan marks the 30th anniversary since the signing of the Contract of the Century, a deal that increased the Caspian country’s political and economic might, and changed the economic landscape of the region. It was signed on September 20, 1994 between Azerbaijani officials and 11 major foreign oil companies (BP, Amoco, Unocal, LUKoil, Statoil, Exxon, TPAO, Pennzoil, McDermott, Ramco, Delta Nimir) from six countries: the United Kingdom, the United States, Russia, Norway, Türkiye, and Saudi Arabia. 

The document effectively transformed Azerbaijan into one of the world's major oil exporters. But the country also has significant reserves of natural gas. Russia’s invasion of Ukraine has helped Azerbaijan also become one of Europe’s major gas suppliers.

The energy–rich country’s natural gas exports to Europe have increased from 19 billion cubic meters in 2021 to 23.8 billion cubic meters in 2023. Although natural gas and oil represent major segments of Azerbaijani energy policy, Baku also seeks to develop its green energy potential. The authorities plan to supply Europe with hydrogen, as well as with “green electricity” that will be produced in Karabakh, a region that was under Armenian control for three decades, but was recaptured by Azerbaijani forces last year.

“No fossil fuels will be used in Karabakh,” Azerbaijani Energy Minister Parviz Shahbazov said at the Baku Energy Forum (which is part of the Baku Energy Week) held in the South Caucasus nation’s capital on June 4, 2024.

According to the country’s top energy official, Karabakh, as well as the regions of Eastern Zangazur and Nakhchivan, will be transformed into green energy zones. But Azerbaijan also plans to export that energy, in the form of electricity, to Europe.

That is why, back in 2022, Masdar, a United Arab Emirates state-owned corporation, signed a Memorandum of Understanding with Azerbaijan on cooperation in the field of renewable and clean energy in Karabakh. But the Abu Dhabi–based corporation’s representatives have told Diplomatic Courier that any projects in the mountainous region of Azerbaijan are unlikely to be realized in the near future. Instead, the company will focus on the development of green energy facilities in other parts of Azerbaijan.

Meanwhile, Baku will seek to build the Caspian–Black Sea–European Green Energy Corridor, which will deliver electricity produced from offshore wind farms in the Caspian Sea to Europe. 

“First results of the project feasibility study are expected by the end of this year,” Shahbazov stated at the Baku Energy Forum, where renewable energy was one of the major topics. 

The Baku Energy Week, which took place in Azerbaijani capital from June 4-6, 2024, combined three events: the 29th International Caspian Oil and Gas Exhibition, the 12th Caspian International Power and Green Energy Exhibition, and the 29th Baku Energy Forum. While the Caspian Oil and Gas Exhibition focused on major fossil fuel projects in the Caspian region, the two latter events’ main agenda included the development of the renewable energy sector. 

Such an approach clearly suggests that oil, natural gas, and renewables seem to represent the major segments of Azerbaijani energy policy. More importantly, the fact that US President Joe Biden sent a letter that was read at the Baku Energy Week forum, and that Harry Kamian, senior adviser for multilateral energy diplomacy for the US State Department’s Bureau of Energy Resources, participated in the event, perfectly illustrates that Baku can count on Washington’s support in its plans to continue ensuring energy security in Europe.

In other words, the US welcomes the EU’s decision to end its dependency on Russian oil and gas, which is why it encourages Azerbaijan to produce more energy and export it to Europe. The problem, however, is that it will take time for Azerbaijan to develop its green energy potential, and increase natural gas supplies to the European market. 

Quite aware of that, Hungarian Foreign Minister Peter Szijjarto emphasised at the energy conference in Baku that his country will continue purchasing Russian gas, despite pressures coming from the European Union.

“This is not a political declaration but a matter of national sovereignty and rationality. Energy supply should be freed from ideological and political debates,” Szijjarto stressed, pointing out that supplying energy is a “physical and mathematical problem rather than a philosophical one.”

But given that his country also aims to strengthen energy ties with Azerbaijan, and that Budapest plans to acquire a stake in Azerbaijan's Shah Deniz gas field, in the long–term the landlocked EU member will likely have to comply with the EU’s official policy, and significantly reduce its energy cooperation with Russia.  

Azerbaijan will undoubtedly benefit from such an outcome.