Azerbaijan is on track to meet its natural gas export targets this year, but Baku still has a long way to go before it meets its ambitious export targets for 2027.
Praising Azerbaijan as a “reliable supplier,” President Ilham Aliyev announced at a political conference in Britain in July that the country's annual exports are forecast to reach about 13 billion cubic meters (bcm) of gas this year, up more than 10% from the 2022 total.
If Azerbaijan hits this figure, it will be the first time the country will send more than half of its gas exports to Europe.
Overall, gas production in the first seven months of 2024 reached 29.5 billion cubic meters, 4.6% higher than production in the same period last year. Total exports in the period rose 5.7% to 14.7 billion cubic meters, of which just over half (7.8 billion cubic meters) was exported to Europe.
While export growth has been solid, total volumes are still far below the levels needed to fulfill a commitment made to the European Union in July 2022 to double natural gas exports to Europe to 20 billion cubic meters per year by the end of 2027. In other words, Baku needs to increase exports by more than 50% in just over three years.
Aliyev sought to quell speculation about Azerbaijan's export capabilities but offered few specifics. “We are making every effort to fulfil our commitment to supply the EU with 20 billion cubic metres by 2027. This is our goal,” he said at the Britain-based conference.
Production from Azerbaijan's main Caspian Sea Shah Deniz gas field is still rising as the field's operator BP drills new production wells. BP has also said it hopes to start production from a new “deep gas field” beneath the ACG field later this year or early 2025.
Importantly, neither BP nor Baku have confirmed whether the increased production will be enough to meet Baku’s commitments not only to the EU but also to growing domestic consumption, as well as growing demand in neighbouring Turkey and Georgia.
Turkmenistan may hold the key to solving Baku's export problems: Azerbaijan and Turkey have both expressed interest in forging transit supply agreements with Ashgabat to fill looming supply gaps to Europe, but pinning down Turkmenistan has proven difficult.
In late July, Turkish Energy Minister Alparslan Bayraktar visited Ashgabat to solidify a framework agreement signed with Turkmenistan in the spring that provides for the supply of up to 2 billion cubic meters of gas per year to Turkey for shipment to Europe. The deal also includes swaps involving Iran and Azerbaijan.
Bayraktar met with Turkmenistan President Serdar Berdimuhamedov, Energy Minister Anagerdy Saparov, and other senior Turkmen officials for two days but made little progress toward finalizing the agreement. He returned to Ankara with only an agreement to continue working on a possible gas exchange agreement and a vague promise to consider developing a pipeline that could carry 15 billion cubic meters of Turkmen gas per year across the Caspian Sea to Turkey and then to Europe.
Proposals for such a pipeline have been discussed on and off since the late 1990s but have made little progress due to the enormous cost involved.
Even assuming Azerbaijan can increase gas production enough to meet its export obligations, 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 carry just over 10 billion cubic meters per year. The only expansion currently planned will bring that total to 11.2 billion cubic meters per year.
To date, there have been no commitments to increase capacity either on the South Caucasus Gas Pipeline (SCP), in which Baku is a key partner, running from Azerbaijan through Georgia to Turkey, or on the TANAP pipeline, in which Baku holds a majority stake and which transports Azerbaijan's natural gas via Turkey to Greece.
The issue of building the pipeline is now mired in a chicken-and-egg scenario. Azerbaijani authorities say they need commitments from European gas buyers to buy Azerbaijani gas before investing heavily in building the pipeline. But European buyers are reluctant to make such commitments unless Baku proves it has sufficient gas supplies to sell.
Several incremental agreements have been reached. On August 1, Azerbaijan's state oil company Sokal began supplying gas to Slovenia's largest gas importer, Geoprin. The deal brings the number of southeastern European countries importing Azerbaijan's gas to six. Other countries in the region, including Bulgaria, Greece, Hungary, Romania and Serbia, will also receive gas supplies.
Key EU gas markets, including Germany, are not yet keen to import Azerbaijan's gas, and without sufficient commitments to make the Southern Gas Corridor expansion economically viable, Azerbaijan and Turkey are looking for workarounds.
Greek gas grid operator DESFA said in April it was working to expand the capacity of its cross-border grid with Turkey to 5.5 billion cubic meters per year, and in July Turkish Energy Minister Bayraktar announced plans to expand the capacity of its cross-border grid with Bulgaria to 7 billion cubic meters and then 10 billion cubic meters per year.
These moves, coupled with existing unused capacity in Turkey’s gas grid and planned pipeline expansions within the Balkans, could go a long way in meeting Azerbaijan’s pipeline capacity requirements to meet its 2027 EU export targets.
Written by David O'Byrne, via Eurasianet.org
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