TODAY.AZ / Politics

EU’s new energy outlook and Azerbaijan

01 June 2022 [14:10] - TODAY.AZ

By Azernews

By Orkhan Amashov

As the EU continues its desperate quest to wean itself off Russian energy sources in the least painful way possible, the intractable complexity involving alternative options is sullying the minds of Continental policymakers.

Present quest and tentative timeline

The present European energy security doctrine seems to place special emphasis on (i) diversifying supplies, (ii) reducing demand, and (iii) ramping up the production of so-called green energy. Since dashing into renewable energy at lightning speed is plausible only as a rhetorical device, not as a practical option, and reducing demand itself will take longer, the diversification of supplies of clean energy seems to be the most realistic measure of relative urgency.

Not all Western countries share the same predicament. In the case of the US, which does not import any Russian gas, and the UK, only 5% of whose gas supplies are provided by Russia, the difficulty stems from the high prices set by markets and does not entail security risks as such.

The EU, on the other hand, is a different story, as it has long been in the clutches of its current nemesis, with 40% of its gas supplies and 27% of oil imports coming from Russia. The aim is now to get rid of this dependency, boost pan-European energy security, thereby weakening the Russian economy and the Kremlin’s ability to fund the war in Ukraine.

The sixth package of sanctions agreed upon on 30 May is a testament to the EU’s continuous resolve, which is not yet sufficiently unflinching when it comes to the gas component. The latest sanctions will immediately impact 75% of Russian oil imports, and by the end of the year, 90% of Russian oil imported into Europe will be eliminated.

As to gas supplies, a more phased-out approach has so far been maintained. The stated aim is to decrease Russian imports by two-thirds by the end of 2022. It is only by 2030 that the EU may potentially completely wean itself off Russian gas.

Azerbaijani option

In the meantime, alternative options are the Holy Grail. Azerbaijan enters the equation in the context of European desire to diversify gas supplies. There is a growing realisation in the EU that investment in alternative pipelines is obligatory, albeit hitherto overlooked.

A similar point was made by Azerbaijani Economy Minister Mikayil Jabbarov at the World Economic Forum in Davos on 23 May. Confronted with a question on Baku's role in European energy security, he stated there was available gas, but large-scale investments were needed to extract and deliver this.

As Jabbarov propounded, it could be tentatively surmised that, due to its policy to switch from fossil fuels to renewable energy, the EU severely underestimated the importance of investing in alternative gas supplies in the interim.

The truth is, for some considerable time, Europe was not sufficiently conscious of the long-term consequences of its over-reliance on Russian gas. The concept was to carry in a similar fashion and decrease dependency incrementally in the long run.

Thus investing in alternative pipelines for gas supplies was not the top priority. Now, the situation has irrefutably changed and there is an emergency caused by the Ukrainian crisis, and this lies at the heart of Europe's sharpened interest in Azerbaijani sources.

Jabbarov, in a diplomatic tone, without being unduly candid, alluded to the aforementioned. He maintained that, back in 2012, when the Southern Gas Corridor (SGC) was within the development phase, it was Azerbaijan that bore the core part of the risk, investing heavily in exploration, pipelines, compression stations, valves, and more.

For Baku's energy exporting capabilities to be augmented, there has to be a new understanding of "risk sharing" and "risk management", and the strength of the international financial institutions must be utilised.

Presently, Baku exports to Europe via the SGC 10 bcm per annum, which some suggest could be more than doubled. For instance, the potential of the Umid gas field, the overall reserves of which are estimated between 300-600 bcm, has been subject to close inspection. It is expected that the annual gas supply from the field may be doubled to 3 bcm, having a significant impact on overall Azerbaijani exports.

Moscow declaration

In addition to the aforementioned challenges, there is another critical moment of relevance. Two days before the invasion of Ukraine, on 22 February, Russia and Azerbaijan signed a declaration, upgrading relations between the two nations to the level of an alliance.

One of the key provisions of that document is that Baku and Moscow will coordinate their energy policy and refrain from undertaking any economic activity that causes direct or indirect damage to the interests of the other party.

It has been a long-term policy of Azerbaijan to downplay its role in the energy security of the EU in the context of possible competition with Russia. Baku's "the volumes are not comparable" formulation has been a golden line resorted to during the course of the past few years. Now, there is a fresh ingredient incorporated into the renewed version of this dictum: when small volumes could make a difference, the parties will coordinate so as not to cause problems for each other.

David O'Byrne, writing for Eurasianet, believes that the declaration in question "poured cold water on European hopes". This most certainly may appear to be the case. Baku is very careful and, under no circumstances, wants to be at loggerheads with Russia, but it is an independent actor and seems to be ready to play its unique role. In this vein, the agreement on supplying Bulgaria with natural gas via the IGB interconnector for the next 25 years is a case in point.

Europe is now determined not to be doomed to eternal mediocrity. Its fundamental failure lies in the inability to extricate itself expeditiously from the Russia-dominated web of energy supplies. However belated Europe's present quest may appear, it has a palpable chance to succeed, and Azerbaijan is primed for the role of not a saviour, but a reliable partner and guarantor.

URL: http://www.today.az/news/politics/221024.html

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