Azerbaijan is on track to meet its natural gas export target this year, but Baku still has a long way to go before the country can meet its ambitious export commitments for 2027.
President Ilham Aliyev praises Azerbaijan as a “reliable supplier” announced at a policy conference in the United Kingdom in July that the country’s annual export volume this year is expected to increase by more than 10 percent compared to 2022, reaching almost 13 billion cubic meters of gas.
If Azerbaijan reaches this figure, it would be the first time that the country would deliver more than half of its gas exports to Europe.
In total, Gas production Production in the first seven months of 2024 reached 29.5 billion m³, an increase of 4.6 percent compared to the previous year’s production figure for the same period. Total exports increased by 5.7 percent to 14.7 billion m³ during this period, of which just over half (7.8 billion m³) went to Europe.
Although export growth is strong, the total volume is still far below the level that Azerbaijan needs to fulfill a promise to the European Union in July 2022 to double its gas exports to Europe to 20 billion cubic meters per year by the end of 2027. In other words, Baku must increase its export volume by over 50 percent in just over three years.
Aliyev has sought to quell speculation about Azerbaijan’s export capacity, but has given few details. “We are trying everything to meet our commitment to supply 20 billion cubic metres exclusively to the EU by 2027. That is our goal,” he said during the conference in Britain.
Production from Azerbaijan’s main Shah Deniz gas field in the Caspian Sea continues to rise as field operator BP drills new production wells. BP has also said it hopes to start production from a new “deep gas field” beneath the ACG oil field later this year or in early 2025.
Crucially, neither BP nor Baku have confirmed whether the increased production will be sufficient to meet Baku’s obligations not only to the EU but also in the face of growing domestic consumption and rising demand in neighbouring Turkey and Georgia.
Turkmenistan could be the key to solving Baku’s export problems. Both Azerbaijan and Turkey have expressed interest in a transit agreement with Ashgabat to potentially close the looming supply gap to Europe. But Turkmenistan is elusive.
At the end of July, Turkish Energy Minister Alparslan Bayraktar said visited Ashgabat wants to consolidate a framework agreement signed with Turkmenistan in the spring, which provides for the annual delivery of up to two billion cubic meters of gas to Turkey for onward transmission to Europe. This agreement would also include swap deals with Iran and Azerbaijan.
Despite two days of meetings with high-ranking Turkmen officials, including Turkmen President Serdar Berdimuhamedov and Energy Minister Annageldi Saparov, Bayraktar made little progress in working out an agreement. He returned to Ankara with only an agreement Turkey has pledged to continue working on a possible gas swap agreement and made a vague commitment to explore building a pipeline that could transport 15 billion cubic meters of Turkmen gas annually across the Caspian Sea to Turkey and on to Europe.
Plans for such a pipeline have been discussed repeatedly since the late 1990s, but no progress has been made, mainly because of the enormous costs.
Assuming Azerbaijan can increase its gas production sufficiently to meet its export commitments, Baku still needs to increase the capacity of the pipelines that transport gas to Europe. Currently, the three pipelines that make up the Southern Gas Corridor can deliver just over 10 billion cubic meters per year. The only planned expansion currently in the works would increase that total to 11.2 billion cubic meters per year.
So far, there are no commitments to increase capacity for either the South Caucasus Gas Pipeline (SCP), which runs from Azerbaijan through Georgia to Turkey and in which Baku is an important partner, or for the TANAP pipeline, which transports Azerbaijani gas through Turkey to Greece and in which Baku holds a majority stake.
The current situation regarding the pipeline’s construction is a chicken-and-egg scenario: Azerbaijani officials say that before making major investments in building the pipelines, they need to get commitments from European gas buyers to buy Azerbaijani gas. But European buyers are unwilling to make such commitments unless Baku proves that it has sufficient gas reserves to sell.
Some gradual agreements were reached. On August 1, Azerbaijan’s state oil company Socar Gas supply for Slovenia largest gas importer Geoplin. With this agreement, the number of countries in Southeast Europe that import Azerbaijani gas increases to six. Bulgaria, Greece, Hungary, Romania and Serbia are the other recipient countries in the region.
Major EU gas markets, including Germany, have so far shown no willingness to import Azerbaijani gas. Since the commitments are not sufficient to finance the development of the Southern Gas Corridor, Azerbaijan and Turkey are trying to take circumvention measures.
Greek gas network operator DESFA announced back in April that it was working to expand the capacity of its cross-border connection with Turkey to 5.5 billion cubic meters per year. And in July, Turkish Energy Minister Bayraktar announced plans to expand the capacity of the country’s cross-border connection with Bulgaria. to 7 billion m³/year or even 10 billion m³/year.
Such measures, together with the use of the still unused capacity in the Turkish gas network and the planned pipeline expansions within the Balkan states, could make a major contribution to meeting Azerbaijan’s capacity needs and thus achieving its EU export target for 2027.
By David O’Byrne via Eurasianet.org
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