COLD WINTER OF 2023

With the approaching winter season, it gradually becomes relevant to prepare for it well before. The gas war between Europe and Russia is in full swing. The energy crisis and rising inflation rates in Europe are well-known topics of discussion for many. A number of European politicians are already openly calling for the EU to lift sanctions against Russia by the end of this year under the threat of a deepening crisis. In turn, Russia also suffers losses from the gas war: the budget loses part of its revenues while Gazprom is likely to lose its main and such a reliable customer in the future.

Amid these events, almost weekly discussions on European energy security, diversification of routes and sources of gas supply and the necessary measures to protect consumers have become a ritual in various forums.

Europe hopes

The 5th International Gas Conference held in Bucharest on September 21-22 entitled Bridge to the Future was another opportunity to continue discussions on cooperation to diversify energy sources, supply routes and the role of natural gas in the energy transition. Azerbaijani gas pushed through the Southern Gas Corridor system was also at the centre of discussion. Azerbaijan’s Energy Minister Parviz Shahbazov explained in detail the country’s contribution to EU energy security and future plans for gas exports from Azerbaijan. The two-day visit of Mr. Shahbazov to Romania was very productive. In addition to the conference itself and bilateral talks, he also attended a ministerial meeting hosted by Romanian Prime Minister Nicolae Ciucă, on a panel with his counterparts from eight other countries in the region: Romania, Bulgaria, Hungary, Ukraine, Moldova, Georgia, Greece and Turkey.

They collectively assessed and identified new alternative routes for transporting gas to the EU via Turkish and Greek ports, as well as green energy export projects, including Azerbaijan’s initiative to lay a cable under the Black Sea Azerbaijan-Georgia-Romania-Hungary to supply Europe with wind energy from the Caspian Sea.

"The energy crisis in Europe has made us even more united in our efforts to find solutions and provide the energy needed, both for this winter and for future generations, in a sustainable manner and with respect for the environment," Nicolae Ciucă told at the International Gas Conference.

Speaking about Romania's capacity to meet domestic energy demand, the prime minister expressed confidence that the coming cold weather will not cause problems for the country.

"We will not freeze to death in winter! We will be able to secure 90% of the required volume of natural gas from domestic resources to survive this year's cold season well," Ciucă believes.

According to him, this will be made possible by gas production on the Romanian shelf of the Black Sea, which will start at the beginning of 2022.

After years of delay, Romanian lawmakers approved changes to offshore legislation earlier this year in the hope of unlocking investment. According to authorities, the new offshore law and the encouragement of investment in the oil and gas sector will create the conditions for the development of natural gas resources in the Black Sea and, in the coming years, of deep-sea resources in Buzău County, south-eastern Romania.

"The introduction of the Bulgaria-Greece Interconnector (IGB), which can receive natural gas from the Caspian Sea and Azerbaijan, will strengthen the energy security of Romania and the entire region," Mr. Ciucă said.

Vertical corridor

In his address to the conference participants, Romanian Energy Minister Virgil Popescu said the launch of IGB would allow Romania to import gas from Azerbaijan through the Vertical Corridor (Greece-Bulgaria-Romania-Hungary).

He added that agreements between the regional countries are also necessary to ensure transit of this gas: "We have been working on getting gas from non-Russian sources for a very long time. To import natural gas or LNG from somewhere else, such as Azerbaijan, we need a transit agreement, and we are working on it.”

Moldovan Deputy Prime Minister Andrei Spinu, who attended the ministerial meeting, reiterated his country's interest in attracting new gas suppliers, including from Azerbaijan.

"In the long term, we will try to find alternative supplies with our partners, such as Azerbaijan and Romania. However, we need to overcome this winter first. Moldova is quite a small state, so our demand is also smaller. For us it is more a question of availability than security," Mr. Spinu said.

He noted that the country is already reducing its gas consumption, with a drop of almost 20% since the beginning of September.

In his speech minister Shahbazov once again focused on Baku's interest in expanding energy cooperation with European countries. As for Romania, he noted that SOCAR is considering various opportunities to expand its business in Romania, where it already has a strong business relationship and market position.

"SOCAR owns a large network of petrol stations in Romania, 67 to be exact. The company has plans to expand the number of filling stations," Mr. Shahbazov said.

In addition, SOCAR is discussing with the Romanian side the possibility of participation in other segments of the oil and gas business, in particular in refining.

As for the transportation of Azerbaijani gas to Romania, Mr. Shahbazov assured his Romanian counterpart that they were doing everything possible, but one should not hope for instant solutions.

"We are negotiating with Romanian representatives and trying to do our best, but it takes time. There are certain organisational criteria related to gas transit, transportation. We have a strategic partnership with Romania and we are doing our best, but there are at least 10 countries in Europe that are asking for gas from us and we are doing our best," he explained.

To double gas supply

Minister Shahbazov underlined that Azerbaijan was preparing to increase gas supplies to the EU this year by as much as 40%.

"In less than two years (from December 31, 2020 - R+), Azerbaijan has delivered more than 16 billion cubic metres (bcm) of gas to Europe. Azerbaijani gas deliveries to Europe in 2022 will increase by 40%, from 8.2 to 11.5bcm. This shows that the Southern Gas Corridor (SGC) is operating at maximum capacity and that supplies are uninterrupted and stable," Mr. Shahbazov said.

Azerbaijan now aims to double the volume of Azerbaijani natural gas to 20bcm for the EU over the next five years and to expand the Southern Gas Corridor in this regard, which is "the next step in ensuring energy security".

"Our goal is to supply more gas to our partners, who already receive it, and to expand supplies to new regions, from southern Europe to the western Balkans," Mr. Shahbazov added.

Azerbaijan reiterated the conditions necessary for doubling natural gas exports from the country. These include investments to increase pipeline capacity and gas production, as well as the conclusion of contracts and the implementation of a number of technical measures. In short, the EU's desire should also be backed up by concrete actions. Understanding the demand for quick solutions, Azerbaijan made it clear that nothing can be done overnight.

"This cannot happen overnight, we need intergovernmental consultations, and we still need to make appropriate investment decisions. We need contracts, commitments on the consumption and production side. The whole package has to be implemented as soon as possible," Mr. Shahbazov pointed out.

It is also necessary to determine the terms of deliveries.

"The early implementation of this project is in our common interest. The Memorandum of Understanding on Strategic Energy Partnership between Azerbaijan and the European Union signed in July 2022 is a crucial step for our joint work and provides the necessary political assurance. We believe that thanks to the joint political will, increased volumes of Azerbaijani natural gas will reach Europe at a crucial time for energy security - in 2027," says Mr. Shahbazov.

The current situation clearly underlines the importance of finding new energy sources and organising their transportation to the EU. This is why the project proposed by Azerbaijan to organise the export of Caspian Sea wind energy by means of a cable from Georgia through the Black Sea to Romania aroused great interest among the European participants of the conference. There is no doubt that the project will be implemented, as it meets all the objectives that Europe has set for itself - the transition to clean energy, the diversification of energy sources and measures to combat climate change.

Baku believes that Azerbaijan will become a reliable partner of the EU also in green energy, and energy cooperation between Baku and Brussels will rise to a new level by implementing such priorities.

A new era

The next regional (European) energy summit is slated for October 1, 2022. The occasion is the official launching ceremony of the Greece-Bulgaria Interconnector (IGB), which will bring Azerbaijani gas to Bulgaria via the Trans-Adriatic Pipeline (TAP). Its launch effectively marks a new era on the energy map of south-eastern Europe.

The IGB pipeline is 182 km long and originates in Komotini and enters the Bulgarian network at Stara Zagora. In the first phase it will transport 3bcm/annually, with a total capacity of 5bcm.

The gas via IGB will go to Bulgaria and from there via other connecting pipelines can be transported to Serbia, Northern Macedonia, Romania, Moldova and Ukraine. Bulgaria can use IGB to increase its natural gas purchases from Azerbaijan by two-thirds and boost its reserves as a difficult energy winter approaches. Greece, in turn, will become a gas hub in the Balkans, as not only Azerbaijani gas but also liquefied gas is expected to transit through IGB to markets in southeastern Europe - after liquefaction at the Alexandroupolis terminal, which will be commissioned in late 2023.

The Balkan countries have so far been most dependent on Russian natural gas and oil. Bulgaria has been able to cover 90% of its needs with Russian gas. However, it has not been receiving Russian gas since spring due to its refusal to pay for it in roubles. With the IGB, the energy landscape will change dramatically and not in favour of the Russian gas monopoly.

Speaking about the launch of the IGB gas pipeline, Azerbaijani Energy Minister said that it would make it possible to bring gas supplies to Bulgaria up to 600 million cubic meters (mcm) in 2022 to meet 19% of Bulgaria's domestic demand. From next year Bulgaria will be able to count on the growth of Azerbaijani gas volumes up to 1bcm based on contractual obligations.

Meanwhile, Bulgarian Energy Minister Rosen Hristov has voiced a desire for additional (above contract) gas from Azerbaijan for the forthcoming heating season.

"Negotiations are underway with Azerbaijan to increase gas volumes, at least for the heating season, by another 200-300mcm. We anticipate the Azerbaijani side is ready to discuss this proposal," Mr. Hristov said. At the same time, he expressed hope for a positive outcome of the negotiations.

The statement was made just before the meeting between Hristov and Shahbazov in Bucharest, and the issue was raised in the negotiations. There are no reports of any agreement, which means that the negotiations will continue. The success of negotiations will largely depend on the situation in the winter season.