Azerbaijan and Italy Agree to New Strategic Energy Deal
Author: Samantha Fanger
Feb 22, 2023
In conjunction with a recent high-level visit to Baku, Azerbaijan and Italy announced the signage of a new bilateral energy contract. The deal, worth $170.88 million, will involve Ansaldo Energia, an Italian power-generation service provider, and Azerenerji, Azerbaijan’s largest electrical power company. Ansaldo's Energia’s four gas turbines will be installed in Mingachevir, Azerbaijan, to add an additional generating plant at a power station. The agreement entails that there will be two gas turbines, each with a stream turbine, that should allow for a significant boost to energy transport efficiency.
The Italian Made in Italy and Enterprise Minister, Adolfo Urso, made the deal announcement prior to his visit to Azerbaijan on February 13, calling it “an important agreement that highlights the value of the strategic partnership between Italy and Azerbaijan.” In a press statement, the CEO of Ansaldo Energia, Giuseppe Marino, said that they “are proud to have been acknowledged as the main partner of this important energy project in Azerbaijan,” and highlighted that they view Azerbaijan as “a new market full of potential.”
Minister Urso was welcomed by Azerbaijan’s Minister of Foreign Affairs Jeyhun Bayramov, in Baku, and was later greeted by Azerbaijani President Ilham Aliyev during a powerplant ceremony. “This is indeed a very important event and a project that will greatly strengthen Italian-Azerbaijani friendship,” Aliyev said at the ceremony. “As mentioned, the Italian-Azerbaijani relations have a strategic importance, and we are trying to further expand these strategic partnership frameworks.” Both countries, and the respective companies involved in the deal, have been vocal regarding the initiative, signifying a strengthening of bilateral ties and the central role their relationship in the energy sector has in their mutual goals.
One other key component to Italy’s and Azerbaijan’s relationship is the Trans Adriatic Pipeline (TAP). The pipeline is a key transport route that transports gas from Azerbaijan to Apulia, Italy, via a 546-mile link and has a current capacity of 1.2 bcm a year.
In recent weeks, the two countries made the announcement that they will begin increasing the volume of shipments to 20 bcm by the end of 2027. The TAP and new energy deals have gained increasing importance as Italy strives to reduce its dependence on Russian energy resources. Prior to the war on Ukraine, Italy sourced 40 percent of its natural gas from Russia. Last year, Italy was able to bring that down to 16 percent; however, Urso stated that the country plans to completely abolish reliance on Russian gas by the end of 2023. Especially given Italy’s previous reliance on Russian gas, increasing the TAP capacity and diversifying energy resources with critical partners like Azerbaijan have become a significant assurance in Italy’s energy security. Italy also just last month signed an $8 billion gas production deal with Libya, indicating that, like many European countries previously reliant on Russian energy, it is making substantive strategic moves to diversify away from the Kremlin.
In their meeting, the leaders confirmed that they mutually viewed one another as important partners and even discussed the possibility and importance of cooperation with renewable energy initiatives. Notably, Azerbaijan has significant potential for renewable energy that it has “yet to tap.” Changes to the TAP capacity will also allow for structural changes required to transport hydrogen and renewable gases. Currently, Azerbaijan is actively working to pass laws to work in favor of more renewable energy initiatives that will allow them to save on natural gas and oil and meet their ambitious greenhouse gas commitments.
While the war in Ukraine has been a catalyst for bringing these countries together in the energy sector, it is notable that their relationship extends beyond turbines and energy deals. Later in his address, President Aliyev said that recent high-profile visits between the countries and their continued commitment to strong political ties have laid a foundation for cooperation in various other sectors in the years to come. Moving forward, they will work to diversify trade. This includes trade in the education sector, where both countries have signed agreements on the framework for establishing an Italy-Azerbaijan university in September of 2022. They agreed that this would be the beginning of a “large-scale” bilateral cooperation effort in the field of education.