Challenges & opportunities in Azerbaijan's gas supply to EU [COMMENTARY]

After Ukraine and the EU's current agreement with Russia expires this year, they have asked Azerbaijan to supply natural gas to Europe via Ukraine. Azerbaijani President Ilham Aliyev confirmed ongoing discussions with Ukraine, the EU, and Russia to continue gas supply. Ukrainian President Volodymyr Zelenskiy aims to secure Azerbaijani gas to maintain Ukraine's role in gas transit and support Western energy security. Aliyev noted potential challenges for Austria and Slovakia if Russian gas via Ukraine stops, underscoring Azerbaijan's readiness to increase gas exports to Europe, reaching nearly 13 billion cubic meters this year through the Southern Gas Corridor.

The international analyst, and author of books on Britain, Turkiye, and the South Caucasus, Dr. Patrick Walsh's commentary on Azerbaijani President Ilham Aliyev's speech, emphasizing that there was an interesting article in the Financial Times of London last week.

"Vaqif Sadigov, Azerbaijan’s ambassador to the EU, told the newspaper that the EU is currently treating the country as a “firefighter” by only committing to short-term gas deals despite asking Azerbaijan to boost exports of fuel to the EU. Baku needs the certainty of long-term contracts to raise the finance required to increase gas production in the Caspian Sea and meet the additional EU demand. Mr Sadigov said that they cannot be a firefighter just by sending gas for three to six months. They need the contracts so that they can go to banks for financing for drilling deep into the Caspian Sea.”

According to international expert, despite discussions with the EU Commission about how to meet the targets of the 2022 deal to increase Azerbaijan’s annual gas exports to the EU to 20bn cubic meters by 2027, EU operators have been reluctant to sign long contracts because of the bloc’s ambition to curb its consumption of fossil fuels and reach net zero greenhouse gas emissions by 2050.

"EU officials have said it is up to companies rather than national governments to make the commercial agreements. Finding new sources of natural gas has become critical for the EU since Russia, the EU's largest supplier, began to shut off gas flows in retaliation for the EU’s support for Ukraine. However the EU has committed to ambitious climate goals to cut greenhouse gas emissions by 90 percent by 2040, and fossil fuel consumption should be 80 percent less than in 2021, of which only 40 percent would be gas. Matthew Bryza, former US ambassador to Azerbaijan, said that to reach the EU’s 2027 target for Azerbaijani imports, it was imperative to finance upstream production because Azerbaijan would not otherwise have sufficient extra gas production to meet the EU deal. Between January and June, Azerbaijan exported 6.4 bcm of gas to EU countries, about a quarter of its total production, according to Baku's figures."

"Over the past three years, Azerbaijan has increased its gas flows to the EU by 12 percent. However, it seems that Brussels is unable to finance the project because of its rules that prevent the EU budget from being spent on fossil fuel infrastructure. The European Investment Bank has similar restrictions. Ironically this EU ideology is not only an impediment to its energy security but to Kyiv, which urges Brussels to make the required commitment to Azerbaijan’s energy supply," Dr. Walsh concluded.