Europe looks to Azerbaijan Amid Push to Diversify Energy Sources
Feb 17, 2022
On January 4 the eighth Ministerial Meeting of the Southern Gas Corridor Advisory Council took place in Baku, attended by representatives from the EU and European states, the United States, the South Caucasus, and Central Asia. European Union (EU) Energy Commissioner Kadri Simson and EU Commissioner for Neighborhood and Enlargement Oliver Varhelyi used this platform to reaffirm the importance of the EU-Azerbaijan strategic energy partnership and to discuss the implementation of initiatives under the Economic and Investment Plan for the Eastern Partnership in Azerbaijan. Their visit comes as the EU and Europe as a whole faces tight gas supplies, higher energy prices, a Russian refusal to up its gas sales to Europe, and what British Prime Minister and others has called the biggest security crisis Europe has faced for decades.
The European Union depends on Russia for around 40 percent of its gas supplies, sold through Russian energy giant Gazprom. European allies fear that should Russia invade Ukraine, European markets would face energy shortages which could be exacerbated by Moscow cutting off natural gas flows in response to Western economic sanctions. Already Russian gas flows to Europe are lower than in the past, underlining that supplies can be used to exert geopolitical pressure. European gas inventories have dropped to less than 40 percent capacity, a historic low. Gazprom has also deviated from previous years in failing to fill its European storage sites and refraining from selling extra gas on the spot market. At the same time, however, oil and gas exports account for over 30 percent of its GDP and more than 60 percent of its exports and Moscow has worked for decades to refute U.S. concerns that Russia can be an unreliable energy supplier.
Azerbaijan has been receptive to European requests to scale up shipments of natural gas to Europe. European Union Energy Commissioner Kadri Simson expressed hopes it will boost its exports 10 billion cubic meters (bcm) from its current 8 bcm. In 2021, Azerbaijan exported 19 bcm of natural gas with approximately 8.5 bcm exported to Turkey, 7bcm to Italy, and the remainder to Georgia, Greece, and Bulgaria. At the February 4 Ministerial, Azerbaijani President Ilham Aliyev said that Europe would see more gas flowing from Azerbaijan in 2022, adding he remains optimistic that Azerbaijan could expand its proven gas reserves to further ramp up supplies. A press statement by Azerbaijani Minister of Energy Parviz Shahbozov and EU Energy Commissioner Kadri Simson following the Ministerial Meeting reaffirmed Azerbaijan’s key strategic role in diversifying European energy supplies amid rising global gas prices and thereby advancing European and global energy security. The parties expressed interest in assessing the potential for an extension of the Southern Gas Corridor into new European energy markets, citing the Western Balkans as a possible recipient.
President Aliyev also highlighted Azerbaijan’s potential to support the EU in moving towards greener energy sources. The country’s green energy assessment has identified potential for developing wind energy and green hydrogen. The President and the EU Commissioner discussed the possibility of Azerbaijan providing the EU with green hydrogen, produced using off-shore wind turbines in the Caspian, and shipping it to European markets via the Southern Gas Corridor pipelines. The EU has already prioritized public financing within its boundaries to expand hydrogen networks or repurpose natural gas pipelines for hydrogen use, although Simson recognized that the EU would continue to invest in gas infrastructure under its Economic and Investment Plan for EU neighbors. Commissioner Varhelyi noted that the EU, in partnership with the European Investment Bank and European Bank for Reconstruction and Development, could mobilize at least 2 billion euro (2.3 billion USD) to target projects related to economic development and green technologies in Azerbaijan.
Although green energy initiatives show promise for the future, there is no substitute for natural gas in the short term, and Azerbaijani gas supplies alone are not enough to replace European imports of Russian gas. Current volumes of Azerbaijani exports are about a tenth of the volume Gazprom can supply to European export markets. Large investments in Europe’s liquified natural gas (LNG) infrastructure means that supply rather than capacity is the key bottleneck in Europe’s energy market. Since late last year, EU officials have held discussions with suppliers in Qatar, Norway, and the United States, which is currently the EU’s largest supplier of natural gas, but globally there is little excess capacity in the natural gas market. This situation, coupled with suppliers’ current contract demands, means that Europe will be fighting for the limited volumes exporters are able to divert until longer term investments to develop new sources become viable.