Azerbaijan wants certainty from EU on gas needs

Azerbaijan needs long-term guarantees and available financial instruments to invest in gas production growth, its president Ilham Aliyev said earlier this week.

Azerbaijan and the EU signed a strategic partnership agreement in 2022, in which Azerbaijan committed to increasing its supply to the EU to 20bn m³/yr by 2027 from 8bn m³ in 2021. This is a "target that we are moving towards" and exports to Europe will be around 12bn m³ this year, Aliyev said on 23 April at the Cop 29 and Green Vision for Azerbaijan forum (see Azeri gas production graph).

But Azerbaijan needs investments to reach this export target, and restrictions from financing institutions on fossil fuel projects make them harder to realise, Alyiev said. The European Investment Bank has removed fossil fuel projects from its portfolio and the European Bank for Reconstruction and Development has only a small share of such projects, Aliyev said. Corporations tend to finance 30pc of gas production or infrastructure projects on their own and the remainder through loans, he said.

The other issue is a need to receive long-term guarantees for Azeri gas supply, as "Azerbaijan cannot invest billions only for 5-10 years and not be able to recover the costs", Aliyev said.

Azerbaijan is still paying back loans for the Southern Gas Corridor and Shah Deniz Stage 2 projects, he said.

A long-proposed Ionian-Adriatic pipeline that could provide the Balkan region with Azeri gas is yet to materialise because it lacks EU funding support and gas consumption in the countries involved is low, particularly considering the challenges involved with building a pipeline in a mountainous region, Aliyev said. But Azeri gas can already reach Croatia, Bosnia Herzegovina and Montenegro through Hungary, while it can flow to Serbia through Bulgaria, he said. Aliyev said he believes that the Croatian and Azeri governments are already in consultation about this.

Referring to a long-mooted project to build a pipeline across the Caspian Sea to deliver Turkmen gas to Europe, Aliyev said that Azerbaijan has "received no messages from Turkmenistan". Azerbaijan as a transit country cannot become the initiator or co-ordinator of a trans-Caspian pipeline project, Aliyev said.

The Southern Gas Corridor is fully booked, meaning that infrastructure developments are needed to transport more gas to Europe, which is "under discussion", Aliyev said.

Azerbaijan plans renewables build-out

Azerbaijan is targeting 5GW of additional renewable generation capacity, which it aims to substitute for gas, releasing this supply for export to Europe, Aliyev said.

Azerbaijan's first 240MW solar plant was inaugurated in 2023. It plans to add four new 1.3GW solar and wind projects this year and is considering some offshore and onshore wind projects as well as solar and hydropower plants.

Azeri gas consumption for power generation and heating needs increased to 6.6bn m³ in 2022 from 6.1bn m³ in 2020, and made up almost half of domestic consumption in 2022 (see data and download).

Azerbaijan is in the last phase of a feasibility study for a green energy cable from the Caspian Sea to the Black Sea and then further down to Europe. The project aims to initially connect the Georgian Black Sea to the Romanian coast, and plans to expand it further down to the eastern Caspian and Kazakhstan, according to Aliyev. The state plans to keep investing to strengthen the energy grid to allow it to cope with the renewables build-out. Foreign investors are mainly involved with renewables projects.

Oil and gas makes up less than half of Azerbaijan's GDP today, but 95pc of its exports, Aliyev said.

By Victoria Dovgal

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