EU and Azerbaijan draft deal on extra gas supplies

The EU is preparing to sign a new gas importation deal with Azerbaijan in order to reduce its dependence on Russia following recent supply cut off to Europe.

On Monday, Russia announced that it would suspended deliveries to Europe via the Nord Stream 1 gas pipeline due to maintenance work, stoking European fears of extended supply shutdown in light of the ongoing Russian invasion of Ukraine.

The draft deal, which still requires approval from the governments involved, looks to increase imports of natural gas and support the expansion of a pipeline to achieve this. It’s part of a major European effort to reduce its dependence on Russian gas, following the war in Ukraine.

Strategic partnership

Labelled a ‘strategic partnership’, the EU-Azerbaijan deal envisages ‘shipment of Caspian natural gas to the European Union and, potentially, to Western Balkan countries … to increase diversification,’ the draft said.

It plans to implement a bilateral trade of natural gas, of at least 20 billion cubic metres [bcm] per year by 2027 in accordance with commercial viability and market demand.

The deal doesn’t mention Russia’s invasion of Ukraine or its subsequent gas cut off in retaliation against western sanctions imposed on Moscow.

The draft aims to encourage both the EU and Azerbaijan to finance the expansion of the networks across Europe to increase deliveries. This investment will carry low-carbon gas supplies to European nations and ensure they maintain their emission reduction targets.

Azerbaijan is hopeful of striking a ‘long-term, predictable and stable’ agreement to provide security to gas producers. It also said future gas contracts would need to align with the EU’s climate change targets.

Both sides should increase action to curb emissions of methane, a potent greenhouse gas, in their supply chains, including through incentives to collect gas that would otherwise leach into the atmosphere, it said.

The draft agreement said the EU and Azerbaijan would also examine the development of electricity interconnections throughout Europe, to promote renewable energy, and discuss future hydrogen trade.

Find out more

For more information, visit Northern Gas and Power‘s Daily Market Report here.

Below, our Head of Flexible Purchasing and Energy Strategy, Latif Faiyaz, breaks down the key drivers affecting market behaviour this year.

Latif provides analysis of UK, European and global factors and provides a forecast for the remainder of the year.

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