EU Secures Increased Azerbaijani Gas Supply to Reduce Dependence on Russia

• Azerbaijan is poised to play a larger role in meeting European natural gas demand, with plans to double exports to 20 bcm per year by 2027.
• Russia is refocusing its gas exports toward Central Asia, signing supply agreements with Kyrgyzstan and Kazakhstan.
• The Vertical Corridor initiative in Southeastern Europe aims to facilitate increased Azerbaijani gas deliveries to the region.

A shake-up of natural gas supply arrangements is gaining momentum across Eurasia. Russia, which has seen gas exports to Europe plummet since the start of the Russian-Ukraine war, is now intent on expanding supplies to Central Asia. Meanwhile, Azerbaijan is making progress on replacing Russian gas to meet the European Union’s needs.

Russia’s unprovoked attack on Ukraine prompted EU states to reduce their dependency on Russian gas. Moscow’s exports to Europe fell from 155 billion cubic meters (bcm) in 2021, the year before the invasion, to just 43 bcm last year.

EU members so far have made up for the Russian decrease through a combination of importing increased volumes of LNG by ship and boosting power generation from other energy sources. Brussels additionally secured an agreement with Azerbaijan to double exports of Azerbaijani gas to Europe to at least 20 bcm per year by 2027.

Azerbaijan’s export-expansion plans appear to be finally coming to fruition, as Baku recently has signed agreements to transit gas from Turkmenistan to Europe, and concluded new agreements to expand connections to states in Central and Southeastern Europe.

Arguably, the most significant development is the decision by a Hungarian state-owned entity, MVM, to buy a 5 percent stake in Azerbaijan’s giant Shah Deniz gas field, a move announced during Baku’s energy week in early June. MVM already has two agreements in place to import Azeri gas.

Now with a stake in Shah Deniz, MVM becomes the only shareholder that also buys gas from the field, creating an important tie between the producer and consumers. By increasing its reliance on Azerbaijani gas imports, Hungary is also signaling a distancing from Russia.  Budapest has long depended on Russia as its main source of gas, as Viktor Orban’s government has resisted imposing EU sanctions on the Kremlin. 

Also significant is news that Azerbaijan reached an agreement with Albania to supply 200 million cubic meters (mcm) a year of gas from 2026. The gas will arrive via the Trans-Adriatic Pipeline (TAP), which currently has a capacity of around 10 bcm/year but which is in need of a major expansion to meet Baku’s growing export commitments to European states.

To date the pipeline’s owners, which include Azerbaijan, have only committed to add an extra 1.2 bcm of annual capacity, complaining that they can’t invest the huge sums required without getting upfront commitments from European gas buyers to purchase additional volumes. The amount to be supplied to Albania may be comparatively small but it marks a step towards full implementation of the TAP expansion plan.

Another initiative to facilitate deliveries of Azerbaijani gas, dubbed the “Vertical Corridor,” is moving forward at a faster than expected pace. The corridor entails the expansion of a network of pipelines in Southeastern Europe, with Bulgaria serving as a hub connecting Greece, Moldova, Romania, Turkey and Ukraine.

On June 6, Bulgaria signed the first two construction contracts to expand its section of the planned corridor. Moves to expand other sections are expected later this year and early next. 

Russia, meanwhile, is trying to make up for its lost market share in Europe by plying Central Asia with gas. On June 7, at the St Petersburg International Economic Forum, Russia’s state-controlled energy giant, Gazprom, signed new supply agreements with Kyrgyzstan and Kazakhstan, and held talks with Uzbekistan over future gas supply plans.

The Kyrgyz deal sees Gazprom subsidiary, Gazprom Kyrgyzstan, being supplied with Russian gas for 15 years, beginning in 2025. Gazprom Kyrgyzstan, in turn, has signed agreements to supply gas to Electric Stations JSC, Kyrgyzstan’s largest power and heat supplier, and with Bishkekteploenergo, the Kyrgyz capital’s municipal heating company. Details of the contracts, including volumes and purchase prices, were not immediately disclosed.

To facilitate deliveries to Kyrgyzstan, Gazprom signed an agreement with its Kazakh subsidiary, NC Qazaqgaz, under which Gazprom will expand its existing pipeline network in Kazakhstan. The expansion would also accommodate increased gas exports to Uzbekistan, which was once a gas exporter, but has now become a net importer. In 2023, Tashkent sign a two-year agreement to import Russian gas with supplies starting last October.

Russia’s existing and future gas exports to Uzbekistan were the subject of discussions June 7 involving Gazprom CEO Alexei Miller and Uzbekistan’s deputy prime minister, Jamshid Khodjaev, along with Energy Minister Jurabek Mirzamakhmudov. With Uzbek gas demand increasing, the Russia supply deal is widely expected to be extended. 

By David O’Byrne via Eurasianet.org

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