Baku Energy Week sets global trends

The traditional Energy Week held on an annual basis took place in the capital of Azerbaijan from 4 to 6 June. Since long ago, this became the inalienable part of Azerbaijan business and the major event of all the Caspian Region. Once again representatives of the leading global energy companies, high-ranking guests, public officials, international experts and analysts arrived to Baku to discuss and find joint solutions for achieving energy security. The participants of numerous discussions within this event were focused on climate issues and various aspects of the green agenda.

Azerbaijan is getting ready for the global climate summit

Within Baku Energy Week Expo Center hosted the 29^th international exhibition Caspian Oil and Gas, the 12^th Caspian international exhibition Energy Sector and Green Energy – Caspian Power, and the 29^th Baku Energy Forum. All these events were officially supported by the Energy Ministry of Azerbaijan and by the State Oil Company of Azerbaijan Republic (SOCAR).

The agenda of Baku Energy Week comprised energy-related issues important not only for Azerbaijan, but for the entire Caspian Region. The main agenda items pertained to global warming and the associated threats, the methods of their mitigation, reviewing and funding energy security problems, and energy transition issues [1].

These relevant and important for modern civilization issues were discussed at different  panel sessions including a special session «Expanding the green agenda capabilities: the strategy for achieving progress of the Green Planet and ÑÎÐ29».

As is known, in November 2024 Azerbaijan will host one of the biggest and most prestigious global events – the 29^th Conference of Parties to the UN Framework Convention on Climate Change (COP29). The respective decision was unanimously made at the COP28 plenary session in Dubai in December 2023. As a follow-up of this decision, Azerbaijan announces the year 2024^th «The year of solidarity for the sake of the green world».

The Conference of Parties is held annually to assess the results of the preceding period with respect to decreasing the atmospheric emissions and to prevent the growth of the average temperature on the planet above 1.5 degrees Celsius in the 21^st century vs the pre-industrial era [this was the decision focused on counteracting global warming by 196 countries within the Paris Climate Agreement]. On top of that, every time the Conference participants set new targets for achieving climate neutrality and discuss the methods of transition to green technologies and green economy.

Choosing Azerbaijan as a platform for hosting COP29 is viewed as an evidence of trust of the global community to the Azerbaijanian policy and measures used for resolving climate problems. And this is despite of the fact that Azerbaijan accounts for only 0.15% of the overall global CO₂ emissions. Like many other countries, Azerbaijan also faces the global warming consequences. In particular, the issue is the Caspian Sea shallowing and emergence of deserts.

Within the framework of counteracting climate change, Azerbaijan by 2030 committed to reduce the greenhouse gases emissions by 35% (vs 1990), and by 40% by 2050.

Talking about specific projects of Azerbaijan in the sphere of environmental management, one of the priorities in the process of revival and reconstruction of the territories liberated from Armenian occupation is reinstatement of «the green lungs» of the eco-system and environment protection. The Azerbaijanian authorities intend to turn Karabakh and Eastern Zangezur into the net zero-emissions zone by 2050.

According to the statement of Mukhtar Babayev, the Minister of Ecology and Natural Resources of Azerbaijan and the President of ÑÎÐ29, in the context of chairing and hosting COP29 the country will demonstrate its on-going activity to strengthen the global solidarity on the climate change agenda. It also should be noted that Azerbaijan is performing as a bridge between the developed countries and the countries with developing economies.

In his speech at the Baku Energy Week opening ceremony, President Ilham Aliyev emphasized that being the hosting country for COP29 Azerbaijan understands all the benefits and challenges of this important task – not only from the standpoint of organization, but from the standpoint of achieving tangible results.

Let us note here that Azerbaijan has a vast experience of organizing major international forums and conferences, however, such big event as the UN Climate Change Conference Baku will be the first one of such scale. Hence, for two weeks Baku will become the center of the world bringing together representatives of almost 200 countries for the joint search of solutions to counteract climate change.

Within the preparation to the international conference of climate, the team of the COP29 Presidium is intensely working with various negotiation groups including the group of Small Island Developing States (SIDS). They belong to the category of countries especially sensitive to the negative consequences of climate change [2].

In addition, during the climate conference in Bonn coinciding with Baku Energy Week Mukhtar Babayev, the President of ÑÎÐ29, had meetings with the UN Task Force, representatives of the UN Office in Azerbaijan, the UN Framework Convention on Climate Change, the UN Development Program (UNDP), and the UN Environment Program to discuss the coordinated efforts in promoting the global action of counteracting climate change.

Orkhan Zeinalov, the Deputy Energy Minister of Azerbaijan, reminded in the course of Baku Energy Forum; COP28 in Dubai presented to the UN member countries the tools for refusing from fossil fuels, for reducing the GHG emissions and for developing the hydrogen industry [3].

The funding issues will be the key topic for the UN Climate Change Conference Baku. The following results are expected: reviewing the reports by countries on the Nationally Determined Contributions (NDC 3.0) in GHG emission. In addition, the endorsement of the New Collective Quantified Goal (NCQG) on climate finance (amount, terms and conditions, donors and entitlement for support), completion of the agreements under Article 6 of the Paris Climate Agreement.

Powerful boost for the Green Energy development

De-carbonization of the economy and increasing the share of the renewable energy sources (RES) in the power generation mix of each country are known as the tools to counteract climate change. 

Azerbaijan has significant potential in RES sphere. According to the national Energy Ministry, the technical capabilities of RES in Azerbaijan is 135 GW inland and 157 GW in the Caspian Sea. The economic potential of RES is 27 GW, including wind generation – 3 K MW, solar generation – 23 K MW, bio-energy – 380 MW. The mountainous rivers’ potential is estimated at  520 MW.

The big RES potential is concentrated in the liberated territories – the economic regions of Karabakh and Eastern Zangezur, as well as in Nakhichevan Autonomous Republic, and the leaders of Azerbaijan announced the setup of the green zone in these territories. 

The national social and economic development strategy of Azerbaijan until 2030 stipulates for growth of the alternative energy sources share in the energy mix of the country starting from 17% up to 24% in 2025 and up to 30% in 2030. However, according to the forecast by the Energy Ministry of Azerbaijan, there are all the chances to achieve 33% in 2027 already.

The RES sphere has been gathering pace over the recent years. The companies from the following countries are demonstrating interest to the Azerbaijanian green energy market: United Arab Emirates, Saudi Arabia, the USA, China, Turkey, Great Britain, Germany, France, Australia. According to President Ilham Aliyev, Azerbaijan already has signed agreements and MoUs stipulating for setting up generation facilities of total 10 GW capacity based on RES.

The pioneers of the RES sphere in Azerbaijan are the leading energy companies from the Middle East – Masdar from UAE and ACWA Power from Saudi Arabia. In 2022, both countries launched the implementation of major pilot projects to build RES-based power plants.

The solar power plant (SPP) built by Masdar in Garadag district of Baku was commissioned in October 2023. It has installed capacity of 230 MW. Today it is the biggest SPP not only in the Southern Caucasus, but across the entire FSU territory.  

Absheron-Khizi wind farm of 240 MW – ACWA Power from Saudi Arabia is implementing this project and has invested USD 300 mln already. The commissioning is planned for 2025. It is expected to be generating 1 bn KW-h per annum covering the needs of 300 thousand households.

Masdar is committed to long-term collaboration with Baku as a global strategic partner. Thus, on 4 June within Baku Energy Week the ceremony of laying the foundation for three major green projects in Azerbaijan. They include Bilyasuvar SPP of 445 MW, Neftchala SPP of 315 MW and Absheron-Garadag wind farm of 240 MW. The total amount of investment into the above-listed projects makes circa USD 1 bn. Investment amounts for the projects were agreed in October 2023, after that energy purchasing agreements, connection agreements and land plots lease agreements were signed [4].

At the ceremony of laying the foundation of RES-based power generation plants, Mohamed Jameel Al Ramahi, the Executive Director of Masdar, claimed that by 2030 the company intends to generate up to 10 GW of clean energy in Azerbaijan.

Within the framework of setting up the green energy zone in Eastern Zangezur laying the foundation of two more SPPs is stipulated as a joint ceremony with BP and Nobel Energy. Parviz Shahbazov, the Energy Minister of Azerbaijan, reported about that. According to him, at the first stage of the collaboration with these companies it is expected to implement new projects of 2 GW total capacity by 2027 thus helping to increase the RES share in the energy mix up to the target of 33%.

Certainly, after hosting COP29 Azerbaijan will provide an additional powerful impetus for the development of its green energy sector. 

Gas potential

Along with the growing RES sector, oil and gas are still very important for the economic stability of Azerbaijan, assuring a significant share of the national budget revenues. That is why, during the next several decades simultaneously with developing the green generation Azerbaijan intends not only to continue hydrocarbons production, but also to increase the amount of investment into oil-and-gas sector. This is explained by the growing demand for Azerbaijanian energy in the global energy market, first of all – on behalf of European customers.

According to the official data of the Energy Ministry of Azerbaijan, today the recoverable gas reserves in the country make 933 bcm, the proven reserves – 1.7 trn cm, and the anticipated reserves –  circa 4 trn cm. Compared to the oil industry with its long history, the gas industry of Azerbaijan is relatively new, it was created after the country gained independence. Baku joined the international club of the blue fuel exporters less than 20 years ago.

Over the recent years, the gas industry of Azerbaijan has been undergoing a new stage of its development. The production is growing YoY. In 2022, 46,743,3 mcm of gas were produced (6.6% growth), and in 2023, the production was 48,496,7 mcm (3.8% growth). The forecasted growth for 2024 is up to 49,063,6 mcm. And by 2026, gas production will get close to the strategic target of 50 bcm.

As of today, the main center of gas production is Shah-Deniz, the giant off-shore gas condensate field in the Azerbaijan sector of the Caspian Sea, which is the biggest in the territory of Azerbaijan.

The contract for Shah-Deniz development was signed in 1996. The parties have the following shares: British BP plc (the operating company) – 29.99%, LUKOIL – 19.99%, Turkish TPAO – 19%, Azerbaijanian Cenub Qaz Dehlizi – 21.02%, Iranian NICO – 10%.

Gas and condensate production at Shah-Deniz went on stream in December 2006 and currently is done from Alpha platform within Stage-1 and from Bravo platform within Stage-2.

In July 2023, SOCAR and French TotalEnergies announced the launch of production within Stage 1 of the development of Absheron off-shore gas condensate field. It is situated at 100 km from Baku on the depth of 500 meters (the second biggest gas field in the Caspian Sea after Shah-Deniz). According to the initial estimate, its reserves make 350 bcm of gas and 100 mln t of condensate.

Joint Operating Company of Absheron Petroleum B.V. founded by SOCAR Absheron (50%) and Total E&P Absheron (50%) is in charge of the development. The respective agreement was signed for the period of 30 years, and the contracted area is 747 sq. km. In August 2023, the Abu-Dabi National Oil Company (ADNOC) joined the consortium after acquiring 30% interest – 15% from SOCAR and 15% from TotalEnergies.

Currently 4.3 mcm of gas and 1.4 kt of condensate are produced at Absheron daily. According to SOCAR, in 2024 the production output is expected to be 1.5 bcm. In total 1.2 dcm of gas and 484 kt of condensate were produced here from the moment of starting the production until 1 May 2024. Gas produced at Absheron during Phase 1 is covering the needs of the Azerbaijan domestic market.

SOCAR strives to speed-up the work to launch the full-scale development of Absheron and it in the process of respective negotiations with the project partners. The investment decision about Stage 2 of development is expected this year. According to the forecasts, gas production within Stage 2 will make from 4 to 5 bcm. Most part of the volumes will be supplied to the European market.

Azerbaijan also plans to ramp-up its gas production on the basis of such fields as Karabakh, Umid (Stage 2), Babek, the high-potential structure Shafag-Asiman (the drilling is now in progress here and «the second Shah-Deniz» is expected).

More supplies for Turkey and European countries

Today, Baku is active in developing its gas-related collaboration with many countries willing to purchase natural gas from Azerbaijan.

One of the biggest energy partners is Turkey, where Azerbaijan has been supplying its gas starting from 2007 via gas trunk pipeline Baku – Tbilisi – Erzurum. According to the Turkish Council for energy market regulation, in 2023 Azerbaijan exported to Turkey 10.257 bcm of gas (+ 17.8% vs 2022).

On the sidelines of the international exhibition Caspian Oil and Gas, BOTAS (the Turkish gas operator) and SOCAR signed a series of agreements about cooperation in gas sphere. One of them was about extension of the gas supply contract from the end of 2024 until 2030 (inclusive). The volumes will be kept on the same level  – 3.7 bcm.

This agreement is not the only deal between BOTAS and SOCAR in recent time. In the middle of May based on the results of the Istanbul meeting between Alparslan Bayraktar, the Turkish Minister for energy and natural resources, and Mikayil Jabbarov, the Azerbaijanian Minister for economy, the parties signed four agreements.

Within the framework of the agreements between BOTAS and SOCAR, Azerbaijanian gas will be exported to Europe and Nakhichevan via Turkey, and Turkmen gas – to Turkey via Azerbaijan and Georgia. A. Bayraktar spoke about circa 2 bcm of Turkmen gas at Stage 1. However, he said nothing about the route for supplying gas from Turkmenia to Azerbaijan, and this sets a certain intrigue. It is known, that currently there is no progress in building the Trans-Caspian gas pipeline, which could provide for direct supplies.

It is even more remarkable that in his address to the participants of Baku Energy Week Recep Tayyip Erdogan, the President of Turkey, said that the start of supplies of Turkmen gas to Turkey and Europe was just a matter of time.

Speaking about Europe, it should be noted that its gas market is the most promising for Baku. Due to darting radical change of the European energy landscape caused by the majority of the EU member states waiving Russian energy imports, Azerbaijan today plays a strategic role in energy supplies of many European countries.

Azerbaijan paved a direct way to the European gas market jointly with Turkey by initiation and implementation of the major infrastructure project Southern Gas Corridor (SGC) [5]. This is a gas transportation route of 3.5 thou km, which plays a strategic role in assuring the energy security of Europe, in particular – in the issue of diversifying the sources and routes of natural gas supplies.

Azerbaijan started supplying its natural gas to Europe in the end of 2020 by launching the Trans-Adriatic Pipeline (TAP) – the European section of SGC. During the first year of operation 8.1 bcm of gas were pumped through ÒÀÐ. In 2022, Azerbaijan was exporting already 11.4 bcm to the European market. Last year this volume reached 12 bcm. Ilham Aliyev, the President of Azerbaijan, claimed at the opening of Baku Energy Week that in 2024 exported volumes of natural gas will exceed 24 bcm.

The European Commission (EC) calls Azerbaijan the pan-European gas supplier. In the summer of 2022, Azerbaijan and the EC signed an MoU on cooperation in the energy sphere, according to which Baku is to ramp-up the volumes of natural gas export to Europe up to 20 bcm by 2027.

Today, in addition to Turkey and Georgia, six European countries are exporting gas from Azerbaijan: Italy, Greece, Bulgaria, Romania, Hungary and Serbia. According to Ilham Aliyev, the President of Azerbaijan, the geography of supplies will continue to expand. He informed that Baku was in the process of active negotiations with several countries, which also need Azerbaijanian gas to assure their energy security. Albania, Croatia, Northen Macedonia, Montenegro, Slovakia, Czech Republic and Moldova expressed their interest to receiving the blue fuel from Azerbaijan. All of them will get such opportunity after SGC expansion as is stipulated in the MoU signed by Azerbaijan and the EC.

The throughput capacity of TAP will be increased from current 10 up 20 bcm, and the throughput capacity of the Turkish section of TAP – the Trans-Anatolian Pipeline (TANAP) will  at first grow from 16 up to 24 bcm, and then – up to 31 bcm.  

Stage approach will be applied to TAP capabilities expansion [6]. The intent is to complete Stage 1 of the expansion project by 2025, and to implement Stage 2 in 2026. The deadline for doubling TAP throughput capacity is 2027.

Interconnecting pipelines are playing a big role in expanding the geography of Azerbaijanian gas supplies. Two facilities of this type were commissioned over the recent years. The first one is Greece – Bulgaria interconnector providing for Sofia to be able to receive natural gas via TAP directly from Azerbaijan. Bulgaria – Serbia interconnector was commissioned in December 2023, and Belgrade also became the recipient of Azerbaijanian gas. As for specific numbers, in November 2023 SOCAR and Serbian Srbijagas signed the gas supply agreement for the period until 2026 stipulating for 400 mcma, and the intent is to triple the volume after that period.  

The supplies of Azerbaijanian blue fuel to Bulgaria are also growing. In 2023, the YoY growth was 2.1 times – up to 1.25 bcm (in 2022, Azerbaijan supplied 600 mcm). Earlier, Iham Aliyev informed that the intent was to increase the Azerbaijanian gas export to Bulgaria up to 1.5 bcm before the end of 2024.

Within Baku Energy Week, SOCAR and BOTAS agreed the supplies of Azerbaijanian gas to Bulgaria via Turkish territory [7].

Hungary also intends to increase the consumption of Azerbaijanian natural gas, it started purchasing volumes in April 2024. Currently, there is a contract for supplying 100 mcm of gas. According to Peter Szijjarto, the Hungarian Foreign Affairs and Foreign Economic Relations Minister, Budapest has an agreement with Baku about ramping-up the supplies up to îá 1 bcma.

Within the Energy Forum in Baku, Hungarian MVM Group signed the agreement with SOCAR about acquiring 5% interest in Shah-Deniz development project. According to Karoly Matrai, the MVM Group CEO, this was the biggest deal within the company’s strategy.

It is known that Hungary together with Bulgaria, Romania and Slovakia is striving for financial aid from the European Commission to increase the throughput capacity of the pipeline infrastructure un South-East Europe, including for ramping-up the natural gas import from Azerbaijan [8].

Peter Szijjarto, the Hungarian Foreign Affairs and Foreign Economic Relations Minister, in his speech at the opening of Baku Energy Forum reminded, that the European Union was seriously pressing Budapest on the issue of gas supplies diversification. In the opinion of the head of Hungarian Foreign Affairs Ministry, the problem is that different criteria for diversification exist in Europe. «Our definition of diversification is for us [Hungary] to have more sources. And we do not agree with the definition implying substitution of the existing sources for other sources», Peter Szijjarto emphasized. He added that Europeans need to quit political debate when talking about energy supplies.

Oil production needs stabilization

Different from gas production, which is on the upswing in Azerbaijan, certain decline of oil production has been observed during the recent years.

According to the State Committee for Statistics of Azerbaijan, in 2018, 38.8 mt of oil were produced; in 2019 – 37.5 mt; in 2020 and 2021 oil production was at the same level – 34.5 mt; in 2022 and 2023 32.6 and 30.2 mt of oil were produced respectively. Further decline of oil production is forecasted.

The off-shore oil, gas and condensate fields in the Southern part of the Caspian Sea (Azeri – Chirag – Gunashli [ASG]) account for the main share of oil volumes produced in Azerbaijan. For example, in 2023, 17.8 mt  (58.9% of total output) were produced at this off-shore bloc. The total of 584.7 mt were produced at ACG starting from the moment of launching the development until 1 January 2024.

From the start of oil production at Azeri – Chirag – Gunashli bloc in November 1997, Azerbaijan began implementing its new oil strategy developed by the national leader Heydar Aliyev. This allowed for bringing multi-billion dollar investment to the country and  for assuring stable economic growth of Azerbaijan for years to come. 

The deal for ACG development was called «the contract of the century», it dates back to 20 September 1994. Initially, the term of the contract was 30 years and was to expire in 2024, however, in 2017, the new contract was signed until 2050. It stipulates that British BP (project operator) has 30.37% interest, SOCAR – 25%, Hungarian MOL – 9.57%, American ExxonMobil – 6.79%, Indian ONGC Videsh – 2.31%, Japanese Inpex Corp. and Itochu Oil – 9.31% and 3.65% respectively, Norwegian Equinor – 7.27%, and Turkish TPAO – 5.73%.

Babek Guseynov, SOCAR Vice-President, took part in the panel discussion «Breaking stereotypes: shaping the energy solutions» on the first day of Baku Energy Week, where he stated that the company was currently focused on two objectives. The first one and the main one is in stabilizing low production rates at ACG to prevent decrease of oil production in the country and to control this process. According to Guseynov, today SOCAR is working on that together with BP and other ACG partners. After achieving the targets set for Azeri – Chirag – Gunashli bloc, SOCAR intends to switch to developing new fields applying innovative technologies.

SOCAR has switched to digital transformation of oil and gas producing operations since long ago [9]. Thus, back in April 2020, the company announced the launch of «Digital Field» project based on SAP UFAM platform. The SAP UFAM solution is designed to consolidate all the operations processes within one single system, and it will be integrated into the digital core of the company – SAP ERP. On top of that, implementing the UFAM platform will allow for consolidating heterogenous data from different operations systems, for integrated analysis to assure wells’ operations in accordance with the approved potential, as well as for optimizing geo-technical processes.

Azerbaijan is striving for ramping-up oil production by way of expansion of operations at the existing fields. In April, announced the start of production at Azeri – Chirag – Gunashli at the new platform Central Eastern Azeri. According to the operations plans, it will produce about 300 mln bbl of oil during its entire life cycle making a significant contribution to the export potential of Azerbaijan. According to Babel Guseynov, the Vice-President of SOCAR, despite of staying in operation for 30 years, ACG bloc still has big potential and the production here will continue.

The project of rehabilitation and production for mature oilfields Buzovna-Mashtaga, Gala and Zirya is know to be under development.

As for the new projects, high expectations are associated with Karabakh field, which SOCAR intends to bring on stream within a short time. Babek Guseynov informed about it emphasizing that SOCAR had bought out the share of Equinor in this project and currently has 100% interest in it.

The reserves of Karabakh oil field are estimated as 100 mt, total development CAPEX may make USD 1.7 bn, OPEX – USD 1-3 bn. As of today, three prospecting wells and one appraisal well have been drilled at Karabakh field already. Experts believe that putting the field on stream will take at least three years [10].

SOCAR is expanding its project pipeline in oil and gas sectors, as well as LNG projects not only in the territory of Azerbaijan. In the end of May it was announced that SOCAR acquired 3% interest in an oil project in UAE from Abu-Dabi National Oil Company (ADNOC). This project includes two fields (SARB and Umm Lulu) in the Persian Gulf. 

Last October SOCAR reported the acquisition of license for exploration of gas in the Northern part of the major Israeli hydrocarbon field Leviathan. The company is also interested in oil projects in Kazakhstan, Iraq and Turkmenia.

Conclusion

Radical structural changes could be seen on the global energy map during the recent years. They require that many countries search for new approaches and solutions in energy security. It means diversification of routes and sources of energy supplies including environmentally clean energy. More and more countries across the world commit their future to the renewable energy sources. Azerbaijan already has proven to be one of the important players in assuring global and regional energy security due to exporting oil and gas. Taking into account huge resources in the sphere of RES development, Azerbaijan has all the chances in the long-run to take the leading position as the producer and exporter of green energy and green hydrogen, the demand for which will be growing all over the world.

To that effect, it can be said that such prestigious event as the forthcoming 29^th session of the Conference of Parties to the UN Framework Convention on Climate Change (COP29) will become the turning point in developing the renewable energy sector in Azerbaijan and will allow for attracting new investment and state-of-the-art technologies in the energy transition sphere.