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Viktor Fedorovych Yanukovych

Viktor Fedorovych YanukovychYanukovych

ECONOMY
2013-07-25
Europe's energy hub
 

About twelve years after the disintegration of the Soviet Union, Azerbaijan is one of Europe's most important energy partners. The Eurovision Song Contest helped propel the state into the public spotlight. Its importance and presence on European energy markets continue to grow. A background article by Magdalena Stawiana

Today's Azerbaijan is not comparable to the one which became independent in 1991. The regional economic power recorded double-digit GDP growth in recent years. Thanks to earnings from oil and gas resources, Azerbaijan held the world wide growth record in 2006 with a growth of 34.5 percent. After that, the growth rate fluctuated between five and ten percent.

Europe's growing energy needs, as well as the growing dependence on Russian gas imports and the insecurity of deliveries from the Middle East, force Brussels to look for new energy providers. Since its independence, Azerbaijan’s role as one of these new energy providers has been increased significantly. Due to its large energy reserves and its geostrategic position, the country is a very important partner for the European Union in terms of existing and future diversification projects from Central Asia and the Caspian Basin. EU Commissars visiting Baku, and high-level Azerbaijani politicians visiting Brussels confirm that both sides are interested in a deepening of relations.

Azerbaijan from a strategic perspective

The oil and gas reserves in the Caspian Sea are among the largest in the world. The oil fountain on the Absheron peninsula dating back to 1594 makes Azerbaijan one of the oldest places for oil production. In the beginning of the 20th century, Baku was responsible for almost 50 percent of the global oil production, and 95 percent of Russia's oil production.

Today, it is one of the most important providers of energy resources globally. It is estimated that it will be able to maintain this position in the near future. Verified Azerbaijani oil reserves lie between 1.2 and 2.4 billion tons, with about 5.2 billion tons remaining unexplored. In the case of the country's gas reserves, 1.5 trillion m³ are confirmed, while two to 2.5 trillion m³ are yet to be explored. Estimates assume that up to 90 percent of the large gas reserves and more than 70 percent of oil reserves are situated offshore. Only about one fifth of the Azerbaijani shelf has been explored to date.

The reserves in Azerbaijan's biggest gas field, Shah Deniz, are estimated to be about one trillion m³. The second biggest reserve, the Umid field, which was discovered in 2010, is assumed to be about 200 billion m³, according to the Azerbaijani department for economics. At the current market price, the total value of the gas reserves lies at about 30 to 40 billion US dollars.

Due to its strategic position between Western Europe and the Middle East, Azerbaijan is the most important hub for transportation of energy resources in the region. The exploration of additional oil and gas reserves in the Caspian Sea region is the basis for further economic cooperation with the EU, the USA, the Middle East, China and Japan. Azerbaijan forms a corridor to the resource-rich states of Central Asia, like Kazakhstan, Uzbekistan, Kyrgyzstan, Tajikistan and Turkmenistan. The country has the potential to expand existing infrastructure as well as for building new Trans-Caspian pipelines. Additionally, the new transportation routes could deliver gas from Central Asian countries through Azerbaijan and on to Europe, skirting Russia. This makes the region particularly important for European diversification projects.

European energy partners

Over last two decades, Azerbaijan managed to establish itself as a reliable supplier of oil and gas. The many agreements and common declarations on a closer cooperation between the EU and Azerbaijan are another proof thereof. The development of the huge offshore oilfield Azeri-Chirag-Gunashli, the construction of the Baku-Tbilisi-Ceyhan oil pipeline as well as the Baku-Tbilisi-Erzurum gas pipeline made Azerbaijan one of the European Union's strategic energy partners. These pipelines enable the delivery of resources from Azerbaijan to Turkey without being dependent on the Russian system of transportation.

The agreement on the construction of a Trans-Anatolian Pipeline (TANAP), signed in June 2012 by Turkey and Azerbaijan, intends to deliver even more gas from Azerbaijan through Turkey to the Bulgarian border. The construction is supposed to begin in 2013. The pipeline is intended to begin transporting 16 billion m³ gas in 2018.

The planned delivery of gas to Europe from the 2007 discovered Azerbaijani gas field Shah Deniz II would play a major role in the plans for European energy provisions. Starting in 2019, the Trans-Adriatic Pipeline (TAP) is slated to transport about 10 billion m³ of Azerbaijani gas through Greece and Albania to Italy.

The EU welcomes all projects that help to deliver valuable resources from the Caspian region to Europe. Despite the defeat of the Brussels-favored Nabucco project, the European Union perceives the current development on the international gas market as positive for its own future. "We have advocated for receiving gas straight from Azerbaijan for more than six years now. This will be realized with TAP" - commented EU energy commissioner Günther Oettinger on the decision of the Shah Deniz II consortium to build the Trans-Adriatic Pipeline.

The Nabucco project will end in Austria. In contrast, the TAP will transport Azerbaijani gas to Italy. The combination of TAP and TANAP projects resembles largely the old Nabucco Pipeline concept. "At the end of the process, we will have both pipelines: First TAP and then later Nabucco West. TAP is the gateway to further gas fields in the region" - added Oettinger. This is supposed to help the EU come closer to its goal of diversifying transportation routes and diminishing the dependence on Russia.

Gazprom keeps on building

As a response to the EU's efforts of finding alternative energy routes, the Russian energy corporation Gazprom began with the construction of the South Stream Pipeline in December 2012. The first gas delivery is supposed to be in 2014 already. The 20 380 kilometers long pipeline is supposed to deliver gas from Southern Russia over the Black Sea, Bulgaria, Serbia, Hungary and Slovenia to the EU. Russia wants to use this project to expand its position on the European market.