Can Azerbaijan meet its pledge to double gas exports to Europe?

Azerbaijan is on track to meet its natural gas export target this year. But Baku still has a long way to go before the country can meet its ambitious 2027 export commitments.

Presenting Azerbaijan as a “reliable supplier”, President Ilham Aliyev announced at a UK policy conference in July, the country’s annual export volume for this year was expected to rise by more than 10% from the 2022 total to nearly 13 billion cubic meters (bcm) of gas.

If Azerbaijan reaches this number, it will mark the first time that the country sends more than half of its gas exports to Europe.

In general, gas production in the first seven months of 2024, it reached 29.5 billion cubic meters, a 4.6 percent increase over the previous year’s production figure for the same period. Total exports for the period rose 5.7 percent to 14.7 billion cubic meters, of which just over half (7.8 billion cubic meters) went to Europe.

Although export growth is strong, the total volume is still well below the level needed for Azerbaijan to fulfill a promise to the European Union in July 2022 to double its gas exports to Europe to 20 billion cubic meters per year by the end of 2027. In other words, Baku must increase its export volume by more than 50% in just over three years.

Aliyev tried to quell speculation about Azerbaijan’s export capacity, but offered few details. “We are trying to do everything to be able to implement our commitment to supply 20 billion cubic meters to the EU alone by 2027. That is our target,” he said during the conference in Britain.

Production from Azerbaijan’s main Shah Deniz gas field continues to rise, with field operator BP drilling new production wells. BP also said it hoped to start production from a new “deep gas field” beneath the ACG oil field later this year or early 2025.

Crucially, neither BP nor Baku have confirmed whether the production increase will be enough to meet Baku’s commitments, not only to the EU, but also to domestic consumption growth as well as rising demand in neighboring Turkey and Georgia.

Turkmenistan may hold the key to solving Baku’s export challenges. Both Azerbaijan and Turkey have shown interest in concluding a transit supply agreement with Ashgabat to cover the potential supply gap looming in Europe. But Turkmenistan proved difficult to identify.

In late July, Turkish Energy Minister Alparslan Bayraktar visited Ashgabat will conclude a framework agreement signed with Turkmenistan in the spring, which provides for up to 2 billion cubic meters of gas delivered annually to Turkey for onward transit to Europe. This arrangement would include exchanges involving Iran and Azerbaijan.

Despite two days of meetings with senior Turkmen officials, incl Turkmen President Serdar Berdimuhamedov and Energy Minister Annageldi Saparov, Bayraktar made little progress toward finalizing an arrangement. He returned to Ankara only with an agreement to continue working on a possible gas exchange agreement and a more vague commitment to look at developing a pipeline capable of transporting 15 billion cubic meters of Turkmen gas annually across the Caspian Sea to Turkey and on to Europe.

Plans for such a pipeline have been discussed since the late 1990s; they have not progressed largely because of the enormous cost.

Assuming Azerbaijan can boost gas production enough to meet its export commitments, Baku will still need to increase the capacity of pipelines carrying gas to Europe. Currently, the three pipelines comprising the Southern Gas Corridor can deliver just over 10 billion cubic meters per year. The only planned expansion currently in the works would bring that total to 11.2 billion cubic meters annually.

So far, there have been no commitments to increase the capacity of either the South Caucasus Pipeline (SCP) that runs from Azerbaijan through Georgia to Turkey, in which Baku is a major partner, or the TANAP pipeline that carries Azeri gas through Turkey to Greece. , in which Baku holds the majority stake.

A chicken-or-egg scenario currently surrounds the pipeline issue: Azeri officials say that before huge investments are made to build pipelines, they need commitments from European gas buyers to buy Azerbaijani gas. But European buyers are reluctant to make such commitments until Baku proves it has enough gas reserves to sell.

Some progressive agreements have been reached. On August 1, the state oil company Socar of Azerbaijan started gas supply to Slovenia the largest importer of Geoplin gas. This agreement brings to six the number of Southeast European countries that import Azerbaijani gas. Bulgaria, Greece, Hungary, Romania and Serbia are the other regional states at the bottom.

Major EU gas markets, including Germany, have not yet demonstrated their willingness to import Azerbaijani gas. With insufficient commitments to make the expansion of the southern gas corridor pay for itself, Azerbaijan and Turkey are looking for alternative solutions.

Greek gas network operator DESFA announced back in April that it was working to expand the capacity of its cross-border link with Turkey to 5.5 billion cubic meters per year. And in July, Turkish Energy Minister Bayraktar announced plans to expand the capacity of the country’s cross-border link with Bulgaria at 7 Bcm/year or even 10 Bcm/year.

Such moves, together with existing unused capacity in Turkey’s own gas network, along with planned pipeline expansions in the Balkan states, could go a long way towards meeting pipeline capacity requirements to meet the EU’s 2027 export target of Azerbaijan.

By David O’Byrne via Eurasianet.org

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