ENERGY FOCUS

The first spring month commenced in Azerbaijan with the 10th-anniversary ministerial meeting of the Southern Gas Corridor (SGC) Consultative Council (CC) and the 2nd ministerial meeting within the framework of the CC on green energy. These two significant events brought together representatives from 23 countries, 6 international organizations, and 44 companies in Baku this time.

To summarize the outcomes of the meetings, the European Union not only reaffirmed its commitment to continuing cooperation with Azerbaijan in the energy sector but also expressed its readiness to expand it. Thus, the plans to double the volume of Azerbaijani gas supplies by 2027 remain in effect. In response, Baku confirmed its dedication to boosting gas production and exports to international markets, while also aiming to expand efforts in developing renewable energy sources as reflected in the new agreements signed during the meetings.

Enhanced Dialogue

Currently, the energy dialogue between the EU and Russia has almost come to naught. Overall, gas imports from Russia have fallen by 71 per cent since 2021. The goal is now to end this year with even less Russian gas in the European system than in the previous year. Which means that Europe still needs as many alternative sources as possible in the short and long term. It is precisely the possibility of supplying a small but strategically important part of the European Union with gas that has made Azerbaijan an important country for co-operation.

"Undoubtedly, co-operation between Azerbaijan and the EU on diversification of energy resources and energy security issues has created a completely new geography of supplies. ...Our position on diversification has always been and remains the following: diversification should consist of both diversification of supply routes and diversification of sources," President Ilham Aliyev stated, opening the SC meeting on the South Gas Complex.

The Azerbaijani leader once again pointed out how right the decision to establish the SGC was, especially in the current geopolitical realities. He noted that the SGC now has several extensions and that the number of buyers of Azerbaijani gas is also growing.

"There is demand for Azerbaijani gas, we have resources, there are transport routes. And, by the way, in the course of active communication with our Turkish friends over the past year, we agreed to use the Trans-Balkan gas pipeline system passing through the territory of Türkiye. And this is already diversification within the diversification project. There may be many other alternatives and options, as they all serve a common goal - to solve the issues of energy diversification and energy security as effectively as possible," Aliyev stressed.

In his speech, the Azerbaijani leader once again touched upon the position of European financial institutions on investment in carbon projects, calling on them to take a realistic attitude to the issue of financing "at least this project", i.e., the twofold expansion of the South Gas Complex.

"It should not remain in the shadow of well-known trends opposing traditional energy sources… We have an active process of transition to "green" energy. At the same time, no one should forget that in the coming years the world will not be able to develop without traditional energy sources," President Aliyev asserted.

Speaking about co-operation between Baku and Brussels, European Commissioner for Energy Kadri Simson said that "she has always seen Azerbaijan as a reliable partner and there is a strong potential for expanding co-operation."

"I can assure you that the EU's co-operation with Azerbaijan is long-term, that is why Azerbaijan is working on the expansion of the SGC. We will double gas trade by 2027," she said, thus putting an end to any talk and speculation about a possible end to EU gas co-operation with Azerbaijan.

"Today, the gas flow to Europe is exactly through the South Gas Corridor, and this flow is 46 per cent higher than in 2021. In 2023, the EU has steadily and safely received 11 billion cubic metres from Azerbaijan, EU member states and candidate countries are interested in receiving this gas. As I said last year we saw that you have become a pan-European supplier, in this context we are working to increase these volumes. We hope that natural gas coming from Azerbaijan will play an important role in the energy system of Europe during the energy transition period," Simson emphasised.

Market Demand

Amidst the COP meeting, Albania reaffirmed its intention to import gas from Azerbaijan. Prime Minister Edi Rama highlighted in his address that Azerbaijani gas and the Caspian basin are pivotal "for our common future." He attributed this to the significant reduction in the proportion of gas transported from Russia to Europe, which has plummeted from 40 to 8 percent and is anticipated to dwindle to nil, considering the importance of the "green" agenda and decarbonisation issues.

"We are engaged in a gasification initiative in Albania and, with President Aliyev's backing, we are endeavouring to establish what tradition has historically denied us. ...It can be said that our gas and railway systems were either non-existent or disconnected from the global network," Rama said.

Furthermore, the Albanian government, in collaboration with partners, is planning to construct liquefied natural gas terminals in the country's south. These projects are receiving significant investment priority. Consequently, Tirana deems it essential to initiate discussions on green hydrogen in relation to the South Gas Complex, considering the potential for its integration into green technology domains and its application in hydrogen transport.

"Green Hydrogen heralds new economic prospects, spurs innovation, and fosters research and development within the clean energy sector. Ultimately, it positions the SGC as a forward-thinking endeavour that meets the evolving needs of the world, with a focus on decarbonisation," Rama articulated.

Incidentally, the Trans Adriatic Pipeline (TAP) consortium and SOCAR are examining the feasibility of hydrogen transport to the European market. Specifically, they are assessing the design specifications for equipment required to convey a blend of natural gas and hydrogen through the pipeline. Concurrently, in partnership with international entities such as bp and KBR (UK), Masdar (UAE), and Equinor (Norway), explorations into promising hydrogen production methodologies are in progress. These methodologies encompass the generation of "green" hydrogen through the electrolysis of seawater using power from offshore wind farms, as well as "blue" hydrogen derived from natural gas extracted offshore.

The conveyance of a hydrogen gas mixture is a complex technological endeavour, entwined with numerous operational and commercial considerations. Hence, SOCAR is contemplating investments in hydrogen projects directly from European sales outlets as an alternative strategy.

While the provision of "green" hydrogen to Albania may not be imminent, the situation is more straightforward with gas. Starting from 2026, Albania is set to commence receiving approximately 200 million cubic meters of Azerbaijani gas annually via TAP. This will be facilitated by the first phase of the Trans Adriatic Pipeline's expansion, which will increase capacity by 1.2 billion cubic meters between 2024 and 2025.

By the conclusion of 2025, TAP is expected to be equipped to accept an additional 1.2 billion cubic meters of gas from Azerbaijan, with 1 billion allocated to Italy and the remainder to Albania. Consequently, Albania will join the ranks of European Azerbaijani gas purchasers, following Italy, Greece, Bulgaria, Romania, Georgia, Türkiye, Hungary, and Serbia.

Regarding the expansion prospects of the South Gas Complex, Azerbaijani Energy Minister Parviz Shahbazov has elucidated this matter with his declarations. Azerbaijan's approach to resolving this issue is aligned with market demands and the stance of European nations, which are gravitating away from the practice of securing long-term contracts (spanning 15 years or more) for gas trading.

"In the initial phase of developing the Shahdeniz field (the principal resource for the South Gas Corridor, R+), the approach involved long-term contracts and funding from European financial institutions. However, with a shift in European policy, most EU financial institutions have withdrawn support for carbon-intensive projects. Concurrently, the gas market has transitioned to spot trading rather than long-term agreements. These changes have influenced our strategies for expanding the South Gas Company. We are considering all these factors in our expansion efforts," elucidated Shahbazov.

Green Diplomacy

Green energy is emerging as a crucial instrument in the EU's economic diplomacy. Beyond bolstering partnerships with African nations for "green" hydrogen production facilities and addressing its transportation to Europe, European officials and business leaders are also targeting other promising regions to establish bilateral economic connections under the "green" agenda. Azerbaijan, with its green energy production potential, is also a focal point in this endeavour.

In the renewable energy domain, Azerbaijan and Georgia, in collaboration with Romania and Hungary, are engaged in a project to forge an energy corridor that will channel green energy from the Caspian Sea to Europe. This involves installing an underwater electric cable, Black Sea Energy, with a capacity of 1,000 MW and spanning 1,195 kilometres. The cable is intended to transmit green electricity produced in Azerbaijan via Georgia and the Black Sea to Romania, and thereafter to Hungary and the broader European region.

During the 2nd Ministerial Meeting of the Green Energy Advisory Council, a resolution was passed to initiate a tender for selecting a consultancy law firm. This firm will assist in forming a joint venture among the transmission system operators of the four nations to synchronize their activities. Additionally, since the onset of this year, CESI has commenced a feasibility study for the project.

Bulgaria declared its intention to participate in the project last year. The European Commission, for its part, has earmarked €2.3 billion for the installation of the cable, which is poised to become the world's longest.

To further enhance cooperation with Azerbaijan in green energy, a pivotal document was signed at the Baku meeting—a Memorandum of Understanding between the State Agency for Renewable Energy Sources of Azerbaijan and the European Wind Energy Association, WindEurope.

"The execution of the Memorandum at this ministerial assembly marks a significant stride. This pledge to renewable energy simultaneously paves the path for novel collaborative ventures with Europe," K. Simson articulated.

Through this partnership, the entities aim to leverage the vast potential of land-based and maritime wind energy in the region, contributing to the international goal of tripling renewable capacity by 2030.

WindEurope projects that each new wind turbine erected in Europe and its adjacent territories generates an average revenue of €13 million. This income benefits the European factories manufacturing turbines and their components, as well as those involved in the planning, construction, logistics, and research sectors. Consequently, a substantial number of wind farms will not only render Azerbaijan's power supply more eco-friendly but will also yield considerable economic advantages. For the EU, it represents an additional reliable source of clean electricity.

By endorsing the memorandum, WindEurope and the State Agency for Renewable Energy have pledged collaboration across various domains, such as the provision of wind energy components, the exchange of best practices and expertise in wind energy application and interconnectivity, and the cultivation of the Caspian-EU Green Energy Corridor.

"WindEurope is privileged to sign this Memorandum of Understanding with Azerbaijan to foster the development of wind energy, both onshore and in the Caspian Sea. It's commendable that they aspire to construct extensively and aim to export energy to Europe through the proposed Black Sea cable. This collaboration is mutually advantageous," remarked WindEurope CEO Giles Dixon.

Moreover, during the ministerial meeting, memoranda concerning solar and wind power plants in Azerbaijan were executed. The agreement inked by the Ministry of Energy with Nobel Energy Management LLC entails collaboration in establishing a 100 MW Solar Energy System (SES) in the Jabrayil district, encompassing the production, sale, and utilisation of electricity.

The project is slated for a two-phase implementation: the initial phase will see the construction of a 50 MW SES, followed by an expansion to 100 MW. Concurrently, under a contract with Spain's Elecnor Servicios Y Proyectos S.A.U., a 70 MW wind power facility is planned for the Garadagh district of Baku.

These agreements indicate Azerbaijan's ambition to generate up to 5 GW of solar and wind energy collectively by 2030. Renewable energy has been successfully integrated into the energy mix of numerous countries globally. In 2022, renewables accounted for 30% of the worldwide energy balance. In Europe, this figure has surged by 18 percentage points since 2010, reaching 43%. Households, businesses, and even entire countries are channelling substantial investments into these energy sources. While our nation may not yet match such levels, progress is being made. This progression lays the foundation for the anticipation that, in the near future, alternative energy will seamlessly integrate into the daily fabric of life in Azerbaijan as well.