Baku, February 4, AZERTAC

The 8th Ministerial Meeting of the Southern Gas Corridor (SGC) Advisory Council has today been held at Gulustan Palace, Baku.

President of the Republic of Azerbaijan Ilham Aliyev attended the meeting.

The head of state made a speech at the meeting.

Speech of President Ilham Aliyev

-Good morning dear friends, dear Commissioner Simson, dear Commissioner Várhelyi,

Dear guests, ladies and gentlemen.

I would like to greet all of you in Azerbaijan and express gratitude to you for visiting us.

As you know, our last year’s meeting was held through video conferencing. However, despite some concerns about the coronavirus pandemic, I am very glad that you have decided to attend the meeting in person. At the same time, I regret to say that some meeting participants have been infected and they therefore unable to attend today. I wish them good health and a speedy recovery. I am sure that Azerbaijani doctors will do everything possible to return them to normal life as soon as possible.

As I mentioned, last year’s meeting was held in the format of a video conference. Today we restored the traditional format of our interaction and of course it creates better opportunities not only to address important issues which are in front of us but at the same time, to have bilateral and multilateral contacts. Every February, we traditionally review what has been done during the previous year, and plan our future steps. I would like to say that every Advisory Council meeting was marked with some achievements. Every year we report about some achievements and we are very happy. I think, we can congratulate ourselves that this time we can report about the success of the completion of the Southern Gas Corridor project. The last day of 2020, 31 December was the day, by the way, it’s a day of the solidarity of Azerbaijanis of the world and we are very glad that this very important day for Azerbaijanis we reported about the completion of the Southern Gas Corridor, its last part TAP project. And of course, I would like to also express gratitude to all the participants of the project, first of all to European Commission. The European Commission and Azerbaijan as co-organizers and coordinators of the efforts of all the countries and companies and financial institutions at the Advisory Council meeting and throughout the year, play very important role in the implementation of the project and the fact that two commissioners are present today, speak for itself. Also, I would like to express gratitude and to convey my gratitude to President Charles Michel, for his support with respect to the energy security projects in the region. At the same time, he is the person involved now in the process of normalization of relationship between Azerbaijan and Armenia. Also, I would like first to express gratitude to the governments of the countries, members of the Southern Gas Corridor-Turkiye, Georgia and Greece, Bulgaria, Albania, Italy really worked as one team, and the coordination on the national level helped us to implement this huge project, one of the largest projects of the 21st century Southern Gas Corridor which is worth 33 billion US dollars. At the same time, of course, we couldn’t have achieved success without active participation of the companies, energy companies, construction companies investors. They are present today and, of course, their contribution was very valuable as well as the international financial institutions. The Southern Gas Corridor project is probably also one of the few projects in the modern history where all the leading financial international institutions contributed to its implementation. World Bank, EBRD, Asian Development Bank, EIB, Asian infrastructure and Investment Bank, the leading international financial institutions, provided loans, funds, for this project to be implemented. So now, we can really be proud of ourselves that this complicated from all points of view, projects have been delivered with the high level of efficiency. And of course, we need to look to the future and I am sure that during today’s session participants will discuss traditional areas of cooperation, our future plans, because as we all know demand for additional source of gas is growing. At the same time, to address issues related to renewable sources of energy, and Azerbaijan actually is doing a lot with respect to its “green energy” policy. As I said, demand for gas from new sources is growing. Azerbaijan, after the completion of the Southern Gas Corridor managed to increase its export to international markets, including, European markets. Last year Azerbaijani export of natural gas was 19 billion cubic meters, 8.5 to Turkiye, almost 7 billion to Italy and the rest to other members of the team-Georgia, Greece, Bulgaria. I am sure that as soon as our member of our team Albania completes its gas distribution network. Albania also will be a recipient of Azerbaijani gas. And also, we can underline the fact that at today’s meeting we have more countries and companies present than last year. And we have new participants and they show that Azerbaijani gas is needed for new markets. And we are ready because Azerbaijan has always been a reliable supplier of energy resources to international market. We started our oil exports since 2006, already for many years and without any disruption, without any violation of the contract, without any political agenda behind our energy policy. Our energy policy always was very open, transparent, business-and-result- oriented, and led to cooperation and mutual support. Now when I was looking at some of the latest data about the share of Azerbaijani gas on the markets of the countries, the recipients we see that some of them get about 80 percent in their gas consumption, some of them 15-20 percent and the number is growing, because we are planning to increase the production. This year definitely we will export more than last year. Of course, there is a huge potential, especially now, when the situation on the gas market is not very stable and also, the crisis are very volatile. I think we need a joint plan in our future in coordination and good spirit. How we can achieve new results? The proven gas reserves of Azerbaijan are known. It’s 2.6 trillion cubic meters, for the biggest is Shah Deniz - 1 trillion. I am sure there will be more. Because to look at our experience, with respect to oil and gas development, we always see bigger reserves and it was anticipated in the beginning of our journey due to new discoveries, and also due to new technologies. Because today, technology in this area is rapidly developing. Therefore, I am sure the proven reserves of Azerbaijani gas will be even more. Shah Deniz as I said, already is the main gas field in Azerbaijan and so far, the only contributor to the Southern Gas Corridor but other projects are also in the process. One of the biggest gas condensate field of Absheron hopefully will start production very soon, maybe less than in one year.

And it will increase and it will be done in stages. “Absheron” stage 1 will produce 1.5 billion cubic meters, not a big amount, but I think it’s substantial for some countries. And that can also satisfy our own growing demands and also provide export opportunities. Another big field, which we hope that will also produce good results is “Babak” with estimated reserves of 400 billion cubic meters. “Umid” at least 200 billion cubic meters. And of course, we have big expectations from one of the oldest oil and gas fields, Azeri-Chirag-Gunashli. Its deep gas section, which I hope will soon be also in operation and it’s also hundreds of billions of cubic meters of gas, and can be extracted I think within a short period of time. So, this is today our potential and having diversified gas transportation network connecting us to four countries, to four our neighbors. Of course, after completion of the main export with Southern Gas Corridor, I think our plans will be implemented. But of course, we need to continue this team work. Southern Gas corridor project is over, but our job continues. I am sure that in a good spirit we will achieve new results. I would like to say that our domestic demands are also growing, first of all, due to the growing population. Azerbaijan’s demographic situation is very positive. At the same time, growing industry. Last year we had a record figure of growth in non-energy based industry. That sector of our industry grew almost 20 percent, and of course, we will need more gas for our own demands. And also, we will need hopefully very soon additional volumes of gas to gasify the area which has been liberated during the Patriotic war of 2020. The huge area is totally destroyed, is in total devastation. All infrastructure is destroyed, it is the area of more than ten thousand square kilometers. So, you can imagine what a challenge is in front of us. And of course, we are planning to return our former refugees. We will be starting from this year. Therefore, we will need an additional gas for our own consumption. Here we come to a very important point of our concentration on renewable sources of energy. Azerbaijan by the way, is one of the few countries of the world which exports crude oil, natural gas, petro-chemicals, oil products and electric energy. And electric energy potential of Azerbaijan, was mainly oriented for domestic consumption. We largely invested in electric infrastructure, and I can say that, based on Davos World Economic Forum assessment, the accessibility to energy in Azerbaijan is with this rating we are number two in the world. So, we invested big amount of money and actually modernized almost completely our electric energy lines and created new power stations. For instance, very soon we will inaugurate a new power station in Gobu district of Baku with the capacity of almost 400 megawatts. And last month in this hall, we celebrated a groundbreaking ceremony of the first renewable source of energy project, the wind power station for 240 megawatts which will be completely financed by a foreign investor, company well-known in energy market ACWA-Power company from Saudi Arabia. Also, I would like to say that our electric energy is needed for the regional markets and probably, we can go now even further, now to Europe, because today we export electric energy to four neighboring countries - Turkiye, Russia, Georgia and Iran. The capacity is growing. So, the more renewable sources of energy we have in Azerbaijan, the more we will save gas for export. For instance, the power station, which I did mention, wind power station will save us about 200 or 300 billion cubic meters of gas, which is a good amount and can make a serious change for those countries which do not have big consumption. So, our “green energy” strategy is now in the final stage of not only assessment, but also planning. We have a special program for liberated territories. Our minister of energy together with leading companies, international companies already prepared a conceptual outlook for “green energy” zone in Karabakh and Eastern Zangazur. We already made the international assessment of the potential of renewable sources in Karabakh and Eastern Zangazur and preliminary figures are very promising. It’s about 7,200 megawatt potential in wind energy, and more than 2,000 megawatt potential in solar energy. By the way, I also would like to inform you that our strategic partner in oil and gas - BP shows big interest in working on the liberated territories, particularly, in the district of Jabrayil. We are already in the phase of negotiations with BP on the construction of the renewable source of energy there- more than 200 megawatts. I would also like to say that our minister of energy now is in the phase of active negotiations with the leading international energy companies with respect to investment and we are very enthusiastic about that. I think that can be not only part of our internal strategy of green energy development in Azerbaijan, that can create an additional source of export reviews and also will be helpful in both countries which import sources of energy. Also, we have a special program of assessment of the Caspian Sea and initial figures show the technical potential. I’d like to underline the technical potential of the Caspian Sea is more than 150,000 megawatts We have already got certain initial proposals from leading international energy companies with respect to development of this potential. I think it will be very natural, because, first, Azerbaijan already for many years proved itself as a reliable source of energy. As I said, we export all kinds of energy resources. We have diversified electric lines within the country and connecting us with all our neighbors. We have export markets just next door, and growing export markets. For instance, countries like Turkiye with growing economy, with growing population, I think it’s a major market for us. Also is Iran with the same growing population. I know about some plans with respect to building some electric lines under the Black Sea, connecting central Europe with our region and Azerbaijan as a supplier of electric energy with Georgia also can be a part of that. So, really we have a big potential here. We are working very actively. We are doing our homework. At the same time, I am glad that it was agreed between the European Commission and our Ministry of Energy to have a special session devoted to that. Really it is worth praising. In other words, the Southern Gas Corridor is done, but our work continues. We need to continue to work as one team. I once again express satisfaction that we have more participants this time. Issues related to energy security, and energy diversification do not need to be proven as important. We all understand it. Of course, the country like Azerbaijan with huge resources of oil and gas and renewable potential, we understand our responsibility. And I can tell you that we will act in a responsible way in the future, in order to create better opportunities. Also I would like to say that energy policy which we have goes even beyond the issues of energy diversification and energy security, because it creates new links between the countries. And it helps development of relationship and it helps to increase the level of mutual trust between all the countries involved in this process. So there are so many multiple positive results after what we have been doing. Again, when we started this journey it was not very clear how it will go. We entered the new format of cooperation with countries which some of them we never had this format of cooperation with. But it was success, because we were sincere, open and honest and we had the same goal. So, the goal is here, the projects can be different but the spirit of cooperation I am sure we will help us to achieve all what we planned. And once again, thank you for being with us, and wish the Advisory Council meeting success. Thank you.

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Speech of European Commissioner for Energy Kadri Simson

Dear President Aliyev,

Dear Minister Shahbazov,

Excellencies,

Ladies and gentlemen,

I’m very pleased to be opening today’s Advisory Council meeting with you.

I want to begin by saying thank you.

Firstly, to President Aliyev and Minister Shahbazov directly for hosting today’s meeting. This is the second time I’ve had the honour to participate, the first time in person.

I’m looking around this room seeing so many ministers and representatives from the Western Balkans at the Advisory Council today. Your presence here is proof enough of just how important the Southern Gas Corridor is for the European Union and for this region.

Second, I want to thank Azerbaijan for the efforts in ramping up the gas supplies travelling to the EU via the Southern Gas Corridor. This is a delicate moment in terms of the security of our gas supply, and Azerbaijan has stepped up and supported. Azerbaijan is a reliable and trusted partner for the EU.

Now onto our discussions today.

Our agenda today reflects well the challenges and opportunities ahead of us. Some of them concern the functioning of the Southern Gas Corridor. We will discuss them in session one.

Others concern the long term vision for our energy systems. This will be tackled in the second session.

Let me share some thoughts on each.

First, today’s meeting should serve us to look back at the way the Southern Gas Corridor has worked, after one year of full scale operation. The corridor is a great engineering and policy achievement. We should not fail to acknowledge this every time we meet. It crosses six countries and stretches over 3 500 km, it is a lasting proof of what cooperation among partners can produce. Since last December, the Trans-Adriatic Pipeline can deliver almost 10bcm of gas to the European market.

We all remember the difficulties and hurdles this project had to overcome. But today, even most of those who were sceptical are grateful that it is there.

Reliable, competitive, affordable gas is making its way to South Eastern Europe. Homes are supplied, buildings are heated and citizens receive the energy they need. And with rising energy prices and tightened gas supplies, the Corridor’s role is strategically important for the EU, now more than ever.

In our view, the Southern Gas Corridor is a continuing success story. And of course, as for all success stories, this brings the question of its next stage, and whether the corridor can be expanded in its capacity or even extended geographically.

Our Ministerial meeting has begun addressing these issues last year.

Since our meeting last year, the broader conversation around gas and the policy context around the Corridor have evolved.

The European Union has clarified its position on the role of gas in the transition, and its regulatory and infrastructure implications.

We have adopted last December a Hydrogen and Decarbonised Gas Markets package, setting out a framework to drive the gas sector towards a decarbonised future, and unlock new opportunities, in hydrogen or biogas. But that package also aims at making today’s gas market work better: a more resilient and consumer-friendly market. We have also adopted an important and balanced set of rules on reducing methane emissions from the energy sector.

Just two days ago, the Commission adopted a complementary delegated act on taxonomy, which identifies the activities in the gas sector which contribute to mitigate the climate change. This will help the private sector direct their investment into assets and projects Europe needs for a clean energy transition which is gradual and fair for every Member State.

We now also have a new Trans-European Networks in Energy where we prioritise public financing within the EU, for hydrogen networks or repurposing natural gas pipelines for hydrogen use by a target date. However, in the EU’s neighbourhood, we are open to invest into gas infrastructure under the Economic and Investment Plan.

Our regulatory and infrastructure framework recognises the role of gas for many years to come, while promoting gradual switch over to hydrogen and low carbon gases. We assess that until 2030, gas will represent up to 22% of Europe’s energy mix.

In the current context of rising energy prices, and geopolitical tensions, there is also in Europe a growing awareness of the importance that diversification in natural gas supplies has, through LNG but also pipeline supplies.

As we recognize the role of gas in our own trajectory to net zero, we also recognize it for our neighbours, notably in the neighbourhood and the Western Balkans.

There is a clear priority for the region to move away from coal and towards a decarbonised system. Many of the coal-fired power plants are old and no longer comply with standards. It’s a threat to the environment and citizens alike.

We are working through the Energy Community to support the decarbonisation plans of the countries in the region, and to exploit all their potential for renewables energy.

But each country is unique. And so is each country’s energy system. That means that each country has its own path to take, which may include the use of gas to replace more polluting energy sources.

The Western Balkan countries, I salute their representatives here, are still working on their own assessment of the future gas needs and the exact paths they want to take for the energy transition. Their choices in the coming months will determine the scope for the new projects in the region.

But let me say that we will support the region in whatever those choices may be. We will cooperate with them to design credible and coherent strategies towards greener and more sustainable energy systems, in line with our Investment Plan for the region.

Therefore, as the policy and regulatory context around the Southern Gas Corridor becomes clearer, the market takes centre stage.

In this context, the market test being carried out by the TAP consortium is an important step. The results will be known by July 2022 and will provide clear signals in relation to the demand for possible additional gas deliveries to the EU or to neighbouring markets. This is something we will be following with interest in the Commission.

All these elements set the scene for our discussion today, and I believe our exchange today will help us understand better the prospects for the Southern Gas Corridor, on both the supply and demand side.

Let me now briefly turn to the second session today on the energy transition.

This session underscores an important point: the clean energy transition can unlock tangible opportunities and new revenue sources also for those systems that are currently relying mainly on fossil fuel.

I expect quite a few topics to come up, but all guided by a single question: How to achieve climate neutrality while ensuring stable energy supplies?

I want to highlight the importance that methane emission reduction has in this transition debate. Methane is a potent and dangerous climate agent. The damage it does to the environment can be quickly and cost effectively reduced. That’s why in the EU we are putting a significant emphasis on this topic and investing into innovative technologies that could reduce the CO2 impact at limited costs.

As for renewables, they are the cornerstone of Europe’s of long-term vision. Not only they will help us to decarbonise, but greater renewables also means greater energy security and energy independence.

Our knowledge, experience and ambition in this area is something we want to share with other regions. Starting from Azerbaijan. I learned with interest, dear President, about the ongoing assessment of the offshore potential in the Caspian Sea. And given that Baku is known as the City of Winds, it’s clear there is huge opportunity for Azerbaijan.

Europe is also committed to develop in this decade a fully fledged hydrogen market and a strong hydrogen industrial sector. Europe will be a large hydrogen market, open to imports from third countries. So, renewables and hydrogen, these are just two areas where opportunities for regional strategic cooperation are at their highest.

I mention these topics to say that even when we look to a carbon-free future, there are many reasons for a long term strategic cooperation on energy with Azerbaijan and through the Southern Corridor. Therefore it is very appropriate that today we exchange on how our cooperation can shape up in the short but also in the long time period. And in the future, our Advisory Council can become a useful platform for exchanging on our common clean energy challenges.

Ladies and gentlemen, ministers, Mr. President, I will end my remarks here. I hope I have provided some ideas to frame our exchange and hopefully make for an engaged discussion today.

I look forward to getting started. Thank you.

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The meeting continued with panel sessions.