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Political and economic magnitude of Azerbaijani-EU gas deal explained

21 July 2022 12:00 (UTC+04:00)
Political and economic magnitude of Azerbaijani-EU gas deal explained

By Ayya Lmahamad

Azerbaijan has made another consequential contribution to Europe’s gas security, and this momentous move comes at a time when Russia is threatening to shut off its gas taps to Europe.

The Old Continent is therefore making all efforts to guarantee a sufficient amount of gas from available sources to meet its own needs as there seems no end to the Russian war in Ukraine on its 150th day.

The memorandum of understanding between Azerbaijani President Ilham Aliyev and EU Commission President Ursula von der Leyen signed in Baku on July 18 is a tremendous achievement for both parties.

With this document, Azerbaijan and the European Commission signed July 18 in Baku, that's, a Memorandum of Understanding (MoU) on a strategic partnership in the field of energy, the young and reliable Azerbaijani state in the person of President Ilham Aliyev has once again proved the nation’s adherence to principles it holds high. Azerbaijan is driven by impeccable moral principles and has never used gas as a weapon unlike some other nations sitting on huge gas reserves to pursue their own agenda.

The signed memorandum cannot be called the first or unique of its kind, as energy cooperation between Azerbaijan and the European Union did not begin today. The legal basis of energy cooperation was established long ago and is enshrined in a number of documents. However, current events evolving worldwide are re-modifying Europe’s energy map.

Currently, the western sanctions against Russia risk pushing it to halt gas supplies to Europe. In view of the fact that Europe imports 40 percent of its annual gas consumption from Russia, this can plunge Europe into turmoil, especially as winter approaches. Naturally, Europe needs to import gas from different suppliers, like the United States, Qatar, Norway, Algeria, and Azerbaijan. Europe’s energy independence from a single supplier will take time; however, it has already taken concrete steps toward this goal.

In this case, the signed memorandum and Azerbaijani gas will help Europe to get rid of its complete dependence on a single supplier.

The gist of the MoU is to ensure the stable and safe delivery of Azerbaijani gas from the nation’s Caspian Sea sector to the EU countries. The goal is to support the diversification of gas supplies in accordance with commercial feasibility and market demand. Europe intends to import at least 20 billion cubic meters of gas from Azerbaijan per year by 2027. This memorandum and clarification of the amount of supplies are vital for Azerbaijan since it has large amounts of proven gas reserves, and in order to decide how much the country should invest in the development of its fields, it needs to know how much Europe will import.

Today, Azerbaijan has confirmed gas reserves totaling 2.6 trillion cubic meters. The offshore Shah Deniz deposit accounts for 1 trillion. Production may soon begin at another major field - Absheron, where it is planned to extract 1.5 billion cubic meters of gas per year at the first stage. Other big deposits are Babak with estimated reserves of 400 billion cubic meters, and Umid with at least 200 billion cubic meters. There are also certain expectations for the deep-water segment of the Azeri-Chirag-Guneshli.

One of the important points is that the memorandum provides for cooperation not only in the gas export. Of course, the topic of the expansion of the Southern Gas Corridor and the supply of Azerbaijani gas to Europe is still the most relevant, however, the sides do not talk only about it.

In the future, Europe is planning to quit fossil fuels, and the notion of energy in the signed document has a broader scope. In particular, the issue of preparation of the existing pipeline infrastructure for pumping hydrogen in the future is outlined, and the development of cooperation in the sphere of electricity, climate change, and alternative energy sources is mentioned.

Thus, the parties are also considering the possibility of creating an energy corridor, which would include not only the supply of gas but also the supply of electricity, in particular through renewable energy sources and the supply of hydrogen fuel.

Under these circumstances, Azerbaijan can also benefit a lot, as its electricity production capacity is growing, in particular, due to renewable sources, and export will also go up. In addition, the growing use of renewable energy sources in the country, and increasing gas export abroad, will increase the money flow in the country and ensure Azerbaijan’s economic growth.

The signed memorandum provides Europe with benefits not only in the energy sector but also provides Azerbaijan with the opportunity to bolster its economic and political ties with the part of the world, which has rich resources and huge potential for growth.

The importance of this memorandum from the economic point of view can be identified as very simple. For Europe, it is the elimination of the dependence on a single supplier and the diversification of its sources, which will make it less vulnerable to some risks and crises. While for Azerbaijan, it is increasing its exports, which leads to more profit and economic growth, as well as proving itself as a reliable energy supplier on the world market by securing its position in the future of renewable energy and hydrogen exports.

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Ayya Lmahamad is AzerNews’ staff journalist, follow her on Twitter: @AyyaLmahamad

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