ENERGY BRIDGES

One of the most prestigious economic events, the International Forum in Cernobbio, celebrated its fiftieth anniversary. This closed-door international economic conference is organized annually by the Italian think tank European House - Ambrosetti and typically takes place in early September at Villa d'Este on the shores of Italy's vibrant Lake Como.

This year's forum was attended by six world leaders: President Ilham Aliyev of Azerbaijan, Italian Prime Minister Giorgia Meloni, President of Ukraine Vladimir Zelensky, Prime Minister Viktor Orban of Hungary, and Queen Rania al-Abdallah of Jordan.

The agenda of the forum themed "Today's and Tomorrow's Scenario for Competitive Strategies," included the most pressing issues of the moment: the Russian-Ukrainian conflict and international conflicts in general, along with their diplomatic resolutions; the new world order and geopolitical shifts, and their effects on the global economy. Additionally, technological innovations with a focus on artificial intelligence and its growing influence across all industries, as well as international security and European defense, were discussed. This year's forum also featured a photo exhibition titled "A 50-Year View of the World." 

New Areas of Cooperation

Italy has become Azerbaijan's primary trading partner today. In 2023, the countries engaged in trade amounting to $15.7b, with $0.5b representing imports to Azerbaijan and $15.2b exports to Italy. Azerbaijan ranks as Italy's main trading partner among South Caucasus nations, holding an 85 percent share. In 2023, Italy's participation in Azerbaijan's foreign trade turnover was 30.65% (1st place), including 2.76% in imports (7th place) and 44.86% in exports (1st place). Our country is the leading supplier of oil and the second-largest supplier of gas for Italy.

Italian business circles are making substantial investments in Azerbaijan and are involved in numerous projects of international significance. It is worth noting that over 100 commercial enterprises with Italian capital operate across various sectors, including industry, agriculture, transport, construction, trade, services, and more.

What further opportunities exist for these two countries, which are already actively advancing a strategic partnership across all sectors from defense to energy? The outcomes of recent negotiations and signed agreements have shown that Baku and Rome possess the ability to surprise the public, and both sides still have much to pursue.

Azerbaijani President Ilham Aliyev arrived in Italy the day before his participation in the Forum, and his visit's agenda was certainly not limited to his speech during the session titled "The Role of Azerbaijan in the New Geopolitical Conditions" in Cernobbio.

The visit commenced with a working lunch with Italian President Sergio Mattarella, attended by Italian Foreign Minister and Deputy Prime Minister Antonio Tajani. The strategic partnership between the two nations was discussed, highlighting the significance of the TAP project in ensuring energy security for both Italy and the European Union. For context, last year the TAP pipeline alone exported approximately 10 billion cubic meters of gas from Stage 2 of the Shah Deniz project to Italy, which constitutes the majority of all Azerbaijani gas supplies to Europe.

The leaders also addressed the importance of humanitarian and cultural ties between their nations and spoke about the operations of the Italian-Azerbaijani University established through a joint project involving ADA University and five Italian higher education institutions.

The two presidents separately discussed the climate agenda. Congratulating Azerbaijan on hosting the 29th session of the Conference of the Parties to the UN Framework Convention on Climate Change (COP29) in Baku this November, Mattarella noted that his country would be represented by a high-level delegation at this significant event. Official Rome also reaffirmed its intention to provide necessary support for the success of COP29. In turn, Ilham Aliyev expressed Azerbaijan's readiness to collaborate with Italy on international climate change matters within the framework of the upcoming conference.

The leaders touched upon the engagement of numerous Italian companies in Azerbaijan, their involvement in reconstruction and construction activities in Garabagh and East Zangezur, as well as museum construction and other projects.

Talks between Ilham Aliyev and Giorgia Meloni followed. Reflecting on these discussions, the Italian Prime Minister noted on social network X that the meeting was highly productive and that both parties conducted thorough discussions regarding the agenda of Italian-Azerbaijani bilateral relations, while identifying new areas for cooperation. In this regard, they addressed the relationship between Italian company Eni S.p.A. and SOCAR as well as potential joint projects in third countries involving these companies.

The topic of joint investment initiatives in other countries was also raised; they emphasized the significance of the Middle Corridor and discussed prospects for Italian companies to leverage opportunities within this corridor.

Based on the signed documents, it appears that Baku and Rome have decided to reinforce cooperation within the energy sector through new directions. Consequently, three agreements were signed following the meeting between President Aliyev and Prime Minister Meloni: one on mutual understanding concerning biofuels and bio raw materials between SOCAR, Eni S.p.A., and Azerbaijan's Ministry of Agriculture; another on mutual understanding between SOCAR and Eni S.p.A. regarding cooperation in executing joint oil and gas projects; and a third on collaboration concerning energy transition and reduction of greenhouse gas emissions.

"The meeting with President Ilham Aliyev affirmed the strategic nature of our countries' partnership and our commitment to further deepen cooperation across all sectors of interest, starting with energy, particularly in light of Azerbaijan's chairmanship of COP29," Meloni concluded.

Eni S.p.A.'s statement indicated that the agreements signed with SOCAR align with the Italian company's decarbonization strategy aimed at achieving carbon neutrality by 2050 and will help define additional cooperation to ensure energy security and competitiveness for energy supplies in Italy and Europe.

Simultaneously, the Italian energy giant disclosed some details about the agreements reached. These include expanding cooperation in hydrocarbon exploration and production to bolster energy security for both Europe and Italy; collaborating on reducing greenhouse gas emissions; and enhancing energy efficiency within Azerbaijan's production sector through implementing best available technologies. These technologies encompass solutions for carbon capture and transport from existing facilities across various industrial sectors, storage and utilization within Azerbaijan's fields, as well as identifying opportunities for renewable energy projects.

Additionally, alongside the Ministry of Agriculture within a trilateral memorandum framework, opportunities for collaboration in biofuel production chains will be explored; projects focused on developing energy crops on degraded soils in Azerbaijan and the Caucasus region will be assessed; along with introducing second crops in rotation with cereals, among other initiatives.

Baku and Rome are clearly turning a new chapter in their bilateral cooperation, focusing on several intriguing and promising areas. I would like to specifically highlight biofuels. This product is relatively new; research is still ongoing in this field since questions remain regarding its full environmental friendliness coupled with its high cost. Nonetheless, it lays a solid foundation for future development given that this market holds significant potential. Currently, the global biofuels market is estimated at 1.89 million barrels of oil equivalent per day. Projections indicate it will grow to 2.44 million barrels by 2029, reflecting a compound annual growth rate of 5.20% during the forecast period (2024-2029).

Thus, if collaborative efforts can yield environmentally friendly fuel production, it would signify a revolution in domestic oil refining history. Furthermore, it would enable Azerbaijan to achieve its long-held goal of significantly reducing greenhouse gas emissions and progressing toward decarbonization. 

Non-Standard Solutions

The Azerbaijani leader's speech in Cernobbio indicated that Azerbaijan is making serious preparations for COP29 while actively working to establish connections among different players on the global stage.

"We perceive this (chairmanship of COP29) as a mark of respect toward Azerbaijan. This will be the first-ever COP event held in our region. As we all know, climate issues have become contentious among nations and peoples due to mutual claims and accusations regarding who bears greater responsibility for harming our planet and who should bear more costs associated with it. Although Azerbaijan may not be a major player internationally, I believe we can facilitate connections between the Global South and Global North," Aliyev stated.

From further remarks made by the President, it became clear that building bridges encompasses resolving not only climate matters but also international conflicts and gas disputes.

When asked by a moderator about Azerbaijan's potential involvement in discussions aimed at resolving conflicts between Russia and Ukraine, the Azerbaijani President responded affirmatively: "Today we maintain very good relations with both Russia and Ukraine. We firmly uphold Ukraine's territorial integrity and sovereignty as well as those of all nations. However, we have neither participated nor will we participate in any anti-Russian sanctions campaign. I believe we can play a role given our pragmatic approach to these relationships. While we have not yet initiated this dialogue ourselves, I am aware that many others wish to engage as well. If our participation is deemed necessary, we stand ready," Aliyev added.

Furthermore, he reiterated that currently "it is actually through Azerbaijan" that Moscow and Kyiv are negotiating regarding the continuation of gas transit involving Russian and Azerbaijani gas through Russia and Ukraine to Europe.

"Russia, Ukraine, and European institutions have approached us concerning continuing gas transit through Ukraine. Over recent months we have been making considerable efforts to reach a common understanding. We recognize that if transit ceases – which is set to occur in December – several European Union countries will encounter serious challenges regarding their access to natural gas supplies. Our aim is simply to assist these nations and Ukraine because if gas transit halts, Ukraine's gas distribution system will be utterly paralyzed," he stated.

Simultaneously, Baku remains hopeful that these efforts will not prove fruitless but will yield anticipated results.

"We maintain a degree of optimism because we are engaged with both nations in this context and perceive viable opportunities for significant progress. If we can achieve success here, I believe we will be able to take further steps toward concluding this war that is devastating our entire region," Aliyev remarked.

In fact, results are expected soon; contracts for Russian gas transit through Ukraine are just a few months away from expiration, necessitating an agreement now before winter weather alters intentions or circumstances.

At present, ten countries—seven of which are EU members—are already receiving gas from Azerbaijan. This year saw Serbia, Hungary, Slovenia, and Croatia join as buyers of Azerbaijani gas. The Azerbaijani President suggested that this is far from a limit; Baku is currently negotiating gas supply agreements with "at least three more European countries." Therefore, we anticipate new agreements shortly since winter is approaching rapidly; it seems unlikely that those on the other side of negotiations will want to delay finalizing contracts until winter sets in.