Today Azerbaijan guarantees a limited, but precious gas alternative for Italy, Pier Paolo Raimondi, Research Fellow of the Energy, Climate and Resources Program at The Istituto Affari Internazionali, Italian international relations think tank, told Trend.
According to the expert, thanks to the Southern Gas Corridor (SGC) Azerbaijan, has become a significant gas supplier to Europe, especially to Italy and Southeastern Europe. Azerbaijan plays an important role for Italy as it supplies around 8 billion cubic meters of gas to Italy through the Trans-Adriatic Pipelines (TAP), a European section of the SGC.
“This was the latest import infrastructure built in Italy, commenced in 2020 after years of social opposition. Today, the infrastructure holds a strategic value. Potentially, TAP’s capacity could be expanded,” Raimondi said.
The significance of the SGC could certainly be increased as governments seek to phase out Russian gas imports. Nonetheless, the amount of Russia’s gas that the EU needs to replace is significant thus no single country could replace it entirely. However, Azerbaijan fits well in the diversification strategy, as it could be one of the alternative sources for some gas volumes, the expert noted.
The potential expansion of the SGC needs to take into account both supply and demand considerations. The role of Azerbaijan in the potential expansion of the SGC is crucial as it feeds the pipeline, he said.
“Currently, the capacity is 10 billion cubic meters, meaning it has a limited, yet still important, value. Azerbaijan could benefit from the latest energy and political developments by securing further demand for its gas. This will require an expansion of capacity and investments in the upstream,” Raimondi noted.
As the researcher thinks, Azerbaijan should develop additional resources. Meanwhile, future gas demand in Europe will be another key component for the successful expansion of the project. Nevertheless, climate policies and high gas prices are expected to influence European gas demand, which should also be taken into consideration.
He also noted that the memorandum of understanding on gas supply increase recently signed between Azerbaijan and the EU is a good sign for enhancing energy cooperation. Here again, the issue of demand and supply constraints needs to be taken into account.
On July 18, 2022, a “Memorandum of Understanding on Strategic Partnership in the field of energy between the European Union represented by the European Commission and the Republic of Azerbaijan" was signed between Azerbaijan and the European Union.
The Sides agreed to support bilateral trade of natural gas, including through exports to the European Union, via the Southern Gas Corridor, of at least 20 billion cubic meters of gas annually by 2027, in accordance with commercial viability and market demand.
According to the document, any further exports of natural gas to the European Union beyond those that are being delivered to date will require significant investments in the expansion of the Southern Gas Corridor pipeline network and the upstream project development.
Moreover, the EU and Azerbaijan will encourage financing of the expansion of the Southern Gas Corridor pipeline network taking into consideration the EU’s climate policies and its REPowerEU strategy, including through cooperation with international financial institutions.