EU's Plans to Import Gas From Azerbaijan

Azerbaijan and the EU signed an energy cooperation agreement in July 2022. Although this was referred to as a potential step toward switching from Russian energy to Azerbaijani gas, as a declaration of intent, the document served mostly political purposes.

The deal was struck without first conducting resource and stakeholder studies or assessing political and financial risks. Additionally, it solely took the interests of the buyer and seller into account. This is significant since completing such projects also depends on investors, joint-stock corporations in charge of running gas resources and pipelines, and transit nations. The use of Azerbaijani gas as a substitute for Russian energy remains idealistic when the interests of these parties are adequately evaluated.

The Southern Gas Corridor project is being used to carry out the objective of expanding and diversifying Europe's energy supply by transporting gas supplies from the Caspian Sea. This includes the three different pipelines and the Shah Deniz natural gas condensate field, which has an estimated investment value of USD 40 billion. The natural gas-condensate field at Shah Deniz is run in two phases. About 10 billion cubic metres of gas are covered in Stage 1 annually. Shah Deniz-1 field output is declining, however, the Shah Deniz Stage 2 field can generate 16 billion cubic metres of gas annually. The Absheron, Shafaq-Asiman, and Umid-Babek gas fields are three others that retain particular significance in addition to the Shah Deniz gas field, which is the largest in Azerbaijan.

"The EU has made moves to increase its gas imports from Azerbaijan as an alternative to Russian energy. Experts assess whether these plans are realistic given the constraints on Azerbaijan’s gas production."

The first gas being extracted from the Absheron field is regarded as a crucial milestone towards boosting gas production in Azerbaijan due to the extent of its deposits. The findings show that the Absheron field's reserves are smaller, and exploration is challenging. Originally slated for the first quarter of 2019, the first gas extraction under the Absheron-1 project has now been postponed to 2021 and then 2023. The first gas output from the Absheron-2 project is anticipated in 2027.

The geological exploration of the Shafaq-Asiman gas field is yet to produce promising findings. Additionally, the technically challenging Umid-Babek region needs geologists who have attained a high degree of professionalism to begin utilisation activities and improve production levels there. All of this requires additional time and money. To this output, the population and expanding economy of Azerbaijan are driving up gas demand. There is an excessive need for increased gas volumes as a result of the industry's introduction of new production capacities. The demand for gas also skyrockets as a result of population growth and the extension of the nation's borders. The government is required to take Azerbaijan's current internal consumption of 12 to 13 billion cubic metres per year into account while establishing export plans.

Domestic demand is predicted to reach 14 billion cubic metres in 2023 and 15 billion cubic metres in 2026. Models for predicting future gas output predict that it will be roughly 47.8 billion cubic metres in 2023, 49.2 billion cubic metres in 2024, and 49.7 billion cubic metres in 2025 in Azerbaijan. By 2026, exports might rise by an extra 2.5 billion cubic metres, taking into account local demand. This indicates that by 2026, Azerbaijan's exports to the EU can only rise to 14–15 billion cubic metres.

The present transmission capacity of the South Caucasus (SCP), Trans-Anatolian (TANAP), and Trans-Adriatic (TAP) pipelines has to be improved to boost the gas supply to Europe. Only the Trans Adriatic pipeline is mostly controlled by EU businesses. Currently, the Russian oil corporation Lukoil owns 19.9 per cent of the South Caucasus pipeline, and the National Iranian Oil Company (NIOC) owns 10 per cent. The Azerbaijani pipelines stretch through Georgia and Turkey. Both nations purchase gas from Azerbaijan. To address the expanding demands of both European and Turkish customers, it will be required to develop transit arrangements with the Turkish state and Turkish firms.

Azerbaijan's sluggish gas production paired with rising internal demand is likely to elaborate ambitions to boost gas supply to Europe. The nation hopes to meet its obligations to Europe by 2027 by purchasing more gas from Russia and Turkmenistan. The Azerbaijani government's policies as well as the stances taken by transit nations and the businesses that control the connected gas resources and pipelines will determine whether real results can be obtained. It will take a lot of effort and money to balance these conflicting interests. As a consequence, replacing Russian gas imports with Azerbaijani gas is a pipe dream over the long term.