Germany’s SEFE Strikes 10-Year Deal for Gas From Azerbaijan

(Bloomberg) -- Germany’s state-owned SEFE signed a 10-year deal to buy gas from Azerbaijan’s Socar, a move that will help diversify supplies in Europe’s tight market.

The agreement, which begins this year, allows the German trading company to buy as much as 15 terawatt-hours of gas annually, according to a release that confirmed an earlier Bloomberg report. That’s equivalent to about 1.5 billion cubic meters per year, or about 0.5% of the European Union’s gas consumption in 2024.

The gas is likely to reach Europe via the Trans Adriatic Pipeline, according to two people familiar with the matter, who asked not to be named because the information is private. TAP crosses northern Greece, Albania and the Adriatic Sea before coming ashore in southern Italy.

The deal with state-owned Socar will support investments in production and infrastructure, boosting the volumes of pipeline gas coming to Europe, according to the statement.

SEFE, which stands for Securing Energy for Europe, has been among the most active companies in negotiating new supply deals. The region increasingly depends on global flows after losing most of its Russian pipeline gas in 2022. With Norwegian production operating pretty much at full capacity, Europe still needs to secure supplies as it awaits the startup of additional liquefied natural gas export facilities in the US. 

Socar was a key player in negotiations between European countries and Ukraine about potentially continuing to transit gas after a deal ended at the end of last year. An agreement wasn’t reached at the time and Azerbaijan was keen to secure commitments from Europe on building new infrastructure and longer-term contracts to buy gas. 

SEFE, formerly the European trading and supply unit of Gazprom PJSC, was nationalized in 2022 as part of a €6.3 billion ($7.2 billion) rescue package. The company has lined up numerous supply deals with global producers, mainly for LNG, building a portfolio that’s seen as part of preparations for privatization, which Berlin is seeking to complete by the end of 2028. 

The company already has a global trading book, with India also “a strong part” of the portfolio, and plans to further grow it, Frédéric Barnaud, SEFE’s chief commercial officer, said at the Wood Mackenzie Ltd. conference in London Tuesday. After the company has stabilized Europe’s security of supply, it will “start building an Asian footprint,” he said.

Azerbaijan currently exports gas to Italy, Greece, Bulgaria, Romania, Hungary, Croatia, Serbia, Slovenia, Slovakia and North Macedonia, and also to neighboring Turkey and Georgia. The country agreed with the European Commission in 2022 to double gas supplies to Europe to 20 billion cubic meters a year by 2027.

(Updates with comments on Asia footprint from SEFE executive in penultimate paragraph.)

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