Azerbaijan as new EU energy partner


While the supply of Azerbaijani natural gas to Europe via the Southern Gas Corridor already started in December 2020, EU Commission President Ursula von der Leyen visited Azerbaijan on 18 July 2022 to expand bilateral cooperation. LGP Legal Consultant Orkhan Ismayilov spoke with Elnur Soltanov, Deputy Minister of Energy of the Republic of Azerbaijan, about new strategic partnerships in the energy sector.

Ismayilov: The MoU signed between the EU and Azerbaijan, inter alia, provides for a significant increase of gas supplies from Azerbaijan to the EU. What impact will Azerbaijan and the Southern Gas Corridor (SGC) have on the EU’s energy supply security in the forthcoming years?

Soltanov: This MoU has been signed dur- ing a critical time for the global and Euro- pean energy markets. It highlights the stra- tegic nature of the EU-Azerbaijan energy partnership building on a similar document on Strategic Partnership in the Field of En- ergy signed in 2006, as well as on the Joint Declaration on the Southern Gas Corridor from 2011. The new MoU refers to a joint commitment to double natural gas exports to Europe via the Southern Gas Corridor (SGC) by 2027. The SGC has already proven itself as a reliable contributor to the securi- ty of supply and market competition – two principal pillars of the European energy policy. Increased supply from Azerbaijan will play a significant role in delivering much needed gas to vulnerable regions. The potential for the transit of gas originating beyond Azerbaijan could also be looked at as a complementary option.

The EU adopted a number of new legisla- tive acts aimed to achieve carbon neutral- ity by 2050. The role of fossil gas is recog- nized as a transitional source of energy with gradual restrictions for its utilization as well as requirements for low carbon standards.

At the same time the REPowerEU Plan and the “EU external energy engagement in a changing world” documents highlighted that the “support of the expansion of the SGC to 20 bcm per year will play a major role to secure gas supply for Southeastern Europe and the Western Balkans” while expressing the intention to “intensify co- operation with Azerbaijan in the light of the strategic importance of the SGC”. In 2021, Azerbaijan exported 19 bcm of nat- ural gas, including 8.2 bcm to Europe. This year we will increase gas supplies to Eu- rope to 12 bcm.

The Trans-Adriatic Pipeline (TAP) has bought multi-dimensional economic ben- efits to all countries along its route and be- yond in the form of jobs, investment in local communities and revenues. TAP made the participating countries’ energy systems more stable and secure; reduced prices for citizens and businesses thanks to a better gas-to-gas competition. TAP will also support market integration in Southeastern Europe via phys- ical interconnections such as Interconnector Greece-Bulgaria and, in the future, hopeful- ly, the Ionian Adriatic Pipeline.

July also marked the inauguration of the Greece-Bulgaria Interconnector, which is considered as a harbinger of new projects related to the expansion of the SGC and will transport Azerbaijani gas to Bulgaria. How do you assess further expansion potentials of the SGC in terms of capacity and geographical footprint?

Regarding additional natural gas volumes for European countries through expansion and extension of the SGC, concrete ac- tions should be taken now for significant amounts of gas to be available by around 2027. There is clarity and transparency on the supply side with huge reserves of gas in Azerbaijan. We need the same level of clarity on the demand side.

We also need to clarify several important issues such as: How can the EU support the SGC by prioritizing it and providing additional regulatory incentives to speed up the process? Which financial incentives could be provided and which practical ways could be devised to streamline the supply and demand?

Further expansion will also depend on a reliable network of interconnectors, a cur- rent good example being the Interconnec- tor Greece-Bulgaria. Quite some time ago, we started a dialogue with several Western Balkan States on potential gas deliveries to this region. The European Commis- sion has also become part of this dialogue, which is a part of the energy transition processes in the Western Balkans towards a decarbonized economy. There is demand for additional volumes of gas from our other partners. It is obvious that some- times even small amounts of additional gas can provide huge diversification for a given country.

As it is known, Shah Deniz is the main gas field in Azerbaijan and to date, the only contributor to the SGC. While the reserves of Shah Deniz are estimated to be around 1.2 trillion cubic metres, Azerbaijan has more than twice as much proven gas reserves. What can you say about the other gas fields and what prospects do they offer?

Azerbaijan’s proven gas reserves are 2.6 trillion cubic meters and the estimated reserves stand at about 3 trillion cubic meters. The potential of Umid, Babek and Absheron fields alone are more than 1.7 trillion cubic meters. Within a com- prehensive strategic energy dialogue with the EU, which started several months ago, Azerbaijan presented its potential domes- tic production profile and expansion sce- narios which indicate the availability of additional gas volumes for the full expan- sion of the SGC.

It should be noted that the production of additional volumes of gas will require multi-billion upstream and downstream investments in Azerbaijan and beyond which can be obtained only on the basis of long term commercial arrangements between producers in Azerbaijan and buy- ers in Europe, as well as through a regu- lated process of binding capacity bookings.

Luckily, the new MoU has a provision en- couraging cooperation for financing the expansion of the SGC, including through cooperation with international financial institutions.

Continuing with the latest MoU, the document also covers the cooperation in the field of renewables. How do you jointly intend to accelerate the development and deployment of renewable energy generation?

Gas supply is only a part of the new MoU between Azerbaijan and the EU. The doc- ument has rather extensive parts related to renewable energy, energy efficiency, renewable hydrogen and the potential ex- port of green energy/electricity to the EU. Renewables and green transition are also a crucial part of our ongoing energy dia- logue with the EU.

The Caspian Sea has an enormous poten- tial for wind energy – a globally significant technical reserve of 157 GW. Our goal is, and this has been already reflected in a recent MoU with the EU on strategic en- ergy partnership, to establish routes for green energy/electricity export to Europe. Besides the SGC, we will have a Green Energy Corridor, connecting Azerbaijan to Europe. Naturally there are two viable options to realize it:

  1. A mainland Azerbaijan-Zangazur Cor- ridor-Nakhchivan AR of Azerbaijan to Turkey and Europe and
  2. via a Black Sea subsea cable through Georgia, Romania and Hungary.

Recently we have concluded game chang- ing deals in the development of enormous potential of offshore wind in the Caspian Sea (besides onshore projects) with lead- ing companies. And we are currently and in parallel working on export channels for those upcoming new volumes of green electricity and probably hydrogen to po- tential markets mainly in Europe.

If we talk specifically about hydrogen, which goals and objectives has your country set with respect to this topic? Is there potential for transporting hydrogen along the SGC?

Last year, an inter-agency working group was established to develop a Hydrogen Strategy in Azerbaijan. With the support of the EBRD, the consulting company “Advision” is involved in the development of the “Low-carbon hydrogen economy market study” for Azerbaijan. This project consists of the Azerbaijan country report and hydrogen case studies. The country report covers current and future demand, existing and forecasted production, hydrogen production costs analysis, policy, regulatory, and financing context as well as assessing export opportunities of low car- bon hydrogen to the energy markets. By the end of 2022, case studies on hydrogen application will be developed by a consult- ant company and submitted to the working group.

We believe that there is an economic ba- sis for the production and export of green hydrogen. Moving forward there will be more opportunities for the overall hydro- gen development value chain as we can see our EU partners are also launching various initiatives to support hydrogen production and its utilization. We are also currently studying whether and how our existing domestic and international natural gas pipeline networks would be capable of car- rying a certain mix of hydrogen.

Azerbaijan’s lands and our section of the Caspian Sea have been generous in terms of traditional energy sources. Blessed with the wise political leadership of the country, this potential has been turned into sources of welfare and security for our nation start- ing from the 1990s as never before, which has spilled over into our neighbourhood all the way to Europe. We see that the same lands and the Caspian Sea now are offering a new potential in the form of green energy.

It is only a matter of time before Azerbaijan rises also to be a reliable and trustworthy source of green energy bringing in great benefits at home and beyond.