By Benyamin Poghosyan, senior analyst at Applied Policy Research Institute of Armenia (APRI)
It’s been more than a year and half since the signing of the Azerbaijan-European Union memorandum on strategic energy cooperation. The July 2022 memorandum was perceived as a new start to Azerbaijan-European Union relations.
In an attempt to avoid the collapse of the energy system during the Russian-Ukrainian war,, the European Union hastily sought new sources of gas supply, one of which was Baku.
Given that the “Southern Gas Corridor” was launched at the end of December 2020, and Azerbaijani gas was already flowing to the European markets through the TANAP and TAP pipelines, Baku was considered a good option for tackling the supply issue. The 2022 memorandum was meant to double the volume of Azerbaijani gas supply to the European Union by 2027, increasing it to 20 billion cubic meters per annum.
Immediately after the signing of the memorandum, specialists in the field began to doubt the possibilities of its implementation. Among the reasons for this were the impossibility of a sharp increase in the volume of gas production, as well as the rise in domestic gas consumption in Azerbaijan. Nonetheless, there was a perception in the European Union that Azerbaijan could play a role in reducing dependence on Russian gas.
In its turn, Azerbaijan used this memorandum to intensively promote its own interests in the European Union, including in the context of Armenian-Azerbaijani negotiations. It is no coincidence that for the first time in Brussels the parties agreed to recognize each other’s territorial integrity within the framework of the Soviet administrative borders of 1991, which meant Armenia’s recognition of Nagorno Karabakh as part of Azerbaijan.
Azerbaijan used the records of these agreements (in October 2022, and again in May and July 2023) as a “legitimate basis” to demand the dissolution of the Nagorno-Karabakh Republic and all its state institutions, including the defense army. Azerbaijan’s position was clear: if everyone, including Armenia, recognizes Nagorno-Karabakh as part of Azerbaijan, then they must also accept that two different states – the Republic of Azerbaijan and the Republic of Nagorno-Karabakh, as well as two different armies – the Azerbaijani army and the Nagorno-Karabakh Defense Army cannot exist in Azerbaijan at the same time.
How does the Azerbaijan-European Union gas cooperation look seventeen months after the signing of the memorandum? From 2023, the volumes of Azerbaijani gas delivered to the European Union will amount to approximately 11.6 billion cubic meters, or about 3 percent of the gas imported by the EU, a significant part of which, about 9 billion cubic meters, will be received by Italy. Azerbaijan also supplies gas to a number of other European Unionmember states: Greece, Bulgaria, Hungary.
However, there are significant obstacles to increasing gas exports to 20 billion cubic meters by 2027. To increase delivery volumes, significant investments are needed to expand the capacity of all three gas pipelines of the Southern Gas Corridor, including through the construction of new compressor stations. Additional financial resources are also required to increase the gas volumes produced in Azerbaijan. As of the end of 2023, Azerbaijan has not yet signed new long-term gas supply contracts, which would be the basis for new investments by companies operating gas fields and pipelines. Moreover, without long-term contracts in place, companies operating Azerbaijani gas fields and gas pipelines cannot invest billions of dollars to increase the capacity of pipelines and the volumes of gas.
On September 14, 2023, Turkish Energy Minister Alparslan Bayraktar announced that the mentioned companies do not have clear guarantees that the European Union member states are ready to sign long-term gas purchase contracts with Azerbaijan, and without these guarantees, no company will make investments of additional billions of dollars.
Also read: Baku will have to overcome several obstacles before it can double its gas sales to Europe
The situation at hand is partly due to the significant increase in the volume of liquefied natural gas supply to the European Union, which alleviated the gas shortage. At the same time, European states do not want to abandon the strategy of gradually bidding farewell to natural gas and developing renewable energy. Under the existing conditions, European states are not inclined to sign long-term gas supply contracts, hoping that by 2030 gas consumption will decrease significantly.
The European Union has a short-term problem of securing additional gas reserves for the next five to six years, and long-term pipeline contracts are not the solution. At the same time, without long-term contracts in place, companies operating Azerbaijani gas fields and gas pipelines to increase capacity.
Under the existing conditions, plans to supply 20 billion cubic meters of natural gas from Azerbaijan to the European Union starting in 2027 are gradually becoming unrealistic. Most likely, in the coming years, the amount of gas transferred from Azerbaijan to the European Union may reach 12-13 billion cubic meters per year, while after 2030 these volumes may decrease, taking into account the declining trends in gas consumption.
Read the article in Armenian, Russian.