Expansion of the Southern Gas Corridor pipelines and future supplies to Europe
In July 2022, European Commission President Ursula Van der Layer and Energy Commissioner Kadri Simpson visited Baku to meet President Aliyev and signed a Memorandum of Understanding on the export of an extra 10 bcma of gas from Azerbaijan to Europe starting from 2027, thereby confirming Azerbaijan as “a crucial, reliable and trustworthy energy partner”. This paper has attempted to answer three major questions: does Azerbaijan have enough gas resources and the production potential to double its exports to Europe by 2027? Will it be technically and financially possible to deliver the gas by 2027? And what are the major challenges and uncertainties in the market? The conclusion of this paper is that the gas is available underground and it is technically possible to produce and deliver the gas to the market by 2027 if there are demand commitments in the market and if the potential European buyers are committed to finalise bookings of capacity in the TAP as early as this year (2023). This will determine the extent of the total demand from potential consumers, and thus how much the pipeline capacities will need to be expanded and how much natural gas will need to be produced. This will also determine the size of the investment. Only the market can give the consortia shareholders the guarantees required for an FID. The first TAP bidding auction for an incremental 1.25 bcma of capacity expansion was finalised in January, and all the offered capacity is now committed, so that it appears that, by the end of this year, all the auction commitments for 10 bcma will be in place. Our projection is that SDFFS, ACG NAG and Ümid may add about 9.5 bmca of incremental gas production for export by 2027. Absheron Phase 1 will reach plateau in 2029- 2030 and can potentially add about 4 bcma on top of the existing 1.5 bcma from the Absheron EPS from 2024 for domestic consumption.