Baku is looking for solutions in global energy security

Being the producer and supplier of energy to foreign markets, Azerbaijan is engaged in active dialogue with the global energy community players. For many years, the major energy-related event in the Caspian region has been taking place in Baku on an annual basis. This is the Baku Energy Week that brings together companies from energy sector, high-ranking guests, government officials and international experts in the energy sphere from different countries of the world. This event has become an inalienable part of business life in Azerbaijan providing an effective platform for finding joint solutions to achieve energy security.

Azerbaijan energy sector potential

Similar to the preceding years, the 2023 Baku Energy Week (from June 1 to June 3) traditionally combined a series of prestigious energy-related events of the Caspian region – such as the 28^th International Caspian Oil and Gas Exhibition, the 11^th International Caspian Exhibition «Energy Industry and Green Energy» and the 28^th Baku Energy Forum. The events were officially sponsored by the Ministry of Energy of Azerbaijan and the State Oil Company of Azerbaijan Republic (SOCAR).

Over 600 delegates and over 330 countries from 38 countries took part in the Baku Energy Week. Those were such countries as the USA, Germany, Austria, Belarus, UAE, Bulgaria, Great Britain, Vietnam, China, Algeria, Philippines, Finland, France, Georgia, Spain, Israel, Sweden, Switzerland, Italy, Canada, Kuwait, Kazakhstan, Hungary, Monaco, the Netherlands, Norway, Uzbekistan, Romania, Russia, Serbia, Saudi Arabia, Singapore, Thailand, Turkey and Japan. [1]

In his welcoming remarks, Ilham Aliyev, the President of Azerbaijan, emphasized that this year the Baku Energy Week coincides with the celebration of the 100^th anniversary of Heydar Aliyev, the national leader of the Azeri people and the founder of independent Azerbaijan state. «This is an outstanding event. Forming the platform for energy-related dialogue and exhibition activities in Azerbaijan is connected with the unique role of Heydar Aliyev. The start of the Caspian Oil and Gas International Exhibition and the announcement of the oil strategy developed under the guidance of the national leader took place in the same time, i.e., 1994. Azerbaijan became a reliable partner and a guarantor of energy security after signing the «Contract of the Century» in the same year, and demonstrated a successful example of cooperating with all foreign partners in oil-and-gas sphere and exporting energy resources», the head of the Azerbaijan Republic emphasized. [2] At present, Azerbaijan is repeating its success story in oil-and-gas industry by implementing the projects associated with the green energy export, Ilham Aliyev added. He expressed confidence that the Baku Energy Week will enhance the dialogue on global cooperation in energy security and energy sources diversification.

«It has been since long ago that Azerbaijan is hosting such global event. I believe that thanks to the accumulated multi-year experience in organizing the exhibition and forum with comprehensive reports, discussions and opinions exchange in the atmosphere of mutual understanding will open new horizons for our extended economic ties and will promote effective cooperation», Ilham Aliyev emphasized.

The Baku Energy Forum, one of the most important event, was dedicated to the issues relevant both for the Caspian region and for Europe. The discussions were focused on a broad range of issues including the objectives of the energy sector during the transition period, the energy potential of Azerbaijan, its role in assuring the energy security of the EU, energy export, as well as green energy generation and export.

In his speech at the first session of the Forum, Parviz Shahbazov, the Minister of Energy Industry of Azerbaijan, in particular, said that this platform of international energy-related cooperation implemented thanks to the oil strategy of Heydar Aliyev, the founder of energy security of the country and the national leader, had made it into history annals of the energy-related national achievements. According to Parviz Shahbazov, AR plans its energy projects not only from commercial, but from strategic standpoint as well. «The development of all types of energy resources of the Caspian region and energy supplies to global markets were always done in parallel. Azerbaijan performed as the key locomotive of energy supply routes projects, and this unalterable component of our energy policy is relevant today as well», the head of the Energy Ministry emphasized.

The following speakers also presented their reports at the Baku Energy Forum: Baroness Emma Nicholson, the trade emissary to Azerbaijan of the UK Prime Minister; Cristina Lobillo Borrero, the head of the Energy Policy Department of the Main Energy Office of the European Commission; Virgil-Daniel Popescu, the Romanian Minister of Energy; Musadik Malik, the State Minister of Oil of Pakistan; Gordon Birrel, the Executive Vice-President for Production and Operations of BP; Peter Staray, the Hungarian Secretary of State for security policy and energy security; Jozef Sikela, the Czech Minister of Industry and Trade, and other high-ranking guests.

European energy security

In their speeches, many speakers emphasized the strategic role of Azerbaijan in assuring energy security for Europe, in particular, in diversifying the sources and delivery routes for natural gas. «We initiated the Southern Gas Corridor Project, which is playing an important role today in exporting natural gas from Azerbaijan to the European Union countries. At present we supply gas to six European countries, and we are sure that their number will growing and reach ten in the near future», Parviz Shahbazov, the Energy Minister of Azerbaijan stated.

After commissioning of the Trans-Adriatic Pipeline (TAP) in the end of 2020, which serves as the European section of the new energy export route (the Southern Gas Corridor, SGC), Azerbaijan became the first Caspian country to export its gas to Europe. [3]

During the first year of ÒÀÐ operations, 8.1 bcm of gas were supplied. In 2022, Azerbaijan exported 11.4 bcm to the European market (12.3% growth vs 2021) making 51% of all export supplies from Azerbaijan. This year. Baku plans to increase gas export to Europe up to 12 bcm. In July 2022, Azerbaijan and European Commission signed the MOU on cooperation in the energy sphere stipulating for increasing the gas export from Azerbaijan to Europe up to 20 bcma by 2027. [4]

As of today, the giant off-shore gas and condensate field Shah-Deniz (Phase 2) located in the Azerbaijan sector of the Caspian Sea is the key source for gas export. Azerbaijan authorities often claim that the rich oil-and-gas resources of the country allow for it «to remain the reliable partner for Europe in the natural gas sphere for at least one hundred years to come». In his speech at the Baku Energy Forum, the AR Minister of Energy stated that currently the recoverable national gas reserves total 933 bcm, the proven reserves – 1.7 tcm, and anticipated reserves – about 4 tcm. [5]

Azerbaijan plans to grow the production by using such fields as Absheron, Karabakh, Umid (Phase 2), and Babek. French company TotalEnergies plans to launch the production at Absheron field this year already. Regis Agut, the Managing Director of TotalEnergies in Azerbaijan talked about this on the sidelines of the Baku Energy Week. The company plans to produce gas using green technologies with minimum CO₂ emissions. [6]

SGC needs expansion

The ramp-up of gas supplied from Azerbaijan to Europe, in its turn, requires expansion of gas transportation capacities of the Southern Gas Corridor. It is in line with the Brussels’ RepowerEU plan, which includes the SGC into the solutions targeted at substitution of Russian gas, as well as with the MOU signed by Azerbaijan and the European Commission last year.

Further development of this gas transportation route, which is strategically important for the EU countries, was one of the most popular discussions on the sidelines of the Baku Energy Forum. SGC expansion was also on the agenda of the meeting of Parviz Shahbazov with  Geoffrey Pyatt, the USA Assistant of the Secretary of State for Energy Resources, and with Cristina Lobillo Borrero, the Director for Energy Policy, Strategy and Coordination of the European Commission. [7]

«Taking into account future growth of the strategic value of the Southern Gas Corridor Project for the energy transition, the expansion of TANAP and TAP has already become a very relevant topic for Azerbaijan. The SGC expansion by 2027 and other energy transportation initiatives will be the foundation of further strengthening the strategic role of our country in diversified energy supplies and energy security of our partners», President Aliyev highlighted in his welcome speech in front of the Baku Energy Week participants.

The throughput of the Trans-Adriatic Pipeline is expected to double from the current 10 bcma up to 20 bcma, while the throughput of the Turkish SGC section (the Trans-Anatolian Pipeline, TANAP) will grow from 16 up to 24 bcma at the first stage, and then up to 31 bcma.

In December 2022, in his interview to Italian Il Sole 24 Or, the Managing Director of TAP AG Luca Schieppati explained that TAP expansion could be done in stages, and additional gas volumes will be supplied into the pipeline from several fields in Azerbaijan. According to him, TAP AG is ready to complete Stage 1 of increasing the throughput by 2025, and Stage 2 – in 2026. Schieppati said that 2027 will be the deadline for TAP expansion. «However, to achieve this target we need full coordination between TAP and all operators, i.e., for decision-making with respect to gas pipeline upgrade full synchronization of the demand for gas, its production and building transportation infrastructure will be required», the head of consortium explained. [8]

As for financing the activities targeted at increasing the throughput capacity of the pipeline, Luca Schieppati claimed that the European Bank of Reconstruction and Development (EBRD) could finance 75% of total investment.

Earlier in January, EBRD announced it was ready to study the prospects of funding the SGC expansion. According to the EBRD Managing Director for Eastern Europe and Caucasus Matteo Patrone, the Bank and Azerbaijan have accumulated big experience of cooperation, including on the SGC Project. In particular, EBRD supported the TANAP and TAP construction. «At present, we are performing a market study for this Project, and if the expansion decision is made, we will be happy to review the funding options together with our international partners in accordance with the criteria we apply to gas projects of Azerbaijan. We also need this Project to be in line with the Paris Agreement objectives and with the Bank’s approach to using fossil fuels», Patrone explained. [9]

Today Caspian gas is supplied to Italy, Greece, Bulgaria and Romania. During the preceding year, other European countries started to queue up for the “blue fuel” from Azerbaijan. They are Hungary, Serbia, Albania, Croatia, Northern Macedonia, Montenegro, Slovakia, the Czech Republic, and Moldova. These countries are engaged in active energy-related dialogue with Baku and are waiting for the SGC expansion. Many of them are preparing their gas transportation infrastructure for future connecting to the Southern Gas Corridor. We are talking here about the interconnector pipelines already under construction or planned for construction, which will be connecting the gas distribution grids of European countries.

The important role in expanding the geography of gas supplies from Azerbaijan to Europe belongs to the Greece – Bulgaria interconnector commissioned last October. Thanks to this cross-connection Bulgaria started receiving natural gas directly from Azerbaijan via TAP. Currently, the construction of another interconnector Nish – Dimitrovgrad is underway, it will provide for joining the gas transportation systems of Serbia and Bulgaria and will be integrated into the SGC.

After this interconnector is commissioned, Hungary will also get access to Azerbaijan gas, because it is bordering Serbia and their gas transportation systems are already connected. These two countries expect the «blue fuel» from Azerbaijan to arrive in the current year already. Belgrade and Budapest are planning to import 1 and 2 bcma respectively.

Within the Baku Energy Week, the State Oil Company of Azerbaijan Republic (SOCAR) and the major Hungarian wholesale company MVM CEEnergy Zrt. Signed the Sales and Purchase Agreement for 100 mcm. The supplies will commence in Q4 2023. [10]

To transport additional volumes of natural gas from Azerbaijan to Europe, several countries decided to join their efforts. They are discussing the circular gas transportation corridor also known as the Solidarity Ring. This idea was proposed by Bulgaria back in the last fall, and supported by Romania, Hungary and Slovakia. Within this joint initiative, the operators of gas transportation systems of the four countries Bulgartransgaz (Bulgaria), Transgaz (Romania), FGSZ (Hungary) and Eustream (Slovakia) will provide additional capacities for transporting natural gas.  It is expected that this cross-border initiative within a short period and with the gradual improvement of the throughput capacity of the existing infrastructure will allow for transportation from 5 to 9,5 bcma of gas from Azerbaijan to Eastern, Central and Western Europe via Bulgaria, Romania, Hungary and Slovakia. In April, Bulgartransgaz, Transgaz, FGSZ, and Eustream signed the MOU on promoting the cooperation with SOCAR. [11]

Green energy potential of the Caspian region

The renewable energy sources (RES) of the Caspian region were also in the focus of the Baku Energy Forum – their potential, possibilities for using them, RES infrastructure development and implementation of the alternative energy projects.

For Azerbaijan, the green generation capacities development is the key priority of the energy policy. The AR leaders set a strategic objective of developing Azerbaijan as the green energy country. This was reflected in the government program Strategy Azerbaijan-2030: National socio-economic development priorities. The problem stipulates for increasing the RES share in the national energy mix from the current 17% up to 30% by 2030. To achieve this, the authorities of Azerbaijan intend to create a total of 1,500 MW new generation capacities based on RES, including 440 MW in 2023, 460 MW in 2023-2025 and 600 MW in 2026-2030. [12]

«Sustainable development of power generation technologies in the recent years, as well as global climate goals facilitate the green energy transition, which is one of the key focuses of energy policy of the leading countries. Using its natural wealth, our country contributes significantly to the global agenda – such as increasing generation of alternative and renewable energy, decarbonization and diversification of energy sources. In the mid-term perspective, Azerbaijan strives to export energy received from alternative sources and hydrogen, i.e., the green energy, the welcome speech of President Aliyev to the Baku Energy Week participants states. In particular, large-scale projects implementation in the de-occupied territories including creating the green energy zone in Karabakh and Eastern Zangezur will turn our country into a producer and exporter of alternative energy» the AR head emphasized. [13]

In his presentation at the Forum, the Energy Minister Parviz Shahbazov highlighted that the transformation of Azerbaijan into the green energy country had already started. According to him, using the 135 GW RES potential on-shore and 135 GW RES potential off-shore Azerbaijan Republic already is implementing large-scale projects to generate and export environmentally clean energy. At present, the country is cooperating with the leading energy companies in RES-related projects with a total capacity of 25 GW. Another 5 GW of green capacities will be installed by 2030. Using wind farms and solar power plants totaling 1,800 MW planned for commissioning before the end of 2026, Azerbaijan will be able to save more than 1 bcm of gas, which will be exported.

In her turn, Baroness Emma Nicholson, the trade emissary to Azerbaijan of the UK Prime Minister, in her presentation focused the audience’s attention at significant AR potential in off-shore wind farms. She highlighted that the United Kingdom had significant experience in this sphere, and the green energy transition may be expedited based on cooperation with Azerbaijan. «Great Britain and Azerbaijan have been building sound partnership for 30 years, and now we focus on the green energy. Azerbaijan is one of the key partners of the UK in renewable energy development. Without doubt, Great Britain will continue to support Azerbaijan in this sphere», the Baroness assured.

BP corporation also is ready to support Azerbaijan on its way to the green energy country by helping in developing extensive hydrocarbons reserves. «Azerbaijan has got the well-developed energy infrastructure, sound partner relations and substantial renewable energy resources», Gary Jones, the BP Regional President for Azerbaijan, Georgia and Turkey, emphasized. «Thanks to that, the country may turn out at the frontline of energy transition. Being a long-term and reliable partner of Azerbaijan, BP is ready to support this». BP is implementing one of such projects together with Azerbaijan government: the company is building a 200 MW solar power plant in Jabrayil District.  [14]

BP is not the only British company interested in the green energy projects to be implemented in the de-occupied territories of Azerbaijan. During the meeting of Mikayil Jabbarov, the AR Minister of Economy, with Emma Nicholson, the trade emissary to Azerbaijan of the UK Prime Minister, they discussed, among other issues, participation of British companies in such projects. [15]

The leaders of Azerbaijan announced Karabakh and Eastern Zangezur the green energy zone in April 2021. At the special session «Green energy potential of Nakhchivan and Eastern Zangezur» that took place in the capital of the Nakhchivan Autonomous Republic (NAR), Parviz Shahbazov, the AR Minister of Energy, spoke about the RES projects already being implemented in this region. «11 mini hydro power plants with total capacity of 53.6 MW have been restored already in the de-occupied territories. Currently, 7 mini hydro power plants with total capacity of 70.5 MW are being built in Eastern Zangezur. This year we plan to commence the construction of 9 more mini hydro power plants with total capacity of 76.8 MW. At the same time, we are working to attract private investment to restoration of mini hydro power plants, and we have announced the investment contest for this purpose. 240 MW Shafag solar power plant in Jabrayil, Khudaferin and Qiz qalasi hydro power plants on the River Araz totaling 140 MW also will contribute to the green development of our country», the head of the Energy Ministry stated. [16]

Far reaching plans of Baku to generate and export environmentally clean energy are not limited to Karabakh and Eastern Zangezur economic areas. The green energy zone will be expanded with Nakhchivan – the homeland of Heydar Aliyev, the national leader. According to Parviz Shahbazov, the strategic importance of NAR is growing as the result of the policy being implemented by the country leadership. Announcing the Republic the green energy zone together with Karabakh and Eastern Zangezur manifests the progressive development policy of President Ilham Aliyev. According to the Minister, the cumulative RES potential in the de-occupied territories and in Nakhchivan makes 15 GW. At the current stage, NAR is developing the green energy zone development concept. At present, 12 power plants with total installed capacity of 252 MW operate here, and 10 of them generate electricity from renewable energy sources. «One third of the electricity needs of the Autonomous Republic is satisfied by RES. However, there is a possibility to increase this indicator significantly, and this is why the geography of our cooperation with foreign investors includes Nakhchivan. Our strategic goal is installing circa 1,500 MW of wind and solar generation capacity in the Autonomous Republic at the expense of foreign investment, and to export at least 1,000 MW of this energy to Turkey and to Europe. We already started working on it», the Energy Ministry said. [17]

Execution of the first investment agreements pertaining to future RES projects in the Autonomous Republic took place in Nakhchivan. Thus, the Energy Ministry of Azerbaijan signed MOUs pertaining to cooperation with British Nobel Energy Management and French TotalEnergies. The agreement with the fist company stipulates for construction of 400 MW solar power plant and for exporting the generated electricity to Turkey. The agreements with the French company include assessment and construction of on-shore 250 MW wind and solar power plants in NAR, as well as implementation of the projects pertaining to the energy storage systems. According to Regis Agut, the Managing Director of TotalEnergies, NAR has big potential in the sphere of innovative energy. «We are interested in installing solar panels in the territory of the Autonomous Republic and hope to speed up the research in this sphere. The MOU signed by us is for studying this potential. I am convinced that this project will turn Nakhchivan into the green energy zone», the head of TotalEnergies said.

The AR authorities plan to engage leading international energy corporations in NAR – such as Masdar (UAE) and Acwa Power (Saudi Arabia). Baku already has strategic cooperation in RES sphere with both of them. Last year, these two companies from Middle East launched their first projects in Azerbaijan. Their cumulative investment into the alternative energy sector in Azerbaijan make USD 400 mln. Masdar is building Karadag solar power plant (SPP) with the installed capacity of 230 MW to generate 500 mln KW h of electricity per annum. On top of that, this SPP will allow for reducing gas consumption by 110 mcm and to prevent 200 kt of hazardous emissions. The productive capacity of Hyzy-Absheron wind power plant being built by ACWA Power is 240 MW. This WPP will be supplying electricity 300 thousand houses and will allow for saving 220 mcma of gas and to reduce CO2 emissions by 400 kt. Both facilities are scheduled for commissioning this year already.

Chinese interest towards Azerbaijanian RES

Within the Baku Energy Week, the AR Energy Minister Parviz Shahbazov met with Lin Changjing, the Vice-Administrator of the National Energy Agency of China. During the meeting they talked about cooperation between the two countries in the energy sector and about developing the legal framework for interaction of the energy companies. The parties also discussed the issues of the best practices sharing in the long-range transmission of electricity via stable high voltage cables. Based on the outcomes of this meeting, the AR Ministry of Energy and China Gezhouba Group Overseas Investment signed an MOU about implementing 2 GW renewable energy projects in Azerbaijan. The document stipulates for cooperation in generating solar energy on a commercial scale, on-shore and off-shore wind energy, in storing energy and in integrated smart energy systems, as well as in studying the investment potential of green hydrogen production projects. The MOU also includes the company’s studies of the possibilities for connecting to the grid, environmental impact assessment, and geological studies / surveying. [18]

Another Chinese company – China Energy International Group Co. Ltd. also is interested in economically viable RES projects in Azerbaijan. During the Baku Energy Week, this company signed a cooperation agreement with SOCAR. It stipulates for RES projects development in the AR territory, the best practices sharing, finding the optimal approach to project implementation from the technical and financial standpoints, and other issues. [19]

Azerbaijan is building green corridors to the EU

Simultaneously with developing the environmentally clean energy generation projects, the AR authorities are exploring the options for delivering this energy to Europe. The European market is the priority destination for green energy supplies from the Azerbaijan Republic. The demand for this energy in European countries is growing just as rapidly as the demand for natural gas from Azerbaijan.  The cooperation in RES sphere has been formalized already as one of the areas of energy dialogue between Baku and the European Union, it was reflected in the MOU about strategic cooperation on energy projects signed last year.

At the current stage, Azerbaijan together with Georgia, Romania and Hungary is working on a large-scale Green Energy Corridor Project, similar to the Southern Gas Corridor Project. It stipulates for laying the high-voltage power transmission line on the Black Sea bottom to connect Georgia and Romania. This subsea power cable will be supplying green energy from Azerbaijan. The initial stage stipulates for 4 GW per annum.

The accession of Hungary to this four-lateral initiative in August 2022 assured funding from Brussels: because two EU countries are participating in this project, it received the «common interest» status. The European Union will allocate EUR 2.3 bn for its implementation, and cable laying may take from three to four years.

In December 2022, in Bucharest, the President of Azerbaijan Ilham Aliyev, and the Prime-Ministers of Hungary (Victor Orban), Romania (Nicolae Ciuca) and Georgia (Irakli Garibashvili) signed the Strategic Partnership Agreement in the sphere of green energy development and transmission, which was the first step on the way to developing the future green energy bridge across the Black Sea. [20]

In February 2023, the participants of the Green Energy Corridor Project got together for the first ministerial meeting in Baku within the Green Energy Consulting Board. Based on the outcomes of this meeting, the set-up of the four-lateral Work Group was announced. The Work Group was assigned to develop a joint Feasibility Study for the Project.

The next ministerial meeting on implementation of the inter-government agreement on strategic partnership in the sphere of green energy development and transmission took place within the Baku Energy Week. Parviz Shahbazov, the Energy Minister of Azerbaijan, Cristina Lobillo Borrero, the head of the Energy Policy Department of the Main Energy Office of the European Commission, Romeo Mikautadze, the First Deputy Minister of the Economy and Sustainable Development of Georgia, Virgil-Daniel Popescu, the Romanian Minister of Energy, Peter Staray, the Hungarian Secretary of State for security policy and energy security, and Rossen Hristov, the Bulgarian Energy Minister (online) participated in the meeting. The decision was made about Bulgaria accessing the Green Energy Corridor, and about updating the terms of reference for developing the Feasibility Study for the Project. On top of that, the participants of the meeting discussed such issues, as selecting the Consultant for the Project and the JV establishment. The Project participants decided to hold the next meeting in July 2023 already. [21]

Baku will be developing another route for exporting the green energy to Europe and Turkey from Nakhchivan Autonomous Republic, which has a land border with Turkey. This provides for the possibilities for connecting the electricity grids of Azerbaijanian exclave to the main national grid within the Corridor Azerbaijan – Turkey – Europe and further on to the grid of the European Network Transmission System Operators for Electricity. [22] These plans are reflected in the Government Program of NAR social and economic development for 2023–2027 approved by the directive of President Ilham Aliyev on July 5. The Program includes upgrade of the existing power plants in NAR territory and building new ones within the Public-Private Partnership, increasing electricity generation by using RES and the PPP capabilities, as well as implementation of new projects allowing for increasing the electricity exports.

Conclusions

Thanks to rapid dramatic changes of the European energy landscape caused by the majority of the EU members refusing to import Russian energy, Azerbaijan today is playing the strategic role in supplying energy to a number of European countries. The relevancy of energy sources and routes diversification has grown for the EU members is favorable for expanding the geography of natural gas supplies form Azerbaijan across the Old World.

Simultaneously with developing its huge oil-and-gas resources, Azerbaijan is unlocking its potential in the sphere of renewable energy sources. High demand for the green energy in Europe became a powerful incentive for Azerbaijan Republic to develop its alternative energy sector. Every year this sector draws the growing interest of major international companies. Setting up the green energy zone in the de-occupied territories and in Nakhchivan Autonomous Republic, the inflow of impressive foreign investment into these regions will promote their economic revival and development. Large-scale generation and export of the green energy will make the Role of Azerbaijan in assuring the energy security of Europe even bigger.