The country has already forged a trade partnership with the European Union (EU) to supply the bloc with natural gas.
1. Fuel exporter
Oil-rich Azerbaijan is just starting the transition towards paying greater attention to renewable energy sources and hydrogen sectors. Analysts are confident the country will soon become an exporter of green hydrogen to the EU given the unique combination of all components necessary for the development of the hydrogen sector.
“There are natural resources, infrastructure, and the end-consumer all in a compact geography. The potential of Azerbaijan’s renewable energy resources is extremely high, ensuring a strong competitive advantage, namely, the low cost of green hydrogen production,” said Vladimir Rogov, a Managing Director and Partner at Boston Consulting Group (BCG) based in Baku, Azerbaijan.
2. Southern Gas Corridor
One of the key advantages for the Azeri hydrogen industry is the pipeline infrastructure that currently already carries natural gas to Europe. The Southern Gas Corridor, operational since 2020, is a vast series of pipelines that carry 10 billion cubic meters of gas per year through Turkey, Greece, and Albania to a gas terminal on the Adriatic coast of Southern Italy. This route is far more efficient than transporting hydrogen gas overseas, in which case it must be liquefied for storage to later be regasified.
“In terms of profits, the country could earn from $230–500 million per year, given the expected hydrogen price decrease in Europe nearly twice, from current around $11 to $5.8/kg. Thus, the full cost of the green hydrogen delivered through the pipe can be very competitive and can allow for substantial margins,” said Rogov, anticipating export revenues for the country.
At the height of the energy crisis last year, the Southern Gas Corridor proved to be a crucial source of piped gas supply to the EU, the European Commission said, with deliveries increasing by more than 40%, from around 8 billion cubic meters in 2021 to 11.4 in 2022.
3. EU-Azerbaijan
Energy Commissioner Kadri Simson addressed the 9th Ministerial Meeting of the Southern Gas Corridor, last February, which was also an occasion to launch the first Advisory Council. Simson congratulated Azerbaijan as an energy partner noting that it has increased the diplomatic engagement between the parts.
“The untapped potential for renewables here in Azerbaijan, particularly in offshore wind, is a wellknown fact. Azerbaijan therefore has the potential to become the exporter of renewables and hydrogen to the EU,” said Simson, adding that the EU4Energy programme is already supporting Azerbaijan to boost the deployment and integration of renewable energy capacity.
Despite the energy trade partnership between the two countries, some activists in Europe criticized the bloc for buying Azeri gas citing the Azerbaijani government’s history of repressive and authoritarian behavior.
4. Expensive climate goals
In fact, for Europe to meet the climate goals and achieve net-neutrality by 2050, the continent will have to spend trillions in boosting renewable energy, and broader decarbonization efforts. According to McKinsey & Company analysis, reaching net neutral status would cost the continent roughly €28 trillion over the course of the next 30 years.
“To reach net zero by 2050, low-carbon hydrogen is a novel option to decarbonize industries with hard-to-abate emissions, such as basic chemicals, aviation, steel production, freight and road transportation, and shipping,” said Rogov. “Governments and companies will have to invest approximately $6 trillion to $12 trillion between 2025 and 2050 to produce and transport enough low-carbon hydrogen to meet demand, according to BCG’s calculations.”
