Azerbaijan’s evolving role in global energy: Oil, gas, and renewable energy collaborations

Azerbaijan, endowed with abundant natural resources, continues to make remarkable strides in the global energy arena by harnessing its vast oil, gas, and renewable energy potential. Strategically located at the crossroads of Asia and Europe, Azerbaijan has positioned itself as a key energy player, particularly within the Caspian Sea region. The country’s energy sector, shaped by visionary leadership and pivotal historical agreements, has transformed Azerbaijan into a vital energy hub, facilitating connections between Asia and Europe through an expanding network of energy routes.

Over the years, Azerbaijan has successfully cultivated numerous global partnerships and spearheaded large-scale energy projects, a testament to its well-crafted and forward-looking state policies. These achievements highlight the power of effective governance, where well-executed policies in sectors such as energy not only strengthen the state but also enhance national prosperity. In contrast, many resource-rich nations, hindered by flawed policies, fail to leverage their natural wealth, which undermines their economies. Azerbaijan’s success demonstrates that when political and economic strategies align, a nation's natural resources can truly become a source of power and progress.

Oil sector: Foundation of Azerbaijan’s economic transformation

Azerbaijan’s oil strategy, initiated by National Leader Heydar Aliyev, has been integral to the country's modernization and economic development. The cornerstone of this strategy was the signing of the landmark Contract of the Century in 1994, which marked a turning point in the country's oil production history. This agreement brought together 11 international oil companies from seven countries, including bp, ExxonMobil, and Chevron, to develop the "Azeri-Chirag-Gunashli" oil fields in the Caspian Sea. The successful implementation of this contract, alongside the construction of critical pipelines such as the Baku-Tbilisi-Ceyhan (BTC) pipeline, has allowed Azerbaijan to export oil to global markets, making it a key energy corridor.

Since then, Azerbaijan's oil industry has continued to grow with increased investments and expanded partnerships. By 2023, approximately $43.4 billion had been invested in the Azeri-Chirag-Gunashli oil fields, yielding over 580 million tons of oil. Additionally, the establishment of the State Oil Fund of Azerbaijan (SOFAZ) in 1999 has ensured that the revenues from oil are managed efficiently, contributing to the country's long-term economic stability.

Azerbaijan's energy partnerships have expanded beyond the Caspian region. Notably, in 2018, Azerbaijan and Turkiye inaugurated the Star Oil Refinery in Izmir, which is expected to meet Turkiye’s demand for jet fuel and other refined products. Azerbaijan has also played a key role in supporting the energy needs of its regional neighbors, serving as a reliable transit country for Caspian hydrocarbons.

Gas sector: Azerbaijan's strategic role in Europe

Azerbaijan’s gas sector is equally significant, with its vast reserves, including the world-renowned Shah Deniz gas field. This field, discovered in the mid-20th century, has evolved into one of the largest gas reserves globally. The exploitation of Shah Deniz and subsequent gas fields like Umid and Absheron has firmly positioned Azerbaijan as a major gas supplier.

The Southern Gas Corridor (SGC), which includes the Baku-Tbilisi-Erzurum pipeline (SCP), Trans-Anatolian Pipeline (TANAP), and the Trans-Adriatic Pipeline (TAP), is a flagship project in Azerbaijan's gas strategy. These pipelines are designed to transport Azerbaijani gas to Europe, thus enhancing European energy security and diversifying the continent’s energy sources away from Russian supplies.

Azerbaijan’s pivotal role in the SGC is evidenced by its successful collaborations with countries like Turkey, Georgia, Greece, Bulgaria, and Italy, as well as major international energy companies. The completion of TAP in 2020 marked a historic moment, enabling Azerbaijani gas to reach European markets. In addition, the country continues to expand its partnerships, with the signing of memorandums of understanding (MOUs) for enhanced gas cooperation with countries like Bulgaria, Romania, Hungary, and Slovakia in 2023.

Azerbaijan's gas reserves are estimated at 2.6 trillion cubic meters, with further potential to increase these reserves through ongoing projects like the Absheron field. Furthermore, in 2023, Azerbaijan reached the milestone of producing its 200 billionth cubic meter of gas from Shah Deniz, further cementing its reputation as a dependable supplier.

Green energy: Azerbaijan's transition into a sustainable energy future

Azerbaijan's commitment to sustainable energy is embodied in its national priorities for socioeconomic development, particularly the goal of transitioning to a green and clean energy future. The country has abundant renewable energy resources, with a potential of 27,000 MW from wind, solar, bioenergy, and hydropower. In 2021, the Azerbaijan 2030 strategy emphasized the importance of reducing greenhouse gas emissions by 35% by 2030, with a further commitment to achieving net-zero emissions by 2050.

Azerbaijan’s green energy initiatives are gaining traction, with significant investments in renewable energy projects. In January 2022, the country broke ground on the Khizi-Absheron Wind Power Plant, with an installed capacity of 240 MW. The Garadagh Solar PV Plant, launched in October 2023, is the largest renewable energy facility in the Caucasus and Caspian regions, with a capacity of 230 MW.

Azerbaijan is also leading efforts in the development of a Green Energy Corridor in collaboration with regional partners such as Georgia, Romania, and Hungary. This corridor will enable the export of renewable energy from the Caspian Sea to Europe, further demonstrating Azerbaijan’s dedication to diversifying its energy mix and contributing to the global fight against climate change.

Moreover, Azerbaijan’s initiatives to establish a green energy zone in its liberated territories, including Garabagh and Eastern Zangazur, reflect the country’s commitment to environmental protection and sustainable development. The country has partnered with Japan’s TEPSCO to develop a green energy concept for these regions, with a focus on renewable energy generation.

Azerbaijan’s energy sector has undergone a remarkable transformation over the past few decades, driven by visionary leadership, strategic partnerships, and a commitment to sustainable development. The country’s oil and gas reserves, coupled with its expanding role in green energy, have made Azerbaijan a critical energy player on the global stage. Its partnerships with major international companies and regional neighbors have solidified its position as a key energy corridor connecting Asia and Europe.

As Azerbaijan continues to invest in renewable energy and reduce its carbon footprint, its energy strategy aligns with global trends towards sustainability and energy diversification. With its vast resources and forward-looking energy policies, Azerbaijan is poised to play an even more significant role in the future of global energy, serving as a reliable supplier of both conventional and green energy.