The EU-Azerbaijan gas deal is a repeat mistake

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Gligor Radečić is a gas campaign leader at CEE Bankwatch Network.

As part of the European Union’s mission to rid itself of Russian fossil gas, in mid-July, European Commission President Ursula von der Leyen and Azerbaijan’s President Ilham Aliyev signed a memorandum to double Azerbaijani gas exports to the bloc.  

According to the document, by 2027, the Caspian petrostate will supply Europe with at least 20 billion cubic meters of fossil gas every year via the Southern Gas Corridor (SGC)— a 3,000-kilometer chain of pipelines delivering gas to the EU.  

But this agreement stands in defiance of the EU’s own climate goals and its human rights standards too.  

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As civil society groups have already argued, supporting the expansion of gas extraction will only enrich the autocratic regime in Azerbaijan, notorious for rampant corruption and the repression of all opposition in the country. 

What’s little discussed, however, is that critical infrastructure needed to extract and transport the gas from the Caspian Sea to Europe is co-owned by Lukoil — a Russian oil and gas giant closely linked to Russian President Vladimir Putin’s regime.  

One of the largest oil and gas companies in the world, Lukoil itself claims it’s one of the three biggest taxpayers in Russia, having paid more than $200 billion in taxes in 2019 alone. Lukoil is also among the companies on the United States sanctions list.  

Vagit Alekperov, Lukoil’s former CEO and a onetime deputy oil and gas minister of the Soviet Union, had even previously made statements openly suggesting he considered the company’s goals to be closely aligned with those of the Russian government. He later stepped down, however, after the United Kingdom and Australia imposed sanctions on a group of Russian elites and oligarchs who, in the words of Australia’s foreign minister, are “close to Putin;[and] facilitate and support his actions.” 

Lukoil has been operating in the Azerbaijani oil and gas sector since 1994. In the early 2000s, it focused its efforts in Azerbaijan on the development of Shah Deniz fossil gas fields, which are among the largest in the world. 

In fact, a few days before Russia’s invasion of Ukraine, Lukoil completed the acquisition of Malaysian Petronas’ stake in Shah Deniz for $1.45 billion, upping its share in the project from 10 percent to 19.99 percent, and becoming the second largest shareholder after British Petroleum (BP).  

Besides Shah Deniz, which will be the main field for exports in the upcoming decades, Lukoil is pursuing other potential developments in Azerbaijan as well. In 2021, the company bought a 25 percent stake in the Shallow Water Absheron Peninsula (SWAP) exploration project from BP. 

And after 30 years of dispute, in January of the same year, when Azerbaijan and Turkmenistan agreed to the joint development of the Dostluk field — located on the border of their respective sectors of the Caspian Sea —Alekperov was discussing investment options for Lukoil with Turkmen President Gurbanguly Berdymukhamedov just one month later, in order to participate in Azerbaijan and Turkmenistan’s joint endeavor.  

In addition to the Azerbaijani source of EU-bound fossil gas, Lukoil is also a shareholder in the South Caucasus Pipeline, the easternmost section of the SGC. And it has a 15.992 percent share in the Azerbaijan Gas Supply Company, a shipper and seller of the Azerbaijani fossil gas destined for Europe via the SGC. 

Meanwhile, promoted by the Commission under the guise of mitigating Europe’s dependence on Russian fossil gas, the SGC itself has faced major opposition from civil society for breaching a range of EU policies. And, as Bankwatch already warned in 2015, Moscow has been involved from an early stage. 

The SGC is the only route linking Caspian Sea gas fields with the EU, and Azerbaijan started exporting gas to Europe through it in 2020. The corridor passes through Georgia, Turkey, Greece, Albania and Italy to other EU markets, and it consists of the South Caucasus Pipeline, the Trans-Anatolian Pipeline, the Trans-Adriatic Pipeline and other branch lines, while its main active gas field is currently the Shah Deniz gas field in the Caspian Sea.  

With an estimated worth of $45 billion, the SGC was, among others, backed by public money via the EU’s Connecting Europe Facility, the European Investment Bank and the European Bank for Reconstruction and Development.  

According to von der Leyen, Azerbaijan is “a crucial and reliable partner for our security of supply.” Yet, Russian involvement in key parts of the Azeri gas supply chain en route to Europe casts doubt over any energy security claims. 

Not only is Lukoil a major taxpayer in Russia, which is able to use its gas profits from Azerbaijan to fund Putin’s war machine, but its position in so many Azeri projects gives the company access to information that could be used to support Russia’s continued weaponization of its own fossil fuels exports. 

This deal simply cannot help the EU address potential gas shortages now. Scaling up gas production and transportation capacity is technically impossible to implement in less than five years, and the EU already needs to start cutting its gas demand significantly in order to reach its own climate goals.  

It’s high time the Commission starts learning from its past mistakes concerning energy diversification and energy security based on the deals it’s made with autocratic regimes. They only serve to perpetuate Europe’s fossil fuels fixation, exactly when it most desperately needs to end.