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Can Azerbaijan be considered a viable energy alternative to Russia?

Expert comment

Written by Ilayda Nijhar

Image credit:Flags of the member states of the European Union in front of the EU-commission building "Berlaymont" in Brussels. Image license:Christian Lue / Unsplash

In July, the European Union and Azerbaijan signed a new energy agreement to double gas imports from Azerbaijan to Europe. This is the latest attempt from the EU, which has been seeking alternative suppliers of gas since the start of the Russia-Ukraine war, to reduce its energy dependence on Russia. It is also an opportunity for Azerbaijan, a former Soviet republic, which maintains a neutral stance on the war, to develop ties with the EU building on efforts to diversify relations beyond Moscow’s sway and seek new partnerships.

Under the agreement, an additional four billion cubic meters (bcm) of gas will be delivered to the EU by the end of this year (bringing the total to 12 bcm) with a view to increase supplies to a minimum of 20 bcm annually by 2027. The gas will be supplied via the Southern Gas Corridor (SGC – an energy passage comprised of four projects), which delivers energy supplies from Caspian markets to Europe. Although the agreement has been hailed a success, in reality it does little to match Russia’s gas capacity and tackle the imminent energy crisis. Nonetheless, it has presented longer-term opportunities for Azerbaijan to tap into the EU’s growing demand for green energy and attract interest in the country’s renewable energy agenda.

While this latest energy cooperation is welcomed, even with an extra four bcm from Azerbaijan, it will not be enough to substitute Russian gas supplies to the EU, which totals around 150 bcm annually. It is also unlikely that deliveries will be further increased as the total capacity of the SGC totals 16 bcm, indicating that Azerbaijan will play a minor role in reducing Russian gas dependency. As fears continue to rise over a complete suspension of gas flows, the EU must secure additional sources and urgently re-think its energy strategy. It must forge new alliances to counter Russian threats, which could include making a short-term return to fossil fuels as recently suggested by the vice president of the European Commission.

This latest move feeds into Europe’s efforts to diversify its energy supplies from Russia following recommendations from the International Energy Agency’s (IEA) 10-point plan to reduce Europe’s reliance on Russian gas, which also suggests Azerbaijan as a viable energy alternative. New strategies such as the REPowerEU Plan combines efforts to reduce dependence on Russian fossil fuels and accelerate the green transition with a commitment to end all Russian energy imports by 2030. Within this context, Azerbaijan has positioned itself as a reliable and predictable source to outweigh Russia’s control over European gas supplies. This latest agreement also compliments the EU’s external energy engagement strategy which recognises that the SGC is well placed to diversify gas supplies to Europe. Azerbaijani President Ilham Aliyev hailed the deal as a road map for the future and stated that the EU-Azerbaijan energy cooperation has “already changed the energy map of Europe”.

Although in the short-term it will be ambitious to rely solely on Azerbaijan as the only alternative to Russian gas, in the long-term there is potential for it to tap into Europe’s growing appetite for green energy. During the meeting, European Commission President Ursula von der Leyen noted that Azerbaijan has “tremendous potential for renewable energy” including offshore wind and green hydrogen. Although Azerbaijan is commonly known to be an oil and gas-rich Caspian nation, it has substantial untapped renewable energy potential. The country plans to increase the share of renewables in its energy mix to 30% by 2030 and it is currently developing a five-year Renewable Energy Sources strategy. Only last month, BP and SOCAR (Azerbaijan’s state oil company) signed an agreement to cooperate on low carbon energy projects in the country.

While Baku and Europe hail the latest agreement as a win as part of efforts to reduce dependence on Russian energy supplies, in the short-term it will do little to mitigate the situation. Europe will need to broaden its scope to source alternative supplies in order to meaningfully avert the imminent energy crisis. Rather, the new agreement has presented an opportunity and generated interest for a longer-term partnership on clean and green energy together with Azerbaijan as a key European partner going forward, building on the country’s efforts to move beyond Russia’s sway.