Baku, June 21, AZERTAC

AZERTAC presents an interview with John Roberts, Senior Fellow at the Global Energy Center of the Atlantic Council in Washington, a member of the Advisory Board of the UNECE Project on Sustainable Energy, and a member of the UNECE Group of Experts on Gas.

-How has the architecture of European energy security changed since the onset of the energy crisis and the decline in supplies from Russia?

-The crisis presents us with two simultaneous challenges that seem to require contradictory solutions.

First, there is the immediate crisis in Europe, stemming from the loss of Russian gas following Russia’s full-scale invasion of Ukraine in February 2022. Second, we face a longer-term crisis—climate change—whose consequences are arriving faster than anticipated, creating near-term costs as well.

The immediate challenge in Europe is the need for stable fossil fuel supplies, particularly gas. However, this doesn’t mean we need an increase in fossil fuel supply—just reliable access. The complication arises because stable supply depends on long-term contracts and investment. But who will invest in long-term fossil fuel development when long-term consumption in Europe is projected to decline?

In other words, to ensure short-term energy stability, we need long-term commitments and financing. Yet this clashes with the long-term trajectory of reduced fossil fuel demand. It’s a paradox we haven’t yet resolved.

At the same time, we need to phase out fossil fuels as quickly as possible to address climate change. To some extent, this transition is possible thanks to the growing availability of renewables. But we still lack sufficient capacity to meet energy demand when renewable sources are unavailable—for example, when the wind doesn’t blow or the sun doesn’t shine.

Critically, we still lack large-scale, long-duration storage solutions—whether in the form of batteries, pumped hydro, or thermal storage in buildings. And that’s the core of the energy dilemma we face today.

- What challenges do you consider the most serious for European energy security in the coming years? Physical threats to infrastructure, political instability, lack of investment, or something else?

- Quite simply, the most serious challenge is the prolonged war in Ukraine. If Russia continues its assault on Ukraine—or shifts its focus to other countries, notably the Baltics or Moldova—and begins to threaten them or leverage its relationships with countries like Hungary and Serbia in ways that could destabilize Western Europe's energy supply, that would be extremely dangerous.

Overall, Europe’s political stability is not ideal, but it’s not disastrous either, and I believe we’ll manage to navigate most of our internal issues. However, when it comes to Russian threats, we still lack a clear strategy to counter them. It will take a few more years to fully build up our defenses, which is exactly what most major European countries are working on right now.

- How sustainable is Europe's bet on LNG as an alternative to pipeline gas? Can this solution be long term, in your opinion?

- Let me add one more point to the previous question, which also ties into this one—namely that infrastructure within Europe has improved significantly. It’s now much easier to transport gas arriving as LNG at coastal terminals into the interior of the continent, and that process is steadily improving. So while gas distribution in Europe isn’t perfect yet, it’s getting better all the time.

As for LNG, Europe currently relies on two major sources, with a third coming online. The two main suppliers are, of course, the United States and Qatar. The United States is currently governed by an administration that strongly supports energy exports, particularly fossil fuels, so I don’t see any issues with American supply in the near term. As for Qatar, it’s undergoing a major expansion of its gas production capacity and remains focused on global commercial sales. There are also new African offshore resources coming on line.

So the question is not whether the gas is available, but whether it will be delivered to Europe, sent to Asia, or divided between the two. This is purely determined by price rather than anything else, and that will remain the case despite political pressures. Therefore, I don’t see any problem with LNG supply. Additionally, more LNG facilities are expected to come online starting at the end of next year, including some from Africa. Moreover, Europe continues to receive supplies from major sources such as Norway and much of North Africa.

- How do you see the role of Central Asia and the Middle East as energy suppliers evolving in the context of new geopolitics?

- The Middle East will remain more important than the Caspian region simply because of the concentration of resources there. It still holds well over half of the world’s export-oriented oil and gas supplies. There are some limitations, though. For example, Iran holds the world’s largest gas reserves but is, paradoxically, a small net gas importer. This is because Iran prefers to conserve its oil consumption domestically in order to maximize its oil exports. But overall, the Middle East remains crucial.

Central Asia remains important in two particular ways. First, it is a major supplier of both oil and gas to China, especially gas. This puts Central Asia in competition with Russia, or more precisely, it allows China to leverage its position by playing Central Asia and Russia against each other when negotiating volumes and prices of gas supplies. This is a significant dynamic.

Regarding flows to the West, there are still substantial oil exports from Central Asia, but the situation is complicated by the fact that most of Kazakhstan’s oil exports to the West must pass through Russia via the CPC pipeline.

If we broaden the definition of Central Asia to include Caspian countries like Azerbaijan, the situation changes somewhat. Azerbaijan benefits from good connections through Georgia and Turkey to international markets, both via the oil pipeline to Ceyhan and the Southern Gas Corridor gas system, which reaches deep into Europe. Although Azerbaijan’s supplies are not massive on a global scale, they are critical for Europe—they are more than just a balancing factor.

Oil deliveries from Baku to Ceyhan currently stand at around 460,000 barrels per day, while production from its main field, Azeri-Chirag-Guneshli – is around 331,000 b/d. Maintaining such levels of supply is important since, for Azerbaijan, oil remains the most important element in securing both wealth and stability. However, in terms of Europe’s actual energy needs, gas plays the more significant role.

Azerbaijan faces a particular challenge, not of its own making: Europe has not yet addressed the fundamental question I mentioned at the start—whether it understands the paradox that long-term contracts are necessary to ensure a stable gas supply from Azerbaijan. These contracts do not have to be extremely long—ten years, or some argue even five years, would suffice—but they are essential. Without them, who will invest in the production increases Azerbaijan needs to raise its gas exports to Europe from about 13 billion cubic meters per year to around 20 billion cubic meters? This issue must be resolved, and only the Europeans and European financial institutions can do so.

- How do you assess the state of Europe’s gas infrastructure? What projects do you consider a priority for increasing the sustainability of supplies?

- There is quite a lot happening at the moment. We’re seeing the development of the BRUA system—Bulgaria, Romania, Hungary and up into Austria. That’s an important project, not least because it will connect with the Neptune field in the Black Sea, which Romania is currently developing. There’s also significant progress on the Vertical Corridor, which extends from Greece and links to the new Greek LNG import terminals.

As for projects that do not yet exist but which should be developed, I believe the most important is the Ionian-Adriatic Pipeline. This would create a connection between the Trans Adriatic Pipeline—the westernmost segment of the Southern Gas Corridor—and the main European gas network at the northern end of Croatia. While the pipeline wouldn’t carry huge volumes of gas, it would enhance supply balance in the region and provide much-needed flexibility.

- What challenges do gas transit countries face, especially in conditions where gas demand may change due to the green transformation?

- I think balancing gas demand with the development of the green sector is complex. Gas can still provide baseload power, and we will need baseload for some time until the energy storage problem—such as battery technology—is solved. At the moment, I believe the challenge for European planners is to see gas and renewables development as complementary rather than competitive. Both need to advance together.

The question, which I openly acknowledge, is that only a limited amount of gas development is desirable. It shouldn’t be pushed too hard because the goal is not to increase carbon emissions. However, some gas development is necessary—both in infrastructure and production. From a European perspective, one of the best sources for increased production is Azerbaijan.

– How do you assess the strategic role of Azerbaijan in ensuring Europe’s energy security in the context of the rejection of Russian energy resources?

– It’s important. It’s extremely helpful. But if there were a cutoff in gas supplies from Azerbaijan—due to a crisis, an incident in Georgia, or even Russia severing the pipeline as it has done before—it would not cause Europe to collapse. The European system has enough flexibility to withstand the loss of the 13 billion cubic meters (BCM) currently supplied by Azerbaijan.

That said, there’s absolutely no doubt that Azerbaijan’s current contribution of 13 BCM—and its efforts to raise that to 20 BCM in line with the 2022 Memorandum of Understanding with the EU—is extremely helpful. Especially at a time when the EU is relying on multiple sources to manage the aftermath of the major Russian gas cutoffs that began three years ago. So, in terms of a two-way relationship, this is indeed a very important partnership. Europe should place a very high value on its energy relationship with Azerbaijan.

- Can the Southern Gas Corridor, in particular the TANAP and TAP, be considered a fully realized project, or do you see the need for its expansion and modernization?

- Well, the entire Southern Gas Corridor system was designed with expansion in mind. With minimal new pipeline laying, expansion can be achieved by adding new compression stations. That does cost money, but it’s far less expensive than building an entirely new pipeline system. So the flexibility exists. However, I believe it was President Aliyev himself who pointed out that European banks seem reluctant to invest in the additional compression needed to expand the current capacity—which is nearly full—from around 12 or 13 billion cubic meters per year, depending on which parts you’re referring to, up to the full 20 billion cubic meters capacity. It’s doable, but it requires financing, and that financing is by no means guaranteed at this time.

- How do you assess Azerbaijan's policy in the field of long-term energy agreements and its desire to diversify export routes?

- In Azerbaijan’s case, oil production is focused largely on stabilization—maintaining output at roughly the current level. Gas production is planned to increase, and renewable energy production aims to grow very rapidly. The key point is that all these policies are being pursued simultaneously. I think this is a sensible strategy, partly because Azerbaijan’s own gas demand is rising, so it needs increases for domestic use. Additionally, Azerbaijan is in a position—not now, but in four or five years—to be able to deliver another six or seven billion cubic meters (BCM) of gas to Europe. However, reaching that level will take time. That really is the core challenge, which could also be seen as Europe’s problem as a consumer: how to bridge that gap, and how to finance this development.