EU, Azerbaijan plan gas deal in pivot away from Russia

BRUSSELS, July 14 (Reuters) - The European Commission has proposed to EU countries a deal with Azerbaijan to increase imports of natural gas and support the expansion of a pipeline to do this, according to a draft document seen by Reuters.

The draft memorandum of understanding, which needs approval from the governments involved and could still change, is part of European Union efforts to slash reliance on Russian gas following the war in Ukraine.

"The Sides aspire to support bilateral trade of natural gas, including through exports to the European Union, via the Southern Gas Corridor, of at least 20 billion cubic metres of gas annually by 2027, in accordance with commercial viability and market demand," said the document, dated July 11.

The Commission declined to comment. EU energy commissioner Kadri Simson is scheduled to visit Azerbaijan later this month.

The Trans-Adriatic pipeline, the final leg of the Southern Gas Corridor pipeline network, last year brought more than 8 bcm of Azeri gas into European countries such as Italy.

The draft says both sides will encourage financing the expansion of that network to increase deliveries to Europe, adding that such investments should be able to carry low-carbon gases in future to avoid locking in years of planet-warming emissions.

An uptick in deliveries would also require Azerbaijan to expand its domestic gas production.

The draft highlighted the importance of "long-term, predictable and stable contracts" to provide security to gas producers. But it also said future gas contracts would need to align with the EU's climate change targets, which according to Brussels will require gas use to plummet, particularly after 2030.

Both sides should increase action to curb emissions of methane, a potent greenhouse gas, in their supply chains, including through incentives to collect gas that would otherwise leach into the atmosphere, it said.

Concern over further cuts to Russian gas supply sharpened this week as scheduled maintenance began on the Nord Stream 1 pipeline bringing gas to Germany. Governments and companies have warned Moscow may prolong the outage.

The draft agreement said the EU and Azerbaijan would also examine the development of electricity interconnections and discuss future hydrogen trade.

Reporting by Francesco Guarascio, Kate Abnett; Editing by Kirsten Donovan

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Thomson Reuters

Francesco leads a team of reporters in Vietnam that covers top financial and political news in the fast-growing southeast Asian country with a focus on supply chains and manufacturing investments in several sectors, including electronics, semiconductors, automotive and renewables. Before Hanoi, Francesco worked in Brussels on EU affairs. He was also part of Reuters core global team that covered the COVID-19 pandemic and participated in investigations into money laundering and corruption in Europe. He is an eager traveler, always keen to put on a backpack to explore new places.