The European Union-Azerbaijan Natural Gas MOU: Our CPC Senior Fellow Breaks it Down
Jul 22, 2022
The European Union signed a Memorandum of Understanding with Azerbaijan to increase Azerbaijan’s export of natural gas to Europe. This deal comes as the EU seeks to wean itself off of Russian energy and growing concerns about the proven unreliability of Russian natural gas exports. The Caspian Policy Center asked the chair of its Energy and Economy program, Amb. (ret.) Robert Cekuta to weigh in on the MoU.
1) The European Union has just signed a Memorandum of Understanding with Azerbaijan to increase the amount of natural gas imported to Europe, why now?
The immediate and pressing factor, as EU Commission President Ursula von der Leyen noted, is the EU’s need for energy for its citizens and businesses and the threats to the EU’s – and global –energy security due to Russia’s weaponization of its oil and natural gas in addition to Russia’s completely unprovoked and unwarranted invasion of Ukraine. Russia is threatening to reduce oil and gas exports to EU member countries and others. At the same time, EU and other countries want to wean themselves off Russian hydrocarbons given the money those exports provide the Kremlin with funding. There are estimates Russia earned about $100 billion from oil and natural gas exports in the first four months of its invasion of Ukraine. Frankly given everything, such an MOU between the EU and Azerbaijan is probably overdue.
2) The MOU states that Azerbaijan will double its gas exports to 20 billion cubic meters (bcm) a year by 2027, why will increasing the export volume take such a long time?
There are a couple of factors. One is that the physical capacity of the pipeline system needs to be increased. This is something that has long been planned for; in fact, from the earliest days of work on the Southern Gas Corridor pipeline there were plans to expand it from its initial capacity, e.g. with additional pumping capacity.
The second is the current capacity of Azerbaijan’s gas fields and the other demands for Azerbaijan’s gas, including for domestic consumption and for petrochemicals. However, there are additional fields and reserves which are in the process of being tapped.
This question raises an important point here that often gets missed: it takes time as well as human and financial capital to find, tap, and recover the oil and gas from fields, even in such well-established oil and gas provinces as Azerbaijan or here in the U.S.
3) Will other countries in the Southern Gas Corridor need to update or improve their infrastructure to accommodate a greater volume of natural gas?
Yes, and the MOU notes this fact. Expanding pipeline capacity and gas storage facilities in Europe, particularly in the Balkans but also in other regions of the EU, has been something the EU Commission, EU members, and the United States have been working together on for years.
But, there is something very important regarding infrastructure in this agreement that has to be noted. This agreement doesn’t just talk about natural gas, it talks about renewable energy and boosting the capability to export electricity. It talks too about developing hydrogen, a fuel of the future and something which can be generated cleanly in the Caucasus and Central Asia. It also discusses moving this fuel from the Caspian region to Europe. These developments will all need to be updated and expanded as well as adding new infrastructure.
4) Can the European Union rely on Azerbaijan to replace Russian natural gas exports?
Yes, Azerbaijan has proven to be a reliable supplier of natural gas as well as of crude oil. However, Russia has been supplying about 155 BCM of natural gas annually. Replacing that volume of natural gas is going to require tapping a number of different sources around the world, including increased liquified natural gas (LNG) imports from the United States. Renewables are also part of the EU’s thinking regarding replacing Russian natural gas. Replacing Russian gas will also probably require boosting energy efficiency and perhaps, as is now being discussed, mandatory cuts in the amounts of gas EU consumers – businesses as well as individuals – use. That might sound tough, but there is a recognition that the threats Russia’s actions pose are existential and so the EU institutions and its members are determined to stay the course and do all that is necessary.
5) What, if anything, stood out to you about the Memorandum of Understanding, was it a new development or something that was long expected?
What stands out about this agreement is its scope. The MOU signed between EU Energy Commissioner Simson and Azerbaijan’s Energy Minister Shahbazov addresses immediate problems, like the EU’s need for increased supplies of natural gas and Azerbaijan’s efforts to help meet them. However, this is an agreement of the future, one that looks not just at the current contours of today’s international energy security picture, but at the evolving technologies relating to energy. It doesn’t just look at the need for energy, but at the need for cleaner, lower carbon energy. Moreover, by looking at the full scope of what constitutes energy security – hydrocarbons yes, but also at how to cut methane and other steps we can take to make fuel sources less carbon-intensive, at expanding renewable energy production in the region, at expanding electricity exports from Azerbaijan, and at steps to work together to develop a new hydrogen economy – the MOU sets out how Azerbaijan, and other Caspian countries, can remain key players in a changing international energy picture.
Ambassador (ret.) Robert F. Cekuta served as Ambassador to Azerbaijan 2015 - 2018, Principal Deputy Assistant Secretary of State in the Bureau of Energy Resources (2011 – 2014), and Deputy Assistant Secretary for Energy Sanctions and Commodities (2010 – 2011).