Stay informed with free updates
Simply sign up to the EU energy myFT Digest — delivered directly to your inbox.
Azerbaijan has accused the EU of treating the country as a “firefighter” by only committing to short-term gas deals despite asking the country to boost exports of the fuel to the bloc.
Baku needed the certainty of long-term contracts in order to raise the finance required to increase gas production in the Caspian Sea and meet the additional EU demand, Vaqif Sadiqov, Azerbaijan’s ambassador to the EU, told the Financial Times.
“We cannot be a firefighter just sending gas for three to six months,” Sadiqov said. “We need the contracts so that we can go to banks for financing for drilling deep into the Caspian Sea.”
In 2022 Brussels and Baku struck a deal to increase Azerbaijan’s annual gas exports to the EU to 20bn cubic metres by 2027, compared with 11.8 bcm last year, as the bloc tried to wean itself off Russian gas after its invasion of Ukraine.
Despite “deep discussions” with the European Commission about how to meet the target, Sadiqov said EU operators were reluctant to sign long contracts because of the bloc’s ambition to curb its consumption of fossil fuels and reach net zero greenhouse gas emissions by 2050.
EU officials have said it is up to companies rather than national governments to make the commercial agreements.
Finding new sources of natural gas has become critical for the EU since Russia, previously the bloc’s largest supplier, began to incrementally shut off gas flows in retaliation for the EU’s support for Ukraine.
But the bloc has also committed to ambitious climate goals. In a recommendation presented in February for the EU to cut greenhouse gas emissions by 90 per cent by 2040, Brussels said fossil fuel consumption in 2040 should be 80 per cent less than in 2021, of which only 40 per cent would be gas. Gas is made up mainly of methane, a potent warming molecule which holds more heat than carbon dioxide but is shorter-lived.
Azerbaijan, which relies heavily on oil and gas revenues, is due to host the UN’s annual COP climate summit in November this year. Some diplomats and negotiators have privately expressed concern that the country was reluctant to address the question of how to shift away from fossil fuels.
Matthew Bryza, managing director at US consultancy Straife and a former US ambassador to Azerbaijan, said that to reach the EU’s 2027 target for Azeri gas imports, it was imperative to finance upstream production because Azerbaijan would not otherwise have sufficient extra gas production to meet the goal.
“To finance that, there needs to be surety that there are [customers] in Europe into the future, and there is a hesitancy on the EU side to support any long-term gas sales and purchase agreements,” he said.
Between January and June, Azerbaijan exported 6.4 bcm of gas to EU countries, about a quarter of its total production, according to Azeri government figures. Over the past three years Azerbaijan has increased its gas flows to the EU by 12 per cent.
At a summit of European leaders last week, Azerbaijan’s President Ilham Aliyev said exports to the EU would hit 13 bcm this year. He has previously called the country’s fossil fuel reserves “a gift from the gods”.
To meet the 2027 goal, pipelines in the Southern Gas Corridor (SGC) between Azerbaijan and Europe would also need to be expanded.
Brussels is unable to finance the project because of changes to its rules in 2021 that prevent the EU budget being spent on fossil fuel infrastructure. The European Investment Bank has similar restrictions.
“We offer a market that is very interesting to Azerbaijan but we cannot finance it,” an EU official said.
Sergiy Makogun, former chief executive of Ukraine’s state-owned gas transmission network, said the Caspian region could provide large volumes of gas to Europe. If the EU helped facilitate investment, he said, it would “significantly increase flexibility” of gas supplies for the EU.
He added that the shareholders in Tanap, a pipeline through Turkey that forms part of the SGC, “do not want to invest to expand capacity because they fear no one will use it”.
The Southern Gas Corridor company is working on an investment plan with potential backing from the European Bank for Reconstruction and Development. But the EBRD has said that to finance the project, it must align with the aims of the 2015 Paris climate accord.
Azerbaijan’s state-owned energy company Socar said it was involved in “multiple discussions” with Brussels and EU countries to increase gas supplies from 2025.
The European Commission declined to comment.
Climate Capital
Where climate change meets business, markets and politics. Explore the FT’s coverage here.
Are you curious about the FT’s environmental sustainability commitments? Find out more about our science-based targets here