By any measure, Russia’s war on Ukraine will have severe consequences for the global energy system. Heavily dependent on Russian oil and gas, Europe in particular is expected to take a hit if Moscow eventually halts energy shipments in retaliation for punitive Western sanctions.
The European Union (EU) had already started looking for alternatives to Russian well before the war broke out. Azerbaijan is well-positioned to benefit from this eventual diversification away from Russian fuel, which is expected to gather fast pace in the wake of the war.
But will Baku be able to crank up gas supplies in time to prevent major disruptions to EU economies and livelihoods? On November 15, 2020, the Trans Adriatic Pipeline (TAP), which transports natural gas to Europe from the Shah Deniz II field in Azerbaijan, began commercial operations.
“In 2021, we exported 8.2 billion cubic meters of natural gas to Europe. This year we’re planning to increase the export up to 9.1 billion cubic meters,” Orkhan Zeynalov, the head of the International Cooperation Department of Azerbaijan’s Ministry of Energy, told Asia Times in an exclusive interview. In 2023, Azerbaijan is expected to supply European countries with 11 billion cubic meters of natural gas.
From Europe’s perspective, that’s a fossil fuel drop in the ocean. Presently, the EU imports 169 billion cubic meters of gas from Russia. But energy-rich Azerbaijan has a long-term export growth strategy for the European market that relies in part on increasing its own use of renewables.
“The more renewables we have, the more gas we will be able to export,” Zeynalov explains, saying Baku expects to increase its renewable capacity to 30% by 2030.
Given that natural gas accounts for over two–thirds of Azerbaijan’s total domestic energy consumption, if Baku manages to increase the production of electricity from renewable sources, it will have more gas available for export.
That is why the country is actively preparing to create “green energy zones” in Nagorno-Karabakh and surrounding areas that were under Armenian control until 2020, when the two nations fought a 44-day war that Azerbaijan resoundingly won. Baku also aims to develop green energy in other parts of the country.
In 2020, the Azeri Energy Ministry and Saudi company ACWA Power signed a deal to build a US$300 million wind farm in Azerbaijan’s Absheron and Khizi districts. The plant will be commercially operable in the third quarter of 2023, and Baku hopes to increase its exports not only of natural gas, but also of electricity.
But how will all that affect Russia, if at all, as Europe’s main energy supplier? “We want to have a bigger role in Europe’s energy security architecture, but we are not trying to replace anyone’s market share,” Zeynalov said.
Instead, Baku will likely aim to carefully balance its energy and political ties with all major actors and players. The EU, for its part, recently allocated a two billion euro financial assistance package to Azerbaijan which was seen by some as grease on the wheel of future energy deals and a bid to increase its influence in the Caucasus.
At the same time, Azerbaijan President Ilham Aliyev and his Russian counterpart Vladimir Putin signed an “allied cooperation agreement” on February 22 that will serve as a blueprint for the advancement of bilateral relations.
Points 31 and 32 of the document are especially interesting given that they are related to the energy aspect of Russo-Azeri cooperation. According to the agreement, the two nations intend to deepen cooperation in the fuel and energy sector, including in regard to exploration and development of oil and gas fields, and transportation of energy resources.
Presently, Russia’s energy giant Lukoil owns 9.9% of Azerbaijan’s Shah Deniz field – the largest natural gas field in the country. Other major holders are BP, Azerbaijan’s SOCAR, Turkish company TPAO, Malaysia’s Petronas corporation, and Iran’s NIOC.
There are indications that the EU could – either voluntarily or under the US pressure – eventually stop purchasing Russian energy. Such a move would likely represent a shot in the foot given that Europe receives 40% of its gas supplies from Russia.
According to some reports, just a day after Moscow launched its military campaign, natural gas exports flowing from Russia to Europe through Ukraine increased by 38%, which suggests that European countries are worried that a war could have a serious impact on their energy safety.
Quite aware that the conflict in Ukraine will speed up the process of “decoupling” between Russia and the West, many European countries are hoping to find alternatives to Russian energy. Even Kiev hopes to get oil from Azerbaijan, although such an option does not look realistic as long as the war rages on.
Ukraine, however, can count on Azeri gas. At this point, the transportation of natural gas from the Caucasus nation to Ukraine is possible through Turkish territory and then through the Trans-Balkan pipeline – from Greece, through Bulgaria and Romania to the former Soviet republic.
If Ukraine remains out of the Russian sphere of influence, in the long term it can count on larger gas supplies from Azerbaijan. For now, Ukraine – as well as the rest of Europe – will remain heavily dependent on Russian gas.