Caspian Gas: How Europe's Move Away from Russia Benefits BP in Azerbaijan

The European Union plans to stop importing natural gas from Russia completely by 2028. This decision is expected to give Azerbaijan a more important role as an energy provider, which should help BP's gas projects in the Caspian Sea.

The EU's Energy Plan

The EU's REPowerEU plan is designed to get rid of Russian energy, including both pipeline gas and LNG. A proposed law, supported by most EU energy ministers in October, sets strict deadlines: no new Russian gas contracts after January 2026, an end to short-term deals by June 2026, and the end of all long-term deals by January 2028.

Russia used to supply 45% of the EU's gas in 2021, but this has already fallen to about 13-19% in 2024. Some countries, like Hungary, Slovakia, France, Spain, and the Netherlands, still import Russian gas or LNG. The new law aims to stop this dependence completely.

Azerbaijan's Important Role

After the 2022 energy crisis, the European Commission signed an agreement with Azerbaijan in July 2022 to double annual gas imports to 20 billion cubic meters (bcm) by 2027. European Commission President Ursula von der Leyen said that Azerbaijan is a reliable partner.

Azerbaijani President Ilham Aliyev said that even though they are looking at other markets, like sending 1.2 bcm per year to Syria through Turkey, Europe is still the main customer for their natural gas. Azerbaijan currently supplies gas to 10 European countries, including Italy, Greece, Bulgaria, and Hungary, through the 3,500-kilometer Southern Gas Corridor (SGC).

Increasing Production and Infrastructure

This agreement is good news for BP and its partners, who run Azerbaijan's biggest gas project, Shah Deniz. BP has a 29.99% stake in Shah Deniz, along with partners like SOCAR, MOL, Russia’s Lukoil (10%), and Iran's NICO.

To meet the increasing demand, the BP-led group approved a $2.9 billion investment in June 2025 for a new offshore compressor platform at Shah Deniz. This platform is expected to extract an extra 50 bcm over the project’s duration. Also, the ACG Deep Gas project, which is targeting resources under the Azeri-Chirag-Gunashli (ACG) oil block, is expected to start production early next year.

These projects should increase Azerbaijan’s annual gas exports by 8 bcm over the next five years. Exports to Europe have been increasing, from 8.1 bcm in 2021 to 12.9 bcm in 2024, and are expected to reach 13.5 bcm this year.

Problems and Geopolitical Issues

Despite the strong partnership, there are problems. Energy analyst Ilham Shaban says that while Azerbaijan can increase production, the EU is hesitant to sign long-term gas contracts or fund pipeline expansions, which limits supply growth. Because of this, Baku is making direct, one-on-one deals with companies like Germany’s Uniper AG, which signed a 10-year contract to import at least 1.5 bcm per year.

The possibility of Central Asian gas, especially from Turkmenistan, being transported through Azerbaijan to Europe is difficult because of geopolitical issues. Plans for a Trans-Caspian pipeline or expanded swap supplies through Iran are likely to face strong opposition from Russia and Iran, making them difficult and expensive to implement.

The fact that Russian companies, especially Lukoil’s 10% stake in Shah Deniz, has caused criticism from some European politicians and experts. This has led to speculation that Russian gas could be laundered through Azerbaijan to avoid sanctions. Critics have also mentioned the EU’s decision to sign the partnership without requiring improvements in human rights and political reforms in Azerbaijan.

Also, while gas production is increasing, Azerbaijan’s important ACG oil output has been decreasing for over ten years. However, the rate of this decrease is slowing down because of the launch of BP's new $6 billion Azeri Central East (ACE) platform in April 2024, which is expected to produce up to 100,000 barrels per day.

A Key Partner

Azerbaijan is trying to become a key and reliable player in Europe's energy plans, taking advantage of its location, infrastructure, and commitment to international agreements. By hosting COP29 and focusing on turning its liberated territories into a green energy center, Azerbaijan wants to align its energy efforts with the EU's long-term decarbonization and security goals, strengthening its role in creating a more secure European energy future.