A pipeline bringing one billion cubic meters (BCM) a year of natural gas from Azerbaijan to Bulgaria formally opened July 8 with a ceremony in Greece.  The pipeline’s completion comes when international politics — specifically Russia’s invasion of Ukraine — is upending global energy security and the world economy more than at any time since the fall of the Shah and Iran’s Islamic Revolution in 1979.

Ten days later, on July 18, EU Energy Commissioner Kadri Simson and Azerbaijan’s Energy Minister Parviz Shahbazov signed a new Memorandum of Understanding on a Strategic Partnership in the Field of Energy.  That agreement provides for needed additional natural gas as the EU works both to cut its imports from Russia and to advance EU members’ long-term energy security.  Just as important, the MOU includes cooperation to make Azerbaijan’s hydrocarbon production more carbon neutral.  Its provisions also cover increasing renewable energy production in Azerbaijan, cooperating on Azerbaijan’s plans to expand exports of electricity, and developing the potential for producing hydrogen in the Caspian and shipping it to the EU for electricity generation and other energy uses.  As EU Commission President Ursula von der Leyen said in Baku, “You are indeed a crucial energy partner for us and you have always been reliable.  You were a crucial partner not only for our security of supply, but also in our efforts to become climate neutral.” 

The two events illustrate the role the Caspian region can play in meeting today’s energy needs and in a changed, future energy security picture. 

Another Pipeline in Place 

 The Greece Bulgaria Interconnector (GBI) is a 180 km-long pipeline built at a cost of around $226 million linking into the TransAdriatric Pipeline (TAP).  The GBI is an extension of the Southern Gas Corridor project that connects Azerbaijan with Italy via Georgia, Turkey, Greece, and Albania, and brings natural gas from the recently developed giant Shah Deniz gas field off Azerbaijan’s Caspian Sea coast.  Built per a contract Bulgaria signed in 2013, the GBI greatly boosts Bulgaria’s and Europe’s energy security.  Gazprom recently cut off EU member Bulgaria’s natural gas supplies because Sofia refused Moscow’s demand that Bulgaria pay for natural gas in rubles and contravene EU sanctions imposed because of Russia’s aggression.  These latest Russian moves followed Gazprom hiking the price of natural gas in 2021 that it was selling Bulgaria to exert political pressure, despite decades of warm Bulgarian/Russian relations. 

The GBI’s opening also highlights continued strong interest in obtaining energy from the Caspian region.  This interest is part of today’s global push to find readily available supplies to meet the energy realities.  One of those realities is the rise in demand as the world economy recovers from the COVID pandemic.  Other factors include production shortfalls in Libya and other important oil and natural gas-producing countries along with the drop in oil and gas investments and capacity expenditures over the past few years.  On top of all these comes the international push to slash the Russian oil and gas export sales that serve to support its on-going aggression in Ukraine.  

Looking at Traditional Caspian Producers 

In the Caspian region, attention has focused on three particular countries.  

Kazakhstan, which was exporting as much as 1.5  million barrels/day (mmbd), has been unable to send its oil west to global markets because of Russian actions closing the CPC (Caspian Pipeline Consortium) pipeline.  The consortium includes ExxonMobil and Chevron, firms that also have substantial investments in Kazakhstan’s oil production.  Oil and Gas Journal has reported that as of January 2019, Kazakhstan’s oil reserves stood at 30 billion barrels, putting it behind Russia as the second highest in Eurasia and just below the United States to rank as 12th largest in the world.  The CPC pipeline connects Kazakhstan’s oil fields with the Black Sea via Russia and normally carries about 1% of the world’s crude oil supply.  Russian actions have halted Kazakhstan’s oil exports via the pipeline twice so far this year.  Kazakhstan’s government has been looking for alternative export routes, including via ship to Azerbaijan and then onward via rail or pipeline to global markets.

Other governments and energy companies besides Kazakhstan’s have visited Baku since February seeking increased oil and natural gas from Azerbaijan.  Ukraine, Moldova, Bulgaria, Hungary, Italy, and Romania are among them.  Days after Russia launched its latest aggression against Ukraine, Azerbaijan’s state-owned oil company, SOCAR, took steps including making fuel available free to Ukrainian emergency vehicles at its filling stations in that country.  Critical, too, is the pipeline capacity Azerbaijan built with U.S. and European support since regaining independence to move substantial amounts of oil and natural gas to European and other markets without crossing Iranian or Russian territory. 

Azerbaijan’s President Ilham Aliyev was quoted saying Azerbaijan’s annual gas exports could rise to 24 BCM, but that would require quickly reaching contracts for additional amounts.  Azerbaijan’s Energy Minister Shahbazov said June 2 that Azerbaijan’s gas exports would reach 10 BCM by the end of the year.  However geology, domestic demand, and the realities of production and pipeline capacities limit how much more oil and natural gas Azerbaijan can provide now.

Turkmenistan, according the BP Statistical Review of World Energy 2020, has 600 million barrels of proven oil reserves and 19.5 trillion cubic meters in proven reserves of natural gas.  That same report notes Turkmenistan produced 63.2 BCM of natural gas in 2019, of which Turkmenistan consumed 31.5 BCM at home and exported 31.6 BCM to China; that year’s oil production was 264,000 barrels/day.  Perhaps more important is Turkmenistan’s potential for increased natural gas exports; its gas reserves are the world’s fourth largest.  Moreover, there are steps that could be taken quickly and at comparatively little cost, e.g., connecting Turkmenistan’s off-shore fields in the Caspian with Azerbaijan’s and shipping as much as 12 BCM to world markets.  However, building even such a connector, let alone developing and exporting the major reserves farther east in the country, have been foci of years of unsuccessful diplomatic and commercial discussions.

While quick fixes to global energy needs might not be forthcoming, the Caspian region can play a greater role in the medium- and longer terms.  July’s MOU between Azerbaijan and the EU might provide a model others can follow for increasing needed hydrocarbon supplies now while building for the more sustainable energy security paradigm the world needs.  It looks at capturing what can be produced today by maximizing use of existent infrastructure, steps to increase hydrocarbon exports in the medium-term, and at cooperating across a broad front over the next decade to build a greener as well as more secure energy picture.

Addressing the Broader Energy Security Realities

The EU took an important step in July to recognize natural gas as a cleaner alternative fuel.  While not carbon free, natural gas burns cleaner with today’s technologies than other fossil fuels, notably coal and bunker oil, including for generating electricity.  Critically, however, while the world makes needed moves to renewables, the shift is not happening fast enough to meet growing world energy needs.

Globally, there are more than 770 million people without access to electricity, according to the International Energy Agency, and that number is growing, thereby putting the world well short of meeting one of its Sustainable Development Goals.  Moreover, there are over 3 billion people without a safe way to cook their food, something that causes life-threatening health problems, especially for women.  Looking ahead to 2050 and expectations that there will be an additional 2.2 billion people in the world and to 2100 when, according to the UN, the global population will stabilize at 11.2 billion, a continued need for some level of hydrocarbons seems likely, including as chemical feedstocks if not primarily as an energy source. 

The July MOU looks to increase Azerbaijani gas exports to the EU to at least at least 20 billion cubic meters annually by 2027. This will contribute to the diversification objectives in the REPowerEU Plan and help Europe end its dependence on Russian gas.  Based on their strengthened energy cooperation, Azerbaijan is already now increasing deliveries of natural gas to the EU, from 8.1 billion cubic meters in 2021 to an expected 12 BCM in 2022.  

So while governments and energy companies must look to tap further the readily available hydrocarbons to meet pressing global energy-security needs, they must focus, too, on the region’s ability to contribute to a greener, more sustainable global energy future.  Wind and solar energy potential in the region is immense, especially in Kazakhstan and Azerbaijan.  President Aliyev is quoted telling energy conference participants that Azerbaijan could produce 157 gigawatts of offshore wind energy.  Kazakhstan could produce 3.1 trillion KWh of electricity just by capturing 50 percent of the country’s winds blowing at average speeds.  Kazakhstan furthermore has the potential to produce 32.93 trillion KWh of solar power.  

This solar and wind potential could also produce hydrogen which can be shipped to global markets in addition to meeting domestic and regional energy needs.  Western governments and companies are looking today at developing green and blue hydrogen in the Caspian region and moving hydrogen west, e.g., though the Southern Gas Corridor system, where it could be used for power generation and such currently carbon-heavy industrial activities as cement and steel production. 

Tapping the Caspian region’s substantial energy potential can only happen if the projects make commercial sense and if private-sector entities as well as the region’s state-owned energy enterprises can see the necessary return and obtain financing for the needed development.  However, the U.S. and other governments should recall the critical roles they played in the 1990’s and onward in realizing projects such as the Southern Gas Corridor and the Baku-Tbilisi-Ceyhan oil pipeline that today make needed contributions to European and global energy security.

The bottom line, then, is that the Caspian region can continue to play a significant role in meeting the world’s immediate needs for energy and diversification of supply.  It can also do more, as the new EU-Azerbaijan energy agreement clearly shows.  Outside governments and companies should be looking beyond immediate needs and act on the region’s potential to help meet future global energy demands.  As pressing as today’s energy needs are, future needs seem greater.