The country’s strategic location and rich hydrocarbon reserves have long bolstered Europe’s energy security. However, Azerbaijan faces challenges akin to other oil producers, notably the dwindling reserves in its older oil fields.
In 2023, Azerbaijan’s oil and condensate output reached 30.2 million tonnes, exporting 25.2 million tonnes. Meanwhile, natural gas production stood at 48.3 billion cubic meters (bcm), with exports totaling 23.8 bcm. This shift marks a decrease in oil production but an increase in gas output, as reported by the Ministry of Energy.
Azerbaijan’s Gas Industry: Expanding Horizons
Azerbaijan’s commitment to its energy infrastructure continues to strengthen its position as a regional energy supplier. The country is set to start gas exports to Serbia, making it the eighth nation to import Azerbaijani gas.
President Ilham Aliyev, in a television interview, highlighted the importance of the Southern Gas Corridor in connecting various regions. He pointed out the critical role of this corridor in facilitating the construction of interconnectors, such as those between Greece-Bulgaria, Bulgaria-Serbia, and Romania-Hungary.
Despite global shifts towards renewable energy, Azerbaijan is actively expanding its gas supply network. The country transitioned from a gas importer to an exporter in 2007, initially supplying gas to Georgia, then Turkey, and eventually reaching markets in Greece, Italy, Bulgaria, and Romania. The future will see Hungary receiving Azerbaijani gas from 2024, with Serbia slated to import 400 million cubic meters annually, potentially increasing to 1 billion cubic meters from 2027. Discussions with Slovakia and Albania for future supplies are also underway.
To meet the rising demand, Azerbaijan plans to sustain its gas production, leveraging its ample reserves to supply European partners till 2050, aligning with the EU’s decarbonization goals.
The Shah Deniz gas field, one of the world’s largest, boasts an estimated 1.2 trillion cubic meters of gas and 240 million tonnes of condensate. Current production at the Absheron gas field is 1.5 bcm, with plans to boost this to 5 bcm annually. Furthermore, the upcoming Azeri-Chirag-Guneshli gas field, part of Azerbaijan’s Deep Gas project, promises to tap into new reserves, including Shafag, Asiman, Umid, Babek, Nakhchivan, and Karabakh fields.
President Aliyev acknowledged that despite the expansion in gas exports, Azerbaijan’s primary revenue source remains oil exports.
Upcoming Projects: Igdır-Nakhchivan Gas Pipeline
A notable project in the pipeline is the Turkey-Azerbaijan joint venture to construct the Igdır-Nakhchivan gas pipeline. This pipeline aims to bolster European gas supplies, especially in light of reduced Russian gas exports since 2022. The pipeline, crucial to the Southern Gas Corridor’s development, is expected to be completed this year, offering an alternative to Iranian gas routes for supplying Azerbaijan’s Nakhchivan exclave.
Oil Production: A Declining Trend
The Azeri-Chirag-Guneshli (ACG) oil field in the Caspian Sea is experiencing a natural decline in oil production. BP’s regional president, Gary Jones, suggests that slowing this decline is possible with further investments and new technologies. Despite this decline, Azerbaijan remains committed to its oil sector, with the Baku-Tbilisi-Ceyhan (BTC) pipeline playing a vital role in transporting crude oil and condensate. Ongoing negotiations aim to increase Kazakhstan oil supplies through Azerbaijan, considering quality differences between Azerbaijani and Kazakhstan oil.
From Globalization to Regionalization
Elshad Mamedov, an Azerbaijani economist, observes a global shift from long-distance pipeline transport to regionalized energy strategies. He anticipates Azerbaijan focusing more on regional economic development and integration, potentially moving away from large-scale pipeline projects.
Azerbaijan’s economic strategy is evolving, with a growing emphasis on exporting high-value-added products like electricity. This shift marks a significant transformation in the country’s approach to energy resource management and export.
