What’s Next for Azerbaijan’s Natural Gas Exports to Europe
On December 31, 2020, the first supplies of natural gas from Azerbaijan to Italy via the recently completed Trans Adriatic Pipeline (TAP) were underway. The 545-mile-long pipeline is the final segment of the Southern Gas Corridor (SGC), called one of the biggest and most complex new energy projects anywhere in the world. Natural gas from Azerbaijan’s Shah Deniz II field in the Caspian Sea transits through Georgia via the South Caucasus Pipeline (SCP), through Turkey by means of the Trans-Anatolian Gas Pipeline (TANAP), and over the Adriatic Sea to Southern Italy along the Trans-Adriatic Pipeline (TAP) through Greece and Albania. The Southern Gas Corridor has played a key role in European energy security conversations since 2017 and will likely continue to transform how natural gas is transported from resource-rich Azerbaijan to Central and Western European markets.
Since it regained its independence in 1991, Azerbaijan has come to play a meaningful role in shaping Europe’s energy market, starting with the development of the offshore Azeri-Chirag-Gunashli oilfields and construction of the Baku-Tbilisi-Ceyahan oil pipeline. The 2020 completion of the Southern Gas Corridor enables Azerbaijan to provide 8.5 billion cubic meters of gas annually to Italy alone, about 12 percent of its annual national demand for gas. Similarly, gas from Azerbaijan is projected to account for 20 percent of Greece’s gas demand and, via a new interconnector, 30 percent of Bulgaria’s yearly gas needs.
Significant and steady flows of natural gas from the Caspian will allow for the European Union to lessen its dependence on Russia for needed energy. For example, 44 percent of Italy’s natural gas imports and 31.5 percent of Germany’s natural gas imports come from Russia, transported by pipelines traversing Ukraine. In total, 44.7 percent of natural gas imported to the European Union in 2019 originated in Russia. This figure dropped slightly in the first quarter of 2020, falling to 39.3 percent. Still, gas imports from Russia remain extremely high, especially in the Balkans. In the first half of 2020, Bulgaria, Hungary, Romania, and Slovenia imported over 75 percent of their natural gas from Russia. While Russia’s natural gas reserves far outstrip any other country in the world, at 1,668 trillion cubic feet (Tcf) as of 2017, diversification of sources of supply has long been recognized as essential for a country’s energy — and hence national — security. Natural gas from Azerbaijan’s reserves can significantly contribute to the diversification of Europe’s energy resources supply and alleviate its heavy dependence on a sole distributor.
On December 18, 2020, senior officials from Azerbaijan and the European Union convened in Brussels to discuss extending the Southern Gas Corridor into the Western Balkans, including Bosnia and Herzegovina, Montenegro, North Macedonia, and Kosovo. The Ionian Adriatic Pipeline (IAP) would be a 321-mile-long pipeline with the capacity to transport 5 bcm annually. The IAP would connect the TAP in Albania with the Croatian grid via Montenegro and Bosnia and Herzegovina to supply the Western Balkans with Azerbaijani gas. Albania, Montenegro, and Croatia are keen on implementing a project to supply their growing demand for energy resources and to help meet EU standards for decarbonization.
Russia’s Gazprom delivered 45.58 bcm to Eastern and Central European markets in 2019, of which Croatia imported 2.82 bcm or about 66 percent of its annual consumption. Attempts to build a liquified natural gas (LNG) terminal in Croatia have been met with disapproval from Moscow. Despite that, an off-shore facility has been completed and an initial shipment of LNG from the United States received, but a pipeline would still be a valuable reinforcement for the country’s security. Bosnia and Herzegovina is also heavily dependent on Russian gas. Russia has put pressure on Bosnia to support its South Stream pipeline in an effort to divert resources away from new energy sources such as the TAP or Croatia’s LNG. The construction of an Ionian Adriatic Pipeline would endow Southeastern Europe with a network of natural gas pipelines supplying secure energy from Azerbaijan’s gas fields.
While there is justified focus on limiting greenhouse gas emissions as countries look to obtain needed energy, natural gas is cleaner-burning than many other energy supplies and is available today as a source for meeting individuals’ and businesses’ immediate needs and as fuel as countries transition to other forms of energy in future years. Further development of pipeline projects in the Western Balkans will diversify energy providers and trading partners and lessen dependence on Russian natural gas, especially as economies in the Balkans and their need for energy.