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Eurasianet is an independent news organization that covers news from and about the South Caucasus and Central Asia, providing on-the-ground reporting and critical perspectives on…

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Azerbaijan Charts New Energy Course Amid Caspian Uncertainty

  • Azerbaijan aims to capitalize on Kazakhstan's shift away from Russian oil transit by expanding oil exports through the Baku-Tbilisi-Ceyhan pipeline and potentially reviving the Baku-Supsa pipeline route.
  • Plans are underway to increase natural gas transit, with Azerbaijan potentially becoming a key link for Turkmen gas exports to Turkey via swap deals and the possibility of a Trans-Caspian Pipeline.
  • In addition to traditional energy sources, Azerbaijan is exploring renewable energy development, with plans for wind and solar power projects and seeking European investment to bolster its green energy sector.

Azerbaijan could prove a winner as the war in Ukraine continues to reshuffle the Caspian Basin energy-supply deck. But uncertain investment and financing prospects, as well as questions about production capacity, are holding Baku back at present. 

When it comes to oil exports, it seems Kazakhstan’s pain can be Azerbaijan’s gain. Before the Kremlin’s unprovoked invasion of Ukraine in 2022, Kazakhstan relied on Russia for transiting the bulk of its oil exports to market. In 2022, for example, roughly 62 percent of Astana‘s 84.2 million tons of oil exports reached global markets via the CPC pipeline to Russia’s Black Sea port of Novorossiysk. 

But growing fears about over-dependence on Moscow, along with concerns about the safety of commercial shipping in the Black Sea, have prompted Astana to look for alternative export routes. 

On March 11, Kazakhstan’s state oil producer KazMunayGas and Azerbaijan’s state oil company SOCAR agreed to expand their existing deal for transiting Kazakh crude via Azerbaijan’s main oil export route – the Baku-Tbilisi-Ceyhan (BTC) pipeline. The deal increases annual volume from 1.5 million tons to 2.2 million tons. The two companies also agreed to discuss transiting further volumes of Kazakh crude to the Black Sea via the Baku-Supsa pipeline through Georgia which has been idle for over a year due to safety fears.  

The BTC option is a more complicated route to market for Astana. The crude is first shipped across the Caspian Sea by tanker, then fed into the pipeline which carries it to Turkey’s east Mediterranean coast from where it can again be carried by tanker to global markets.

Azerbaijan also may soon increase transit volume for natural gas. A recent preliminary agreement between Turkmenistan and Turkey allows for Turkmen gas to be sent to Turkey either via a swap deal with Iran, or more complex swaps via both Iran and Azerbaijan. 

Turkish energy minister AlparslanBayraktar has said that an initial stage involving the delivery of up to 2 billion cubic meters (bcm) a year could be realized quickly. Turkey’s interest in Turkmen gas is primarily to diversify its own gas imports, of which last year 42 percent came from Russia contracts, most of which expire at the end of 2025. A contract with the country’s second biggest supplier, Iran, is due to expire mid-2026. 

Both Russia and Iran are subjected to international sanctions, which if expanded further could conceivably leave Turkey in a bind. Bayraktar also confirmed that Ankara and Ashgabat are discussing a longer-term target of a dedicated Trans-Caspian Pipeline (TCP) to transit Turkmen gas via Azerbaijan and Georgia to Turkey, and possibly on to Europe, a project which already enjoys US support

On-and-off talks on just such a pipeline have continued for nearly 25 years. Now, the route is again off the back burner, as the war in Ukraine has significantly increased interest in diversifying European Union energy imports. Dusting off the TCP plan is in Baku’s interests, as it could help Azerbaijan meet a 2022 commitment to Brussels to double EU-bound exports of its own gas to 20 bcm a year by 2027. Progress on meeting that target has been halting, with Azerbaijani exports in 2023 totaling only 11.8 bcm. Current pipeline expansion work is set to add only another 1.2 bcm capacity per year. 

Azerbaijani officials say that the sizeable investment required to expand export routes cannot be made until European gas buyers commit to buying the extra gas carried by expanded pipelines. Gas buyers for their part are concerned that Azerbaijan will be unable to supply all the required gas. 

The slow expansion of Azerbaijan’s own gas production has been an issue for would-be European importers. Of late, Baku has had to import Turkmen gas via a swap arrangement with Iran to meet its own growing domestic demand, along with its export commitments to Europe, Turkey and Georgia. Those Turkmen imports halted late last year after Baku and Ashgabat failed to agree on commercial terms for 2024. At the same time, Azerbaijani officials reported that the country had sufficient gas supplies to meet demand due to a rise in domestic production.  

BP announced in late February that new wells it has drilled in Azerbaijan’s main Shah Deniz gas field are currently producing an extra 750 million cubic meters per year. BP has also said it hopes to start production next year from a deep gas reservoir below the country’s main ACG oil field. However, the company has yet to say how much gas it will produce, and it remains to be seen whether it will be sufficient to help Baku meet its commitment to Brussels. 

Azerbaijan is also making a push to develop green/renewable energy. Set to host a major climate conference in late 2024 known as COP29, Baku is using the opportunity to promote ambitious renewable energy plans. Azerbaijan’s interest in going green stems in large part from its efforts to reduce its own domestic gas consumption to free up more for export. Many energy analysts believe it will take a long time for Azerbaijan to realize any such hopes. Just 8 percent of Azerbaijan’s power generation in February came from renewable sources, and just 1.3 percent of that total was derived from wind and solar power. 

Following a March 16 meeting with Georgian Prime Minister Irakli Kobakhidze in Baku, Azerbaijani President Ilham Aliyev announced that a feasibility study of the two countries’ “tremendous renewable energy potential” would be completed by the end of the year. He gave no details, but the study most likely relates to plans announced late 2022 for an electricity transmission cable to carry power generated in Azerbaijan across the Black Sea to Romania, transiting Georgia. 

For that project to become functional, Baku will first need to develop sufficient wind, solar and hydro power capacity to generate sufficient supplies for export. Thus far, Baku has been unwilling to commit its own money, relying instead on international investors such as Saudi Arabia’s ACWA which is developing Azerbaijan’s first grid-scale wind farm, and UAE’s Masdar, developing its first major solar power plant. 


It seems the EU is also interested in developing Azerbaijan’s renewable energy capacity. On March 1, a ministerial meeting of the EU-Azerbaijan Green Energy Advisory Council resulted in the signing of a memorandum of understanding on wind energy cooperation. The agreement is designed to facilitate European investment in “the huge wind power potential of Azerbaijan, to help push forward the clean energy transition in the region, and to potentially generate new renewable energy supplies for Europe,” according to a EU Commission statement.

The statement quoted the EU commissioner for energy, Kadri Simson, as saying, “we have made clean energy a key part of EU-Azerbaijan bilateral relations.”

By David O’Byrne via Eurasianet.org

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  • Ghung on March 25 2024 said:
    comment that Russian invasion of Ukraine is BS

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