Baku's geostrategic move on gas supply turns it key player in Southern Gas Corridor

President Ilham Aliyev’s adept management of Azerbaijan’s oil strategy has propelled the country onto a prominent trajectory, establishing it as a significant global gas exporter. At the heart of this achievement is the Southern Gas Corridor, a landmark project spearheaded by Azerbaijan under President Aliyev’s guidance, demonstrating the nation’s capacity to undertake and deliver on major international energy initiatives.

Strategically located as a critical link between Europe and Asia, Azerbaijan is endowed with extensive natural, geographical, and cultural resources. The country’s rich history of natural resource extraction is underscored by its substantial oil and gas reserves, with its territory being among the oldest oil-producing regions globally.

Through the Southern Gas Corridor, Azerbaijan supplies gas to Europe, with the Trans-Adriatic Pipeline (TAP) representing the European segment of this corridor. TAP's transmission capacity has now reached 12 billion cubic meters per year. From January to June of this year, Azerbaijan exported 6.4 billion cubic meters of natural gas to Europe, marking a 12.3% increase from the same period in 2023.

Overall, Azerbaijan's gas exports totaled 12.7 billion cubic meters in the first half of this year, reflecting a 6% increase compared to the previous year. Specifically, 5 billion cubic meters of gas were sold to Turkiye, and 1.3 billion cubic meters to Georgia, with both figures remaining steady compared to the previous year. During this period, approximately 2.8 billion cubic meters were transported to Turkiye via the Trans-Anatolian Gas Pipeline (TANAP), maintaining the same level as last year.

The completion of TAP in October 2020, stretching 878 kilometers—550 km through northern Greece, 215 km through Albania, 105 km across the Adriatic Sea, and 8 km into Italy—has been a major milestone. Azerbaijani gas began reaching consumers in Italy, Greece, and Bulgaria on December 31, 2020.

Natural gas from Azerbaijan’s Shah Deniz field is transported to Turkiye through the South Caucasus Pipeline (Baku-Tbilisi-Erzurum) and TANAP, with commercial gas transportation via TANAP commencing on June 30, 2018. The first gas entered the Turkish market through the Baku-Tbilisi-Erzurum pipeline in 2007.

Looking ahead, Azerbaijan plans to significantly boost its gas exports to Europe. As a pivotal player in the European energy market, the country aims to enhance its role in Europe’s energy security by expanding natural gas exports while also focusing on renewable energy sources like solar and wind. The “Memorandum of Understanding on Strategic Partnership in the Field of Energy” signed last year between Azerbaijan and the European Union underscores a robust cooperative framework. This agreement not only strengthens energy ties between Azerbaijan and the EU but also addresses the EU’s energy demands and security needs, laying the groundwork for long-term economic relations between Azerbaijan and European nations.

The "Shah Deniz" field in Azerbaijan’s Caspian Sea sector holds confirmed reserves estimated at approximately 1.2 trillion cubic meters. This substantial reserve base, alongside the discoveries of the "Umid" and "Babek" fields, significantly boosts Azerbaijan’s gas potential. Currently, the field produces an average of 3.1 million cubic meters of gas and 470 tons of condensate daily from four operational wells. Since production began in 2012, approximately 6.7 billion cubic meters of gas and 1 million tons of condensate have been extracted. Plans are underway to drill and operationalize two additional wells from the "Umid-1" platform. These new gas fields enable Azerbaijan to expand its gas exports while integrating renewable energy sources into its production.

As the principal partner of the European Union in the South Caucasus, Azerbaijan plays a critical role in transporting Caspian Sea gas to the EU market via the Southern Gas Corridor. This corridor, comprising the South Caucasus Pipeline (SCP), the Trans-Anatolian Pipeline (TANAP), and the Trans-Adriatic Pipeline (TAP), is the largest infrastructure project designed to meet the EU’s gas demand and bolster its energy security. The SCP, which runs through Azerbaijan and Georgia to the Turkish border, has been expanded. TANAP, stretching 1,850 kilometers across Turkiye, connects the Caspian region to European markets. TAP, extending approximately 878 kilometers, connects to TANAP with an initial capacity of 10 billion cubic meters and a potential capacity of 20 billion cubic meters. TAP represents the final segment of the Southern Gas Corridor, delivering Azerbaijani gas to European consumers.

Azerbaijan aims to increase its gas exports to 20 billion cubic meters by 2027 through the 3,500-kilometer-long Southern Gas Corridor pipeline. This expansion will enhance Europe's energy diversification and reduce its reliance on other gas suppliers, mitigating geopolitical risks. With confirmed gas reserves of 2.6 trillion cubic meters and predicted reserves of about 3 trillion cubic meters, Azerbaijan is positioned as a reliable and crucial energy supplier for Europe.

President Ilham Aliyev has highlighted the pressing need for additional gas in Europe, noting that despite Azerbaijan's efforts to expand its gas infrastructure, European financial institutions have not provided the necessary funding. Azerbaijan recently signed an agreement with a Slovenian company, making it the ninth partner to purchase Azerbaijani gas. However, President Aliyev pointed out that while Europe demands an expansion of the Southern Gas Corridor from 16 billion to 32 billion cubic meters—necessitating significant investments in TANAP and TAP—European financiers have yet to support these projects. He expressed frustration that despite Azerbaijan’s substantial investments, the benefits are not fully realized, and the revenue generated is largely directed toward repaying these investments. Aliyev questioned the rationale behind investing billions in gas that Europe might not need in the future, emphasizing the critical role of fossil fuels in the present energy landscape.

The recent increase in natural gas prices on the European market, exacerbated by the ongoing conflict between Russia and Ukraine, underscores the urgency for additional energy sources. With the current gas export agreement between Russia and the EU set to expire next year, Europe’s need for alternative energy supplies becomes even more pressing.

Azerbaijan, with its vast oil and gas reserves, has been a focal point in the global energy landscape. Two major fields, "Shah Deniz" and "Umid," have recently been discovered, further enhancing Azerbaijan's gas potential. The country’s oil and gas fields are predominantly located in the Absheron Peninsula, the Caspian Sea shelf zone, and the Baku and Absheron archipelagos, with additional deposits found in southeastern Shirvan, Central Aran, Gobustan, Jeyranchol, Acinohur, and Siyazan regions. Azerbaijan's oil and gas resources, including shale and peat, are crucial, with hydrocarbons being the primary product. Over the past few decades, numerous gas-condensate deposits have been identified and developed.

Currently, Azerbaijan has eight active oil and gas regions and two promising areas, with the largest deposits located in Absheron, Baku archipelagos, and Ashaghi Kuryan regions. Expanding gas exports will not only boost Azerbaijan's economy but also positively impact regional development. The Southern Gas Corridor has already created jobs and spurred economic growth in Azerbaijan, Turkiye, and transit countries. Increased gas exports will further contribute to Azerbaijan’s socio-economic development, support infrastructure projects, and improve public services. Thus, enhancing gas exports through the Southern Gas Corridor is crucial for regional energy security and economic stability.

Currently, Europe's underground gas reserves are at 84.12 percent capacity, and Russia supplies 41.9 million cubic meters of gas per day. With the agreement between Russia and the EU on gas exports set to expire in 2025, Europe will need alternative sources to secure its energy needs. One potential alternative is Azerbaijan, which is a key player in the Southern Gas Corridor, including the Trans-Adriatic Pipeline (TAP). The gas fields in Azerbaijan’s Caspian Sea, such as Shah Deniz, Umid, and Absheron, could play a crucial role in diversifying Europe’s energy supply away from Russian gas. President Ilham Aliyev has mentioned that Azerbaijan's gas production is expected to increase to 20 billion cubic meters by 2027. However, he has also pointed out that despite Europe’s desire to expand the Southern Gas Corridor, Europe has not provided financing for this expansion. Azerbaijan has yet to fully benefit from its investments in this infrastructure, and its oil and gas revenue is primarily focused on paying off these investments. This highlights a significant challenge: while Azerbaijan can potentially enhance Europe’s energy security by providing an alternative source of gas, the financial and strategic challenges related to infrastructure investment and the lack of European support might constrain its ability to fully assume this role.

In summary, Azerbaijan has the potential to bolster Europe's energy security by offering a reliable alternative to Russian gas. However, the extent of its impact will depend on overcoming investment challenges, securing European financing, and effectively managing the economic pressures of developing and expanding the Southern Gas Corridor.