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Azerbaijan’s natural gas supply: a real diversification for Southeastern Europe

By the end of this year, the Trans Adriatic Pipeline (TAP) is expected to officially start working. It means that the entire Southern Gas Corridor (SGC) which will deliver natural gas from Azerbaijan to the European continent, will start operating fully.

Europe is longing for diversifying its energy sources. According to Eurostat, natural gas dependency in the European Union reached an all-time high of 77.9 per cent in 2018, with 15 Member States registering a dependency higher than 90 per cent.

With the two main EU natural gas producers, the Netherlands and the United Kingdom, recording drops in production, Norway became the source of 30.2 per cent of the natural gas entering the EU, followed by Russia (20.5 per cent), Ukraine (16.3 per cent) and Belarus (10.3 per cent). However, considering that most gas entering the EU from Ukraine and Belarus initially comes from Russia, the dependency on gas imports from this country is in practice higher than from Norway.

A turning point in terms of gas exports

Therefore, Azerbaijan’s supply is regarded as an important project that will improve the security and diversity of the EU’s energy supply. The 4,000 kilometres-long pipeline will transport natural gas from the Caspian basin to Europe, connecting with the Trans Anatolian Pipeline (TANAP) at the Greek-Turkish border, crossing Northern Greece, Albania and the Adriatic Sea before coming ashore in Southern Italy where it will be connected to the Italian natural gas network. 

“Expectations and the current situation are two different things,” notes Professor Rovshan Ibrahimov from the Hankuk University of Foreign Studies. “Expectations are high because we are talking about a project that was developed quite long ago and worth 40 billion US dollars. Therefore, Azerbaijan is expected to enter all kind of new markets, while now it is mainly Georgia and Turkey.”

For Mr lbrahimov, Azerbaijan needs to have access to these new markets as, since independence, the country has been something like a regional maker, the only one developing new energy projects.

“The transport corridor is also important for Azerbaijan because since countries started to purchase LNG from different sources, the profitability of Azeri gas has decreased,” he tells CEENERGYNEWS. “Purchasing LNG is much more profitable nowadays. In the case of Turkey, for example, it helped decrease the dependence on Russian and Irani gas. Now Turkey is expected to have better opportunities due to its LNG terminal and the purchase of gas from other sources like Algeria, Nigeria, Qatar and the US.”

Gulmira Rzayeva, founder and managing director of the London-based Eurasia Analytics consulting company and one of the speakers of Flame, Europe’s largest and most influential meeting place for the global gas industry, reminds us that there were some problems in Italy but everything has been taken care of.

“2021 is a crucial year and a turning point in terms of gas exports from Azerbaijan to Europe,” she tells CEENERGYNEWS. “It is a major event which will also affect Gazprom’s position in Italy, Greece and especially Bulgaria.”

A real diversification for Southeastern Europe

It is exactly these three countries that we have to take into consideration. While the Southern Gas Corridor will surely increase Europe’s energy diversification, some believe that its impact will only be limited due to the relatively small volume of gas it will deliver. Indeed compared to oil, 10 billion cubic metres (bcm) is not a big volume, but we are not talking about the diversification of the entire European continent, only the Southeastern part.

Both Mr lbrahimov and Mrs Rzayeva believe that in terms of diversification is really important because Azerbaijan gas will basically get one-third of the market share in Bulgaria and Greece. Italy is the only case which is a bit different because it is already more diversified.

“So far, Bulgaria has bought gas only from Russia (three bcm),” Mr lbrahimov explains. “Buying one bcm from Azerbaijan is a real diversification for the country. The same goes for Greece. Italy is a bit different because since Germany decreased purchasing Russian gas, Italy became the number one buyer (7 bcm) but anyway, Azeri gas is an alternative. When it comes to diversification, the more the better.”

Azerbaijan is not going to supply gas to all Europe and ensure energy for the entire European market. So it is not accurate to say that the volume of gas will be irrelevant.

“Of course, 10 bcm for the entire European market is not a big amount,” adds Mrs Rzayeva referring to the more than 200 bcm imported to Europe as a whole. “But here we are talking about specific countries, in particular Greece, Bulgaria and Italy. In Bulgaria, one bcm out of three will come from Azerbaijan and this is the important figure.”

Geopolitical tensions to threaten the security of supply?

However, recent clashes in Azerbaijan’s Tovuz district could threaten the security of supply and the entire energy infrastructure. It is an important district for both European and US interests, hosting much of the country’s critical infrastructure including the oil and natural gas pipelines that supply Europe.

“I hope that current geopolitical tensions won’t affect the security of supply,” points out Gulmira Rzayeva. “The clashes happened in places where there are energy infrastructures, but not only Azerbaijan’s but it is also a European concern as Azerbaijan is going to provide natural gas to the European countries. Also because there is a major stakeholder BP, a European company. Additionally, the US was backing this project politically since the beginning, so I hope that if there is a kind of threat, also Brussels and Washington will react accordingly.”

Also, Mr lbrahimov expects reactions from Washington and Brussels to come if hypothetically, something happens.

“It is not only the case of the natural gas pipeline but also the Baku-Tbilisi-Jeyhan oil pipeline when it was under construction received political support from the US,” he adds. “Russia won’t even interfere because in this regard it cannot compete with the US.”

Whether current tensions represent a threat or not, Azerbaijan is getting ready to deliver its long-expected natural gas to Europe. But the country doesn’t stop there. Azerbaijan still has an untapped gas potential to exploit.

“We need huge investments coming from international oil companies and now it is not the best timing due to the low prices and the fact that the demand is not growing especially in neighbouring countries,” reminds Mrs Rzayeva. “It is more of a long-term project.”

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