GAS PRESSURE

The gas crisis in Europe is getting increasingly tense. On the one hand, they blame Russia for the gas shortage in the European Union. On the other hand, Europe is trying to solve the crisis by actively negotiating with alternative suppliers.

So another round of talks was held in Baku in early February, and the participants seem to have been satisfied with the result.

Who is to blame and what to do?

Ursula von der Leyen, President of the European Commission, called the way the Russian gas monopoly Gazprom does business "strange", as, despite strong demand and record gas prices, it is "not interested in increasing fuel supplies to Europe".

According to Leyen, this is why the EU needs to look for reliable partners. Russian gas, incidentally, accounts for 40% of the EU's total gas supplies.

US Secretary of State Anthony Blinken said his government was holding talks with major fuel producers to increase supplies to Europe.

One of such alternatives is liquefied natural gas (LNG). In January, LNG deliveries to Europe from distant countries exceeded the pipeline deliveries from neighbouring Russia. Nearly half of the volume came from the US, making Europe, for the first time in many years, the main export destination for US gas producers, traditionally supplying gas to Asia, for the second month in a row.

At the same time, Josep Borrell, the EU High Commissioner for Foreign Affairs and Security Policy, said the EU was holding talks with Norway, Qatar, Azerbaijan, Algeria and other countries to expand LNG imports. Two EU commissioners (Kadri Simson and Olivér Várhelyi) visited Azerbaijan to conduct negotiations with the government officials to increase the gas supplies to Europe. They took part in the annual ministerial meeting of the Southern Gas Corridor (SGC) Advisory Board (AB). The negotiations were very successful, as well as the summit itself, which this time went beyond the framework of traditional discussions on SGC. Participants have concentrated more on the problems of the European gas market, possible role of Azerbaijani gas in this context and the expansion of SGC, as well as the issues of energy efficiency, decarbonisation, green energy, hydrogen and renewable energy sources (RES).

Exports to be increased

Traditionally, meetings of the representatives of countries and companies involved in the SGC project take place in Baku in the end of February. This year was no exception, except that it took place right when the month started. Both the composition of participants (EU commissioners, high-ranking officials from the US, Britain, Turkey, Georgia, Italy, Greece, Bulgaria, Albania, Croatia and other countries) and the venue (Gulustan Palace) show the scale of the event. Last year's meeting was held online because of the pandemic. This time, all interested parties decided to meet in person to discuss the range of issues in detail and to listen to each other's wishes.

Azerbaijani President Ilham Aliyev began his speech by summarising the results of the first year of full-scale operation of the SGC pipeline. In particular, he noted that after the completion of the project Azerbaijan could successfully increase exports to international markets, including to European ones. Last year, for example, Azerbaijan exported 19 billion cubic metres (bcm) of gas (8.5bcm to Turkey, nearly 7bcm to Italy and the rest to Georgia, Greece and Bulgaria).

"I am sure that Albania, which is a member of our team, will also receive Azerbaijani gas as soon as it completes its gas distribution network... Looking at the latest data on the market share of Azerbaijani gas, I see that some countries buy 80% of gas from Azerbaijan and others only 15-20%. These figures are increasing as we are planning to increase production," Mr. Aliyev said.

He also noted that Azerbaijan intended to increase export volumes this year because "there is great potential, especially now, when the situation on the gas markets is unstable. Prices are changing too."

Ilham Aliyev also underlined that the number of the AB participants this year was higher than last year. "We have new participants, which shows that there is a demand for Azerbaijani gas in new markets. We are ready, because Azerbaijan has always been a reliable supplier of energy resources to international markets... The SGC project is over but our work continues. I am confident that we will achieve new results," Mr. Aliyev said.

Commissioner Simson praised Azerbaijan's efforts to increase the amount of gas supplied to the EU via the SGC, calling the project a Chronicle of Success.

"We all remember well the difficulties and obstacles we had to eliminate during the implementation of this project. Today, however, even the most sceptical people express their appreciation for the project. Reliable, competitive, reasonably priced gas is finding its way to south-eastern Europe. Homes are supplied with gas, buildings are heated, and citizens get the energy they need. Rising energy and gas prices determine the unseen strategic role of the corridor for the EU. We believe the SGC is a long-term success story. This issue is now moving to a new level and we need to check if the corridor can increase its capacity or even expand geographically," Ms. Simson said.

Commissioner Várhelyi also noted the importance of the energy partnership with Azerbaijan and declared Brussels' readiness to cooperate with Baku on gas supplies to the Western Balkans. "Ensuring energy security will remain a priority during the energy transition. Therefore, a strategic partnership with Azerbaijan is important. We are ready to cooperate on energy supplies to the Western Balkans. Gas plays an instrumental role in terms of abandoning coal and moving towards a carbon-free economy. SGC is important for European energy security, including its potential to reach new markets, such as the Western Balkans," Mr. Várhelyi said.

Rising prices and demand

In general, European Commissioners have done their 'homework' by communicating to the Azerbaijani authorities their position and wishes to increase Azerbaijani gas exports to Europe. Brussels expects that by this summer gas export through the Trans Adriatic Pipeline (TAP) will reach the projected annual capacity of 10bcm.

Furthermore, given the existing unsolved problems with gas supplies in Europe, the need to expand the TAP capacity is hardly in doubt, which means that final solution likely be adopted soon.

All that remains is a mandatory market test, but even now we can safely assume that the outcome of the test will be positive. After all, both Europe and the US recognise the increasing significance of SGC amid the rising prices and high demand for energy resources.

Referring to the expansion of TAP’s annual capacity by another 10bcm, EU Commissioner Simson noted it would be possible to schedule the expansion as soon as they get the results of studies on market expectations, which are currently underway.

"As the European Commission, we share the view on the strategic importance of SGC. This project is important amid the challenging energy market and rising prices. We can discuss the expansion of the pipeline to get rid of the difficulties associated with other pipelines," Ms. Simson noted.

Revealing some details of bilateral talks held in Baku, Ms. Simson also said that she supported the increase of gas production from the Shah Deniz field in the near future. "We also discussed possibilities for expanding the capacity of the existing gas pipeline, especially for the gas supplies to the Western Balkans," she said.

It was clear from the closing speech of the Azerbaijani Energy Minister Pärviz Shahbazov that Azerbaijan will continue to hold the SGC ministerial meetings in the future. In doing so, the Advisory Board, which has evolved over 8 years into a productive international platform, will not be limited to discussions on a single project. The agenda will be expanded to include all issues of concern to global energy producers and consumers, including also the issues of energy transition, renewable energy, decarbonisation and climate change.

In addition, on behalf of the government of Azerbaijan, Mr. Shahbazov confirmed their readiness to cooperate with the European Commission and countries interested in the purchase, import of export of additional quantities of gas, as well as in contributing to the development of the Southern Gas Corridor.

Long-term perspective

The SGC AP meeting was also a good opportunity for the Balkan and SEE countries to voice their plans and intentions to purchase Azerbaijani gas. In addition to Bosnia and Herzegovina, Montenegro, Bulgaria, Albania, Hungary, Moldova, Serbia and North Macedonia joined the wish list.

Serbia, for example, expects to receive Azerbaijani gas transported via the SGC as early as next year. According to the Serbian side, the Bulgaria-Serbia Interconnector Gas Pipeline (IBS) will be commissioned in 2023 and will provide the country with gas transported via the SGC and a number of other sources. The annual throughput capacity of IBS is more than 1.8bcm, which can be expanded to 4bcm. "This will make significant contribution to energy security of both Serbia and the entire region," Serbian officials say.

Hungarian Foreign Minister Péter Szijjártó said discussions are underway with the Azerbaijani side on how Hungary can get long-term natural gas from Azerbaijani fields in the coming years. "Long-term solutions are needed, because only they ensure stability," Szijjártó said.

Albania's Deputy Minister of Infrastructure and Energy, Ilir Bejtja, acknowledged that Albania faced serious challenges in ensuring energy security and domestic needs. "Given that gas is a cleaner source of energy than other fossil fuels, we attach great importance to the development of the gas sector. SGC is a very good alternative for Albania in the near and long-term future. We fully support these developments and are committed to implementing our joint plans and projects," Mr. Bejtja said

Romanian Energy Minister Virgil Daniel Popescu reiterated his proposal to include the Romanian-Bulgarian Interconnector and the BRUA project in Romania's plans to expand the SGC to the Balkans and Central Europe. "This creates a great opportunity that should not be missed. We are ready to join the efforts to develop the SGC project, a strategic gas transmission infrastructure crucial to the stability of Europe's energy supply," Mr. Popescu said.

Minister of Economy of Northern Macedonia Kreshnik Bekteshi said that gasification of the country is crucial for the national economy. Construction of the gas pipeline system in Northern Macedonia is a work in progress. Construction of the interconnector to Greece, which will connect North Macedonia with SGC, is scheduled to start in 1Q2022. "We are also working on the completion of the interconnector project to connect to our northern neighbour, Serbia. In addition, we are also planning to launch the construction of interconnectors to deliver gas to Bulgaria and Albania," Mr. Bekteshi said.

Not to miss the chance

Presently, gas exports to Europe are provided through the Shah Deniz Stage II. Given the numbers repeatedly announced by the Azerbaijani leadership and the plans to explore and develop new gas fields, Azerbaijan will likely ensure the successful operation of SGC based on its own resources. Large volumes of available gas combined with the huge desire of European markets to find an alternative to Russian supplies, create a strong case for attracting investment to double the capacity of TAP to 20bcm annually.

Nevertheless, to make the system more attractive and efficient, it may well be necessary to attract gas resources from other countries. For example, Israeli gas transported via TANAP, or Iranian or Turkmen gas. However Israel is still trying to solve the problem of exports to Europe by creating an alternative route, while Iran is still under the sanctions. As to Turkmenistan, the best option could be the implementation of an Azerbaijani-Turkmen project to develop the Dostlug field with the participation of the Russian company LUKOIL. Negotiations on the project are still under way. We hope that by the time the decision is made to double the capacity of SGC, issues related to the Dostlug project will be resolved. This will combine the efforts of the two former rivals to increase gas supplies to Europe.

Atamyrat Chariyev, Vice-President of state concern Turkmengaz, assures that the country has all the technical capabilities and resources to organise export deliveries to Europe, hence making it possible to meet the demand in the Eastern European market. The Trans-Caspian Pipeline will be a key infrastructure project that will make a major contribution to energy security in Europe, Mr. Chariyev said. After so many years of hesitation, the only thing left is to finally decide to build this infrastructure. After all, unspent funds are not only reserves, but also lost opportunities.