Azerbaijan is on the way to become one of the key players in the global energy market

Aggravation of global geopolitical tension resulted in a price surge in the global energy market. Amid the spiraling global fuel crisis Europe is facing the most acute challenges, because due to the special military operation of Russia in Ukraine it embarked on the course towards shrinking the energy partnership with Russia and got pulled into the «sanctions war» against Moscow. Radical review of energy policy and the decision to speed-up the refusal from Russian hydrocarbons forces the European Union to urgently search for the alternative supplies. In this context, the Caspian region rich with hydrocarbons assumes a greater importance for the Old World. Azerbaijan, which is already one of the most important energy partners for the EU, definitely, plays a leading role here.

Southern Gas Corridor as the major infrastructure project of the 21^st century

Over the recent years, the dynamics of the relations between Baku and Brussels is moving upward, and numerous visits of high-ranking European politicians including Charles Michel, the European Council President, confirm this trend. In December 2021, Ilham Aliyev, the President of Azerbaijan, took part in the  Eastern Partnership summit in Brussels. Peter Mikhalko, the EU Ambassador to Baku, stated that currently the new comprehensive agreement between Azerbaijan and the European Council is being developed. [1]

The Southern Gas Corridor (SGC) project providing for natural gas transportation from Azerbaijan via Georgia and Turkey to Europe is an important element of the EU energy imports diversification strategy. Being one of the biggest infrastructure projects of the 21^st century, SGC consists of four components – Shah-Deniz, Phase 2 field, South Caucasus gas pipeline, Trans-Anatolian Gas Pipeline (TANAP) and Trans-Adriatic Gas Pipeline (TAP).

The SGC project and its expansion is the theme of the on-going dialogue of the European Commission with Azerbaijan. Starting from 2015, every February, Baku hosts an annual ministerial session within the framework of the SGC Advisory Board established at the initiative of President Ilham Aliyev. In 2022, this event took place under the slogan «Southern Gas Corridor: status and outlook – SGC expansion towards new energy markets including Western Balkans countries». The following prominent figures took part in the session: Kadri Simson, the EU Commissioner for Energy, and Oliver Varhelyi, the EU Commissioner for Neighborhood and Enlargement, along with high-ranking guests from the USA, the UK, Turkey, Georgia, Italy, Greece, Bulgaria, Albania, Croatia, Hungary, Montenegro, Romania, Serbia, North Macedonia, Moldova, Bosnia and Herzegovina, Ukraine, and Turkmenistan.

In her speech, the EU Commissioner for Energy highlighted the tremendous importance of SGC for European energy security assurance. «This corridor runs through six countries and is 3,500 km long – it is an obvious evidence of great cooperation of all the partners. We all remember perfectly well the difficulties and barriers we had to overcome in the course of this project. However, today even the most skeptical observers are grateful for its implementation. Reliable, competitive and affordable gas finds its way to South-Eastern Europe. Households get the gas, the buildings get the heat, and the citizens get the energy they need. The rising prices for energy and gas supplies define the unprecedented strategic role of the corridor for the European Union», Kadri Simson emphasized. [2]

When Parviz Shahbazov, the Energy Minister of Azerbaijan, met with Vannia Gava, the Undersecretary of the Ministry of Ecological Transition of Italy, who visited Baku to take part in the SGC Advisory Board meeting, they also spoke about the growing role of the Southern Gas Corridor in assuring sustainable energy security. At the same time, the Energy Minister of Azerbaijan discussed the possibility for the European section of the SGC – TAP to achieve full throughput capacity and for further pipeline expansion and increasing the supplied gas volumes in future with Luca Shipati, TAP AG CEO.

The outlook for cooperation between Azerbaijan and Europe in the energy sphere including the Southern Gas Corridor expansion and the growth of gas supplies from Azerbaijan were discussed in detail in the course of one of the leading international forums – the Baku Energy Week, which took place between 1 and 4 of July 2022. It combined the 27^th Caspian Oil & Gas Exhibition, the 10^th Caspian International Exhibition «Energy and Renewable Energy Sources», as well as Baku Energy Forum. The Ministry of Energy of Azerbaijan and the state-owned oil company SOCAR were the official sponsors of the events. Over 400 representatives of more than 30 countries took part in them. They discussed the present and the future of the global energy industry, the ways to assure energy security and to diversify the energy sources.

The Forum’s agenda included presentations by more than 50 speakers on 25 various topics. They were Energy Ministers of Azerbaijan, Bulgaria, Romania, Vice-Prime Ministers of Moldova and Serbia, Deputy Energy Minister of Turkey, representatives of the Bureau of Energy Resources (the USA), General Secretary of the Forum of gas exporting countries, as well as high-ranking officers of such companies as SOCAR, BP, TPAO, Equinor, Uniper, Tenaris, TotalEnergies, Masdar, ACWA Power and others. The plenary session of the Forum was dedicated to energy during the transition period, to new opportunities and challenges in the changing world.

The Forum’s agenda included the following topics:

• Global energy development review: the way to net zero:
• Unlocking the HR potential for transition to low-carbon future in the energy sector;
• Assuring environmental and industrial safety: modern approaches and new technologies;
• Sourcing and implementing the exploration and production opportunities in the Caspian Region; oil refining and petrochemical sector: current projects and development outlook;
• Gas dialogue: the gas infrastructure role in the period of de-carbonization. [3]

Bilateral meetings in the B2B format took place under the auspices of the Forum; they provided the representatives of Azerbaijan and foreign companies with the opportunity for detailed discussion of various aspects of potential cooperation and interaction.

The Forum has been the inalienable part of the business environment in Azerbaijan for many years, it contributed to strengthening of the international positions of Azerbaijan. President Ilham Aliyev especially emphasized that at the opening ceremony: «The exhibition and the conference «Caspian Oil and Gas» held for the 27^th time already played a very important role in attracting global energy companies to Azerbaijan at the time when it gained independence, was facing numerous difficulties and challenges, with its significant part being occupied». [4]

Ilham Aliyev also reminded the important milestones and achievements of the oil-and-gas industry of Azerbaijan over the past decades. In particular, he listed major transnational energy and infrastructure projects implemented by Baku with active participation and help of foreign investors and partners. The President shared some plans in the energy sector. One of the current agenda items is «green» energy development. Baku intends to implement several major projects in the sphere of renewable energy sources (RES). 

In the beginning of the long way

If we go back to 1994, when the tradition of annual Caspian Oil and Gas exhibition and conference was established, we may see the entire way Azerbaijan has passed since then. The initiative of hosting the exhibition and the conference was supported then by Heydar Aliyev, the national leader of Azerbaijan. Under his guidance, the Caspian Republic embarked on the course of systemic economic reforms and succeed in their decent completion. During the first year of gaining independence, Azerbaijan found itself in a very difficult financial and economic situation. Heydar Aliyev saw the way out in implementing the new oil strategy. «Starting from 1994, the Azerbaijanian state has been implementing its new oil strategy, the essence and the founding principles of which are more efficient use of the natural wealth of Azerbaijan including oil and gas to the benefit of the entire nation», this is how he characterized his economic concept, which opened broad horizons for the country. [5]

However, huge financial resources were required for developing the oil and gas reserves, and at that time Baku did not have such resources. That is why the major bet was made on attracting foreign investment. Azerbaijan leaders were successful in convincing global energy sector majors in promising outlook id the Caspian subsoil. The first Caspian Oil and Gas exhibition preceded the event, which was inscribed in golden letters into the history of independent Azerbaijan. On 20 September 1994, SOCAR, the state-owned oil company of the Republic of Azerbaijan, signed the agreement on cooperation in exploration, development and production sharing with respect to Azeri, Chirag and Guneshli (ACG) fields with 11 oil majors from 7 countries including the British Petroleum corporation for the period of 30 years. Due to its scale and strategic importance for Azerbaijan this deal got the name of «The Contract of the Century». [6]

«The 20^th of September is the historical day for our country. It opened new opportunities for development of Azerbaijan. Big money started to come to Azerbaijan. The economic and political development of our country started with «The Contract of the Century», emphasized President Ilham Aliyev in one of his speeches.

The giant ACG oil fields block with its oil reserves exceeding 1 bn tonnes including 500 mln tonnes of recoverable reserves, was developed stage by stage. The first oil was produced in November 1997 at Chirag field. Central Azeri entered the production phase in early 2005, Western Azeri – in early 2006, Eastern Azeri – in the end of 2006. Production at the deep-water section of Gyuneshli started in the spring of 2008, at Western Chirag – â ÿíâàðå 2014 ã.

Trunk pipelines were built and commissioned to transport oil from Azerbaijan to international markets. On 25 October 1997, Baku-Novorossiysk trunk pipeline was commissioned; in April 1999 – Baku-Supsa pipeline (aka Western Route Export Pipeline) transporting the Caspian oil to the Georgian port Supsa at the Black Sea. In 2002, the construction of Baku-Tbilisi-Ceyhan trunk pipeline commenced in accordance with «The Contract of the Century» as the main route for exporting oil. In May 2005, the opening ceremony for launching this pipeline was held, and in 2006 transportation of Azerbaijanian oil from the Turkish seaport Ceyhan commenced.

Having signed «The Contract of the Century», Azerbaijan was able to make a huge step forward, to attract significant foreign investment and the most advanced technologies, which allowed the country to get on the steady development path and to successfully integrate (with time) into the global economy. [7] This contract is of tremendous international geopolitical and geo-economic value, because it was the driver of setting up international cooperation in the Caspian Region, of laying the foundation for alternative hydrocarbons development and export, of implementing new transnational energy and infrastructure projects. On top of that, «The Contract of the Century» assured for Azerbaijan, for its social, political and economic institutions access to financial and technological resources of the leading states. The transnational projects implemented within this Contract contributed to strengthening the international positions of Azerbaijan versus other countries of the South Caucasus and the Caspian Basin, elicited significant effect on developing and deepening partnerships with many different countries.

By 2021, 37 production sharing agreements were executed with foreign oil companies. As of today, Azerbaijan is exporting crude oil and petroleum products to over 30 countries of the world.

«The Contract of the Century» was to expire in 2024. In September 2017, in Baku, under the sponsorship of Ilham Aliyev, the President of the Republic of Azerbaijan, the Government of the country and companies AzACG (SOCAR), BP, Chevron, INPEX, Statoil, ExxonMobil, TP, ITOCHU and ONGC Videsh executed new agreement on developing the ACG block until 2050.

Today, Azeri-Chirag-Gyuneshli  fields account for two thirds of the total oil production in Azerbaijan. The investment during the period of ACG operation amounted to USD 45 bn. Starting from bringing the ACG block on stream, 553 mln tonnes of oil and 194 bcm of gas were produced. Currently, the daily production makes 59 kt of oil and 40 mcm of gas. In 2021, circa 167 mln bbl were produced, which is 4.6% below the indicator of 2020. The forecast for 2022 is some decline of oil production at the ACG block. [8]

According to the State Oil Fund of Azerbaijan, in January-May of 2022 revenues from selling oil and gas from the ACG block and Shah-Deniz field exceeded USD 4 bn. This 2.3 times above the indicator of the same period of 2021. [9]

The next stage of the ACG block development is the Central-Eastern Azeri Project (CEA Project) stipulating for construction of the new producing and drilling platform. CEA Project budget is estimated as USD 6 bn, it will be the seventh platform at ACG. The daily output is expected at the level of 100 thou bbl of oil. The forecasted production for the entire lifecycle of the platform is 300 mln bbl. Engineering, technical and industrial activities are currently underway. The first CEA oil is expected in 2023. [10]

Europe wants more Azerbaijanian gas

Expanding the geography of gas supplies to Europe is one of the priorities for Azerbaijan. Time and again, the Azerbaijanian officials stated their commitment to export more natural gas to the EU, emphasizing that the country has enough reserves for at least 100 years.

Italy and other natural gas importers from Azerbaijan are counting on the ramp-up of the export volumes up to 10 bcma in accordance with the 25-year contract. The documents stipulates that Azerbaijan will supply 8 bcma out of 10 bcma to Italy, Greece and Bulgaria are to get 1 bcma each. However, in 2021, the Trans-Adriatic pipeline transported 8.1 bcm, of which Italy received more than 6.8 bcm, circa 1.2 bn went to Greece and Bulgaria. In April 2022, the pipeline achieved the maximum throughput pumping 33 mcm of gas per day.

Vannia Gava, the Undersecretary of the Ministry of Ecological Transition of Italy, in her speech at Baku Energy Forum emphasized the extreme importance of the SGC for assuring energy security of Europe and Italy. She also stated that Rome was counting on doubling the exported volumes of the Azerbaijanian gas. [11]

Promises to supply more gas to Europe were heard at the Forum in Baku. «Expansion of our hydrocarbons business at the European continent is necessary for us just like for our partners. We increased our production and export. Last year, Azerbaijan exported 22 bcm of natural gas. This year we expect this metric to reach 24 bcm. And there will be more next year», President Ilham Aliyev announced at the opening of the Baku Energy Week and of the 27^th international exhibition «Caspian Oil and Gas». [12]

According to the Ministry of Energy, in January-May of 2022 Azerbaijan exported 9.4 bcm of gas (27% growth). During this period, 3.6 bcm were exported to Turkey, 4.5 bcm – to Europe, 1.3 bcm – to Georgia.

Talking about the commitment for ramping-up the supplies to Europe, the head of Azerbaijan emphasized the impossibility to do it «overnight». The need to ramp-up the production means several pre-requisites. «We need investment into infrastructure, building new interconnectors in Europe, and we need new terms of our agreements, because we all know that in gas business you first sell the gas, execute the contract, and then invest and start the production», Ilham Aliyev explained.

The topic of the SGC expansion was predictably in the focus of the participants of the Baku Energy Week. In his speech at the Forum, Elshad Nasirov, the Vice-President of SOCAR for investment and marketing, informed about the negotiations between the Azerbaijan authorities and the key partners of the Southern Gas Corridor on the issue of the pipeline expansion.

Earlier, in his interview to the Italian newspaper Il Messaggero, Luca Shipati, the ÒÀÐ AG CEO, spoke about the readiness to speed-up the increase of the Trans-Adriatic pipeline throughput, if this is required to satisfy the market demand. The top manager referred to the fact that the required permit of the relevant authorities was in place. [13]

The SGC Project is not only the subject of close attention by Brussels, it is also supported by the USA and Great Britain. From the very beginning, the British and American companies present in the Azerbaijanian oil-and-gas market actively lobbied for this initiative of building this trunk pipeline. William Hands, the UK Minister of State for Business, Energy and Clean Growth, in his speech at the opening ceremony of Baku Energy Week called Azerbaijan a reliable and stable natural gas supplier. He attached great importance to the SGC expansion for diversification of gas supplies to Europe. [14]

Similar statements were heard from Laura Lochman, the US Undersecretary of State for Energy Diplomacy, during her meeting with the top leadership of the Republic of Azerbaijan. The possibility of increasing gas supplies to Europe was discussed among other topics. The USA has always been paying special attention to the energy security of the Europeans. They supported and contributed to building the trunk pipelines Baku-Tbilisi-Ceyhan, Baku-Supsa and the Southern Gas Corridor. «Today the US are persuading their European allies to wake up and speed-up the diversification of natural gas supplies by way of implementing the Southern Gas Corridor. Now it is time to use Azerbaijan as a transit country for supplying natural gas from Turkmenistan and, possibly, Kazakhstan to Europe. The USA are also supporting the flow of investment into Absheron and Azeri-Chirag-Gyuneshli fields», Matthew Bryza, the ex-Ambassador of the USA to Azerbaijan, remarked. [15]

Gas production outlook

According to the Ministry of Energy, gas production in Azerbaijan in January-March of 2022 constituted 19.6 bcm, which is 15.3% above the same metric of the preceding year.

As of today, the main source of gas imported to Europe is the Shah-Deniz off-shore gas and condensate field, thanks to which Azerbaijan could assert itself as the natural gas exporter. The field is located in the Southern part of the Caspian Sea, it is believed to be one of the greatest in the world. Its proven reserves are estimated at the level of 1.2 tcm, and forecasted reserves – at the level of 3 tcm.

Teheran intends to take part in Shah-Deniz development. This statement was made by Javad Owji, the Minister of Petroleum of the Islamic Republic of Iran, during his meeting with Parviz Shahbazov, the Energy Minister of Azerbaijan within the Energy Forum in Baku. The parties signed MOUs in the sphere of gas exchange expansion, joint comprehensive development of fields in the Caspian basin, cooperation in electricity exchange and other spheres of cooperation. [16]

It should be noted that Baku and Teheran are already cooperating in the gas sphere. Starting from this January, the trilateral agreement between Azerbaijan, Iran and Turkmenistan about swap supplies of gas from Turkmenistan to Azerbaijan through the territory of Iran is being implemented. Initially, the agreement stipulated for 1.5-2 bcma of gas. Now the parties intend to double the swap supplies. [17]

In his opening speech at the Forum, the President of Azerbaijan stated, that the national gas potential is not limited by the Shah-Deniz field. «Other fields are also very promising. Some of them will launch the production next year. This will be an important contribution to energy security. Especially now, when the need for hydrocarbons from Azerbaijan is more than ever», Ilham Aliyev emphasized.

Previously the state oil company SOCAR announced its plans to develop new gas condensate fields. The priority ones are Umud, Absheron and Babek. According to SOCAR, the first gas condensate reserves were found at Shafag-Asiman field in the Caspian offshore areas of Azerbaijan. According to estimations by the specialists, the field has 500 bcm of gas and 65 Mt of condensate.

Ilham Shaban, the Head of the Petroleum Studies Center, believes that future increase of natural gas supplies to Europe will be connected with the Absheron field, which potentially has over 300 bcm. SOCAR and French TotalEnergies have equal interest in the Project. Most likely, gas production at Absheron will start in 2023. Another five years at least will be required to bring gas volumes to the global market, Shaban believes. [18]

Gas transportation infrastructure development

In the sidelines of the Forum, Minister Parviz Shahbazov held a series of meetings with representatives of some European governments interested in importing the Azerbaijanian gas via the Southern Gas Corridor. In particular, they discussed the creation of the respective gas transportation infrastructure in the territory of Europe to be further integrated into the Southern Gas Corridor. The European segment of the Corridor – the Trans-Adriatic pipeline – has exit points in Greece, Albania and Italy, hence, it allows for creating a network of interconnectors covering the entire region. Many of them will be able to operate in the reverse mode.

The SGC is expected to bring significant benefit to such SEE countries as Greece, Bulgaria and Serbia. The latter is importing 100% of its gas from the Russian Federation. Before 2021, the only route for Russian gas supplies to this country was the pipeline running via Ukraine and Hungary. Starting from last January, Serbia receives some Russian gas volumes via the Turkish Stream running through the territory of Bulgaria. Belgrade intends to diversify its energy sources until 2050, including by using the Caspian Region resources. Serbia is building an interconnector between the cities of Niš (South-Eastern Serbia) and Dimitrovgrad (on the Serbian-Bulgarian border), which will be integrated into the SGC. Serbia plans to start receiving natural gas from Azerbaijan in 2023 already. [19]

The project with a total budget of EUR 89 mln is being implemented with active support on behalf the EU financial and political institutions. [20]

Serbia and Bulgaria commenced the construction in early February of 2022, and they plan to complete it next year. The total length of the pipeline is 170 km, of which 109 km section goes through the territory of Serbia, its throughput is 1.8 bcm of gas.

The SGC diversification, in particular, Niš-Dimitrovgrad interconnector, was in the focus of attention during the meeting between Parviz Shahbazov, the Energy Minister of Azerbaijan, and Zorana Mihajlovic, the Vice-Prime Minister and the Minister of Mining and Energy of Serbia. The meeting resulted in signing the bilateral inter-government cooperation agreement in the sphere of energy and mining. [21]

In all appearances, the negotiations were successful for Serbia. Several days after the visit of Zorana Mihajlovic to Baku, her Ministry published a press-release. It says that in 2023 Belgrade intends to purchase up to 40% of gas from Azerbaijan. According to Mihajlovic, Russia annually supplies 2.2 bcm of gas to Serbia, while the consumption in Serbia is about 3 bcma. «The difference will be partially covered from gas storage in Hungary, and partially – from Banatski Dvor gas storage in Serbia, and next year we will be able to receive circa 40% of gas via Niš-Dimitrovgrad pipeline. We expect this gas to be coming mainly from Azerbaijan, and negotiations are already in progress about booking the capacity rights for the moment when the construction of this pipeline is «finished», the Serbian Minister said. [22]

Bulgaria is also eagerly waiting for Azerbaijan gas – until recently this country imported 80% of its gas from Russia. The Energy policy of Sofia also targets the diversification of the supplies routes. After Bulgargaz refused to pay for gas in Russian Roubles, Gazprom completely suspended its supplies to this country. Starting from the end of 2020, Bulgaria already has been receiving Azerbaijanian gas through the existing gas pipeline connected with Greece – the receiving-discharging point at Sidirokastro. The supplies are organized under the temporary agreement with Greece, which expires in the end of June 2022. These volumes are much less than the 25-year agreement stipulates (according to this agreement, Bulgaria is to receive 1 bcma. In 2021, the actual export of Azerbaijanian gas made approximately 350 mcm.

Soon, thanks to the interconnector between Greece and Bulgaria (Interconnector Greece – Bulgaria, IGB) the country will be able to receive Caspian gas in full. The total length of IGB is 182.6 km, of which 151 km go through the Bulgarian territory, the remaining 31 km – through the Greece territory. The throughput capacity is from 3 to 5.5 bcma with the potential to achieve 10 bcma in case there is the demand. The IGB construction commenced in May 2019, and the completion was planned for the end of November 2020. However, due to various reasons including the Coronavirus pandemic, the completion time was shifted several times. [23]

In end of March 2022, the IGB interconnector was connected with TAP. Currently, the pilot supplies of Azerbaijanian gas are already organized, the test will continue until the end of June. Starting from 1 July 2022, the agreed volume of 1 bcma is expected. 

Hungary is also waiting in the line for the Azerbaijanian gas, because it also intends to diversify its energy sources. Starting from mid-2020, Budapest has been negotiating with Baku the possibility of natural gas supplies. This Central European country planned to connect to the Southern Gas Corridor back in 2021 using the same interconnector between Greece and Bulgaria, but its completion was delayed. Hungarian authorities  expect the Azerbaijanian gas in 2023-2024. [24]

In his speech at the 27^th Energy Forum in Baku, Péter Szijjártó, the Hungarian Minister of Foreign Affairs and Trade, confirmed the commitment of Budapest to receiving energy sources from Azerbaijan: «We would like to see Azerbaijan as the key gas supplier of Europe. However, to make this idea come into practice, the infrastructure and potential of the Caspian Region need development».

On the way to «green» energy

The Energy Forum in Baku paid special attention to «green» or alternative energy. Various international and Azerbaijanian companies presented their latest solutions in this sphere at the traditional Caspian international exhibition «Energy and Renewable Energy Sources».

Azerbaijan has a big potential in the RES sphere. According to the International Renewable Energy Agency (IRENA), the Azerbaijanian RES are currently estimated as 27,000 MW. The wind energy accounts for 3,000 MW, the solar energy – for 23,000 MW, bioenergy – for 380 MW and mountain rivers – for 520 MW.

Azerbaijan is actively and consistently developing its «green» energy sector and has set the ambitious goal of becoming the net exporter of environmentally clean electricity and even to become one of the global leaders in that. [25]

The national strategy of Azerbaijan stipulates for growing the RES share in the electricity generation from 17% to 24% in 2025, and up to 30% in 2030. According to IRENA, the alternative energy in Azerbaijan has been demonstrating steady growth over the recent decade. The share of hydro-energy in the total RES generation in the country is much higher. Thus, at the end of 2021, total RES installed capacity was 1,308 MW versus 1,026 MW in 2012. The total hydro-energy installed capacity made 1,152 MW in the end of 2021 versus 1,023 MW in 2012. [26]

Baku connects its ambitious plans in the alternative energy sphere with the newly liberated territories – Karabakh and Eastern Zangezur economic districts established in the summer of 2021. The Azerbaijan authorities plan to turn them into the «green» energy zone. According to the dedicated concept, the future energy needs of these territories shall be fully covered by clean energy sources. This region has tremendous opportunities for RES growth.

As per certain estimates, generation of wind and solar energy in the liberated territories may achieve 9-10 thou MW. They are also very promising for hydro-energy development. In 2021, four hydro power plants (HPPs) were restored in Karabakh with their total generating capacity of 20 MW. The plan for the current year is to restore five more HPPs with total capacity of 27 MW.

Despite of abundance of winds and sunlight, it will be problematic for Azerbaijan to implement big-size generation projects in this sphere without any assistance. That is why over the recent several years Baku has been conducting negotiations with various foreign companies about cooperation in the renewable energy sphere.

The Baku Energy Week has turned into an ideal platform for attracting foreign investment into the alternative energy of Azerbaijan. There were a lot of discussions of RES available in the liberated territories of Karabakh during the last day of the Energy Forum. On June 4, a special field session «The way to zero carbon emissions. The green energy potential of Karabakh region» with participation of more than 100 local and foreign representatives took place in Shusha, the cultural capital of Azerbaijan. Representatives of such companies as SOCAR, BP, Masdar, ACWA Power, and TotalEnergies were among the speakers.

According to Regis Aguta, the Managing Director and President of TotalEnergies, Azerbaijan is capable of exporting «green» energy to other countries. «As an international company, TotalEnergies would like to provide reliable, accessible and environmentally clean energy for Azerbaijan. We are working hard with the Ministry of Energy on the potential RES projects to assure «green» energy supplies to new buildings in Shusha and in other cities in the liberated territories. This is a great opportunity for such companies as we are to demonstrate our potential», Regis Aguta said.

June 4^th was marked by executing a series of strategically important documents in the “green” energy sphere. Thus, the Ministry of Energy of the Republic of Azerbaijan and BP signed the agreement on the next steps  to build a big-size solar power plant (SPP) for 240 MW in Zangilan-Jabrayil zone of Karabakh. This document was an Addendum to the SPP construction agreement executed by the parties in June 2021. The SPP (with the British investment of USD 200 mln) is expected to generate 500 mln kW/hr of electricity supplying it to 100 thou households. [27]

SOCAR and BP signed another cooperation agreement for Azerbaijan RES potential studies and implementation of joint projects. The British company executed another agreement with Azerbaijan State University of Oil and Industry. It pertains to implementing the curriculum on renewable energy.

In addition, Masdar company and the Ministry of Energy of Azerbaijan signed the executive agreement on evaluation, development and implementation of commercial solar and wind energy projects for 1 GW capacity in Azerbaijan, as well as signed the executive agreement on evaluation, development and implementation of comprehensive wind and environmentally clean hydrocarbons off-shore projects for 2 GW capacity. And finally, SOCAR and Masdar signed the MOU. Rovshan Najaf, the First Vice-President and the Acting President of SOCAR, and Moharram al Favaz, the Acting Executive Director of Masdar, put their signatures under this document.

It should be noted that Masdar is already implementing a major project in the alternative energy sphere – the construction of the Karadag solar power plant (SPP) was launched this March. This SPP with the installed capacity of 230 MW will be generating 500 mln KW/hr of electricity per annum, allowing for decrease of gas consumption by 110 mcm and to prevent harmful emissions by 200 Kt.

In January 2022, another major pilot project in RES sphere was launched in Azerbaijan. This is Khizi-Absheron wind power plant (WPP) in the windiest area of the country – Khizi, with the installed capacity of 240 MW providing electricity to 300 thou households. It will allow for saving 220 mcm of gas and to decrease the carbon-dioxide emissions by 400 Kt. The leading energy company ACWA Power (Saudi Arabia) is implementing the project.

The total cost of Karadag SPP and Khizi-Absheron WPP is estimated as USD 400 mln. Their total capacity will be 470 MW. Both facilities are expected to be commissioned in 2023.

Cooperation of Azerbaijan and the European Union in RES sphere

Azerbaijan does not intend to limit its contribution into the energy security of Europe just by suppling traditional energy. In future, Baku also want to supply environmentally clean energy to the Europeans. In the coming decade, the country plans to create the infrastructure required to export electricity to the European market.

The so-called Black Sea subsea energy and digital communications project is one of the future «green» energy corridors. [28] It stipulates for laying the 1,500-km submerged cable on the bottom of the Black Sea to supply electricity from Azerbaijan to Romania via Georgia. It should be noted that Azerbaijan has already established close cooperation with Romania in the energy sphere. SOCAR owns a major network of fueling stations under its brand in the Romanian territory. Currently, Baku and Bucharest are negotiating the project of laying down the sub-sea cable. When Virgil-Daniel Popescu, the Energy Minister of Romania, met with his colleague Parviz Shahbazov at the Energy Forum in Baku, they discussed this topic.

Another EU country developing energy dialogue (both in hydrocarbons and in RES spheres) with Azerbaijan is Hungary. Major Hungarian companies already have a story of investing into the Azerbaijan economy and participating in the oil fields development. At the new stage of this bilateral cooperation, Baku would like to engage Hungarian capital to reconstruction and rehabilitation of Karabakh to implement the regional potential in RES. [29]

Azerbaijan also sees hydrogen fuel production and supplies as another promising area for itself, which was reflected in the long-term national development strategy for the period until 2050. [30]

The priority route for this project is Europe, which intends to achieve complete climate neutrality by 2050. Hence, the so-called «green» hydrogen will be playing more and more important role in the European energy mix. Azerbaijan would like to use the same Southern Gas Corridor to supply (pump through) hydrogen.

In his speech at the Energy Forum in Baku, Afgan Isayev, the CEO of the CJSC Southern Gas Corridor, informed about the company’s plan to convert the SGC into the «green» technology sphere. In his turn, Luca Shipati, the Managing Director of TAP AG, claimed that the TAP infrastructure was ready to improve the energy efficiency and to switch to «green» energy. [31] Earlier, one of the ÒÀÐ top managers informed about the consortium plans to develop the Feasibility Study for transporting hydrogen along the pipeline.

On the right track

During the years of its independence, Azerbaijan was able to fulfil its huge oil-and-gas potential, to establish energy corridors to the global markets and to strengthen its presence as the leading hydrocarbons supplier. The favorable geography of the country contributed to that. Against the background of the developing global fuel crisis, the value of Azerbaijan for energy security assurance and energy sources diversification for the Old World is growing even more. Russian energy sources are being squeezed out of the European market leading to the entire energy landscape transformation, which opens new opportunities and perspectives for Azerbaijan. At the same time, the issue of expanding the European presence and of ramping-up natural gas supplies has been in Baku’s agenda for a long time. At the same time, export ramp-up is impossible without expansion of the throughput capacities of the pipelines within the SGC, as well as without building new gas transportation infrastructure including interconnectors. On top of that, Azerbaijan sets forth one more critical condition for increasing the supplies – execution of new long-term contracts.

In terms of its energy strategy, Azerbaijan is in line with the global trends and abides by the obligations it assumed within the Paris Climate Agreement. The country has embarked on the course towards energy transition and intends to consistently and systematically follow it without any dramatic spikes. Azerbaijan plans to further develop its rich oil-and-gas resources, at the same time placing a bet on the simultaneous «green» energy development, which also has great potential. Currently, Baku is active in laying the foundation for this promising energy area attracting the required investment and technology.

Such ambitious plans and targets in RES sphere, as creating the «green» energy zone in the liberated Karabakh territory, will allow for Azerbaijan to turn into a major electricity exporter. The fact of major foreign players (like BP) participating in such projects with their RES experience provides all the grounds to believe that the «green» sector of Azerbaijanian energy industry will soon a strong development momentum.