Azerbaijan would benefit from energy market reforms, efficiency requirements and more clean energy to prepare for energy transitions both at home and abroad, according to a new policy review by the International Energy Agency (IEA).
While oil and gas will continue to dominate both Azerbaijan’s economy and its energy supply in the medium term, commitments taken by its leading trading partners to achieve net-zero emissions raise questions about the long-term demand for the country’s fossil fuel exports, the IEA report says.
Currently, oil and natural gas bring in around 90 per cent of Azerbaijan’s export revenues, they supply 98 per cent of primary energy and more than 90 per cent of the country’s electricity. In particular, a major achievement of international significance is the recently completed Southern Gas Corridor (SGC) that supplies gas from Azerbaijan’s Shah Deniz 2 field to Europe through Turkey. The SGC gives Azerbaijan a new source of gas export revenues while helping Europe diversify its gas supply routes and improve gas security as its domestic production continues to to decline. The IEA expects European gas import demand to rise by around 45 billion cubic metres per year (bcm/a) by 2025. With capacity increases, the SGC could transport twice the 16 bcm/a production of the Shah Deniz 2 field, which could lead to Azerbaijan becoming a regional gas hub.
However, the emerging global push for clean energy will inevitably affect oil and gas demand, thus there is a need for Azerbaijan to prepare its economy and energy system for accelerating clean energy transitions around the world.
The government has recently drafted proposals for electricity and gas market reforms, as well as laws on energy efficiency and renewable energy, which would also attract new entrants and investment in the renewable electricity sector. The country has also recently started to develop its world-class potential for solar and wind power. The IEA policy review recommends Azerbaijan to be ambitious and has welcomed the government’s plans to raise the share of renewable energy in total generating capacity from 16 per cent in 2018 to 30 per cent in 2030.