Azerbaijan in Europe's new energy architecture: From niche supplier to strategic element

Following the 2022 crisis, the European energy market entered a phase of structural transformation. A sharp decline in Russian supplies, volatile LNG prices, and increased competition for tanker cargoes have forced EU and non-EU countries to rapidly revise their energy supply strategies, Report informs.

Russia's share of EU gas imports has fallen from approximately 45% in 2022 to 12% in 2025, freeing up space for new routes and suppliers.

As a result, a three-component model has emerged, including increased LNG imports, primarily from the US and Qatar; the continued dominant role of traditional pipeline exporters (Norway, Algeria); and the integration of alternative sources capable of ensuring predictable, long-term, and politically stable supplies.

It is in this third category that Azerbaijan has transitioned from its status as a "backup option" to an element of the basic architecture of European energy security.

Azerbaijan: Significance Beyond Volume

Among the largest exporters, Azerbaijan remains a mid-sized player: its share of total EU gas imports is estimated at 4-6%. However, absolute volumes are not as important as the quality of contracts, logistics, and geopolitical stability.

A key advantage is the fully operational Southern Gas Corridor (SGC). The capacity of the Trans Adriatic Pipeline (TAP) already exceeds 11.2 billion cubic meters per year, with the potential to expand to 20 billion cubic meters by 2027-2030, according to the TAP operator.

By the end of 2025, physical supplies of Azerbaijani gas to Europe amounted to 12.5 billion cubic meters, a 53% increase compared to 2021 (the first year of supplies – ed.). The EU-Azerbaijan Memorandum of Understanding, signed in 2022 and confirmed at the 11th meeting of the SGC Advisory Council in April 2025, set a target of doubling volumes by 2027.

While the LNG market remains sensitive to Asian demand and freight rates, pipeline gas from the Caspian offers European buyers a long-term price anchor, reduced logistics volatility, and the elimination of transit risks through Russia.

Italy as an Anchor Market

Italy holds a central place in Azerbaijan's European strategy. The country is the largest recipient of both Caspian gas and oil.

TAP annually supplies Italy with 8-10 billion cubic meters of gas (9.5 billion cubic meters in 2025), covering 16-18% of its national gas imports. In the oil sector, Azerbaijan's share of Italian purchases has remained stable at 12-16%, making Baku a key supplier of raw materials for Mediterranean refineries. Italian Prime Minister Giorgia Meloni paid a short visit to Baku yesterday and discussed, among other things, increasing gas and oil supplies from Azerbaijan during talks with Azerbaijani President Ilham Aliyev. With the expansion of TAP to 11.2 billion cubic meters, Italy may receive an additional 1 billion cubic meters of gas.

Italy is not just an end market, but a gas hub: through internal interconnectors, Azerbaijani gas is redistributed to Central and Eastern Europe, strengthening Baku's systemic influence on the southern European energy cluster.

Southeastern Europe: From Dependence to Diversification

Azerbaijan's transformative role is most noticeable in the countries of Southeastern Europe.

Bulgaria and Greece, previously significantly dependent on monopolistic supplies from other sources, are now successfully integrated into the Southern Gas Corridor. Following the launch of the Gas Interconnector Greece-Bulgaria (IGB), with a capacity of up to 3 billion cubic meters per year, Baku now supplies approximately 40% of Bulgaria's gas imports and 15-20% of Greece's. This allowed the regions not only to reduce the price premium for "monopoly risks" but also to create the basis for price convergence, or rapprochement, with Western European hubs.

In these countries, Azerbaijan's importance has expanded beyond commercial contracts: gas has become an infrastructural element of national security, enabling a more independent foreign policy and accelerating integration into pan-European energy markets.

The Balkans and Non-EU Markets: A Space for Future Growth

While Azerbaijan has already strengthened its position in Southern Europe, the Balkans and several countries outside the EU represent a zone for future expansion.

Serbia, Slovenia, North Macedonia, and Bosnia and Herzegovina are gradually connecting to regional gas networks linked to TAP and the future Ionian Adriatic Pipeline (IAP). Current supply volumes in the region are estimated at 0.5–1 billion cubic meters per year, but the very fact of a physical alternative changes the countries' negotiating positions vis-à-vis other exporters. Among the Balkan countries, Serbia is particularly active in increasing its purchases of Azerbaijani gas. It already has a contract for 400 million cubic meters but expects to purchase at least 1 billion cubic meters of gas per year in the medium term, with the possibility of reaching 1.4 billion cubic meters by 2030. Albania is also on the horizon, with gas supplies of 200 million cubic meters per year potentially commencing in 2027.

Furthermore, Azerbaijan is actively developing cooperation with non-EU players: Switzerland, Moldova, and Ukraine. Signed memorandums and pilot deliveries demonstrate that Baku is positioning itself as a universal supplier, whose infrastructure and contractual flexibility allow it to operate both within and outside of European regulations.

Central Europe: Political and Energy Factors

The situation in Central Europe, particularly Hungary, is of particular interest. Despite maintaining cooperation with Russia, Budapest has signed contracts for the supply of 0.8 billion cubic meters of Azerbaijani gas via Serbia. Austria and Germany began purchasing Azerbaijani gas in early 2026. Slovakia has long been exploring the possibility of connecting to Caspian flows through southern routes. Now the Czech Republic has joined the effort, with Prime Minister Andrej Babiš recently visiting Azerbaijan to discuss the possibility of receiving up to 2 billion cubic meters of Azerbaijani gas per year in 2028-2029.

In this context, Azerbaijan functions as a "soft diversifier": it doesn't require a political break with traditional partners, but creates an alternative that gradually changes the architecture of Central Asian markets. Even limited volumes carry strategic weight here, as they reduce vulnerability to external shocks and price manipulation.

Azerbaijan, LNG, and Norway: Different Roles in a Single System

The modern European energy system is shaped by the complementarity of sources.

Norway remains the largest pipeline supplier (approximately 30% of EU imports), but its production capacity is nearing a plateau, and further export growth is limited by geology and investment issues.

LNG, primarily from the US, provides operational flexibility but remains vulnerable to global competition, freight costs, and spot volatility. In 2024–2025, the price differential between pipeline gas in the southeastern EU and LNG at some ports reached 20–30%, favoring pipeline deliveries, according to the EU Agency for the Cooperation of Energy Regulators (ACER).

Azerbaijan holds an intermediate but stable position: long-term contracts linked to oil/indices, predictable logistics, and low transit costs to markets in Southeastern Europe and the Balkans. Its role can be defined as balancing: it does not replace the largest suppliers, but it reduces concentration risks and softens price peaks.

Constraints and Potential

Azerbaijan's growing importance is not without its challenges. Key constraints include reaching a plateau in production at the Shah Deniz field, the need to commission new projects (Absheron, Umid-Babek, and other Caspian sites), and the need for additional compressor stations and TAP expansion.

However, these constraints highlight potential for growth. Expansion of the Southern Gas Corridor (SGC), the development of regional interconnectors, and deeper cooperation with European financial institutions (EIB, EBRD, and InvestEU mechanisms) could increase Azerbaijan's market presence to 20 billion cubic meters per year by the end of the decade. Opportunities for this exist. Azerbaijan plans to increase its production and export potential by 10-15 billion cubic meters over the next 5-10 years by ramping up production through new projects and reducing gas consumption at power plants through renewable energy projects.

Furthermore, energy partnerships extend beyond hydrocarbons. Following COP29 in Baku (November 2024), cooperation on the green transition has intensified: Azerbaijan aims to increase the share of renewable energy in its energy mix to 38% by 2030 (to this end, 8 GW of renewable energy projects are currently being implemented). Hydrogen pilot projects are underway, and work continues on a submarine cable project through Georgia to Romania for electricity exports to the EU, as well as other energy corridors through Azerbaijan to Europe. These initiatives are transforming Baku from a fossil fuel supplier into a comprehensive energy partner.

Thus, in Europe's new energy architecture, Azerbaijan is gradually transitioning from a niche exporter to a diversified element.

Building on existing infrastructure, long-term contracts, and a growing green agenda, the country is strengthening its position as a reliable, predictable, and multidimensional participant in the European energy system.