Romania has turned to Azerbaijani gas. The supply contract signed on February 3, 2023 by the State Oil Company of the Azerbaijan Republic (SOCAR) and the Romanian company Romgaz expired on March 31 of this year. The agreement was for Romania's purchase of 1bn cubic metres of gas. Deliveries were made through the Greece-Bulgaria Interconnector (IGB) from the TAP (Trans Adriatic Pipeline) exit point in Komotini, through Bulgarian territory to Romania, and onwards via the Bulgaria-Romania-Hungary-Austria (BRUA) gas pipeline system. SOCAR expressed a willingness to extend this contract until 2026.

Just after the contract expired, on April 1, the Romanian Minister of Energy, Sebastian Ioan Burduja, visited Azerbaijan. The meetings focused on the prospects of supplying liquefied natural gas from Azerbaijan to Romania, with particular attention to the possibility of producing LNG at the SOCAR terminal in the Georgian port of Kulevi, followed by its transportation to the Romanian port of Constanta. This project is deemed extremely important for strengthening not only Romania's energy security but also that of the EU as a whole, making Romania a transit corridor for Azerbaijani gas into Europe in the process.

After the EU was cut off from Russian gas in 2023, European Commission President Ursula von der Leyen travelled to Baku to meet with President of Azerbaijan Ilham Aliyev, and they signed off on a 10 bcm supply deal to shore up Europe’s gas supplies.

“The European Union has therefore decided to diversify away from Russia and to turn towards more reliable, trustworthy partners. And I am glad to count Azerbaijan among them,” von der Leyen said in a speech to Aliyev during her visit to Baku. “You are indeed a crucial energy partner for us and you have always been reliable.”

As part of the new energy arrangements, in October 2022, a memorandum was signed in Bucharest between SOCAR and Romgaz to develop a technical and economic feasibility study (TEFS) for the transportation of Azerbaijani gas along the Baku-Kulevi-Constanta route. This project could encompass the construction of LNG production and regasification plants in Kulevi and Constanta respectively, along with the creation of other necessary infrastructural facilities. The TEFS of the project is expected to be completed within the current year, reaffirming Romania and Azerbaijan's commitment to deep energy cooperation amidst the remake of the global energy market.

However, Romania is far from being the only European destination for Azerbaijani gas, as Aliyev said in a speech at a grand opening ceremony of the Bulgaria-Serbia Interconnector in Nis, Serbia.

The president said Azerbaijan is advancing towards an ambitious goal of doubling its gas exports to Europe by 2027. That means Azerbaijan will not only have to increase natural gas production volumes but also significantly expand the capacity of three key pipelines of the Southern Gas Corridor (SGC). This corridor is a vital artery for delivering Azerbaijani gas from the shores of the Caspian Sea directly to European markets.

Production and export rising

By the start of 2024 Azerbaijan was the fourth largest supplier of pipeline gas to the EU behind Algeria, Norway, the United Kingdom and Russia.

Italy, Greece and Bulgaria are the main customers in Europe and increased their imports to record volumes in 2023, reaching approximately 12.9 bcm, based on Eurostat data.

The EU used to import some 150 bcm from Russia of which about 25 bcm is still delivered via pipelines via Turkey and Ukraine, so there is still plenty of unsated demand. Gas production expanded by 3.8% in 2023, reaching 48.5 bcm, and exports grew by 6.9% to 23.8 bcm. Minister of Energy of Azerbaijan Parviz Shahbazov said recently the republic’s plan is to increase production to 49 bcm of gas in 2024, with 24 bcm earmarked for export. And that plan is on track after Azerbaijan exported 4.1 bcm of gas, of which 2.1 bcm was sent to Europe in the first two months of this year.

Azerbaijan also wants to expand the list of European countries purchasing Azerbaijani gas, which currently includes Italy, Greece, Bulgaria, Romania, Hungary and Serbia.

For example, in 2026, Albania intends to start using Azerbaijani natural gas to meet its energy needs. According to information published by the international rating agency S&P Global Ratings, plans are currently being developed to establish the necessary infrastructure for gas distribution in Albania.

This initiative will allow Albania to diversify its energy sources by leveraging existing infrastructure such as the Trans-Adriatic Pipeline (TAP), reducing the country's dependence on hydroelectric power, and let Albania transit gas on to the wider European markets, including Italy, according to S&P.

Albania is expected to receive approximately 200mn cubic metres of Azerbaijani gas annually. This coincides with the planned first phase of the expansion of the Trans-Adriatic Pipeline, which will increase its capacity by an additional 1.2 bcm. Of this volume, 1 bcm is intended for Italy.

TAP’s capacity will also be expanded to receive an additional 1.2 bcm of Azerbaijani gas by the end of 2025. From 2026, Italy will receive 1 bcm from this volume, while Albania will receive an additional 200 mcm.

Whose gas is it?

But Azerbaijan growing gas exports is not without controversy. While Azerbaijan exports to the EU have risen, so have imports of gas to the country from Turkmenistan and Russia, effectively enabling the re-export of Russian gas to Europe by the backdoor, say critics. However, these claims have not been corroborated by official sources and have been disputed by representatives from both Azerbaijan and the EU.

A representative from the European Commission for Climate Action and Energy, Tim McPhie, emphasised that the EU imports exclusively Caspian resources from Azerbaijan. The volumes of imports from Russia to Azerbaijan are significantly less than the volumes Azerbaijan exports to Europe, McPhie said.

SOCAR vice president Elshad Nassirov also addressed the question of the re-exporting of Russian gas, pointing out the technical impossibility of any gas other than that from the Shah Deniz field entering the South Caucasus Pipeline.

Azerbaijan does import gas from Russia, which is used to meet the country’s domestic gas demand, but that frees up more gas from the Shah Deniz field to be exported to European customers, strengthening its position in the international market.

The Energy Ministry highlights that Azerbaijan and Russia generally sign short-term contracts concerning limited gas volumes. For instance, in 2022, about 1 bcm of Russian gas was imported to Azerbaijan – about a tenth of the volume exported to the EU.

Oil export declines

Long primarily an exporter of oil, the gas business is relatively new for Baku, and although Azerbaijan still produces and exports oil, the volumes have been falling in recent years.

The decline in oil exports is becoming a significant factor for Azerbaijan's economy. The government forecasts that in 2024 oil production will remain at about 29.5mn tonnes, or just under 600,000 barrels per day (bpd), which is 3.3% less than the previous year. This decrease is part of a broader trend, with a gradual reduction in production volumes anticipated to reach 8.8% by 2027.

This trend is highlighted by a comparison with previous years, where in 2023 production had already decreased by 7.4% compared to 2022. The Azerbaijani government anticipates that production volumes will continue to decrease, reaching approximately 26.9mn tonnes by the end of 2027.

On the other hand, OPEC in its January report predicts relative stability in Azerbaijani production at 700,000 bpd throughout 2024-2025. The launch of the seventh platform at the Azeri Central East (ACE) field is expected to be a key factor contributing to the stabilisation of production.

Oil transit

As domestic oil production begins to fall, Azerbaijan is seeking to increase its role as a transit country for Kazakh oil. In March 2023, SOCAR announced the start of the transit of Kazakh oil through the Baku-Tbilisi-Ceyhan (BTC) pipeline that connects the oil fields in the Caspian Sea to oil ports in Turkey on the Mediterranean coast.

The first batch of Kazakh oil from its massive Tengiz field was delivered to Azerbaijan’s Sangachal terminal from the port of Aktau on the tanker President Heydar Aliyev on March 23. A few days before this, Kazakhstan had made its first test shipment of 6,900 tonnes of crude oil from the Kashagan field on the tanker Academician Khoshbakht Yusifzade to Baku. The next shipment of Kazakh oil from the port of Aktau took place on the tanker Shusha on March 27.

The transportation of Kazakh oil through the BTC and then by tanker to the rest of the world is part of an agreement between SOCAR and state-owned oil and gas company KazMunayGas, providing for the transit of 1.5mn tonnes per year (tpy) of oil. For these purposes, SOCAR upgraded the pipeline network at the Sangachal terminal in 2022.

In mid-March, Georgian media, citing the Minister of Economy of Georgia, Levan Davitashvili, reported that oil transportation through the Baku-Supsa pipeline, which ends on the Black Sea coast, could resume by the end of 2024.

"The position of the Azerbaijani side is very important for the use of the pipeline, and here we are engaged in intensive dialogue, as this pipeline has been operating under Azerbaijani oil since the spring of 1999. Now the transit of Kazakh oil, which is of a different type, is being discussed. I think that we will have clarity on the main issues, and we hope that the pumping of this oil (from Kazakhstan) will begin this year. In the future, we think we can handle over 1mn tpy of oil. I hope that oil transportation will begin this year," said Davitashvili.

The Baku-Supsa pipeline can carry up to 5mn tpy of oil. Since the spring of 1999, this pipeline has been used for transporting oil from Azerbaijan’s Chirag offshore field in the Caspian Sea, but in the spring of 2022, due to problems with oil shipments in the Black Sea – the number of tankers entering the Sea was reduced due to the military conflict between Russia and Ukraine – it was decided to redirect all Azerbaijani oil to the Baku-Tbilisi-Ceyhan pipeline which ends on the Mediterranean. Since then, the Baku-Supsa pipeline has been effectively idle.

Azerbaijan needs to increase the capacity of connecting pipelines at terminals and expand its tanker fleet. Relaunching Baku-Supsa pipeline requires these measures.

If Kazakhstan is to pump up to 5mn tpy of oil through Baku-Supsa and another 3mn tpy through BTC, to transit these 8mn tpy of fuel, it will be necessary to modernise the Kazakh terminal and the interconnector between it and the Azeri port of Sangachal so they can support these large volumes.

There is also the issue of the shallowness of the sea that requires dredging works on both sides of the Caspian. And agreements with pipeline owners, BP and shareholders of ACG, need to be signed as well as new transit tariffs set.