According to the Oil and Gas Journal, Azerbaijan has proven natural gas reserves of roughly 30 trillion cubic feet (Tcf) as of January 2009.

Azerigaz, a SOCAR subsidiary, is responsible for natural gas processing, transport, distribution, and storage, mainly in the domestic market. Azneft, another SOCAR subsidiary, is responsible for exploration, development and production from the older onshore and offshore natural gas fields owned directly by SOCAR. AIOC is the largest foreign joint venture in association with SOCAR, and is involved in the development of the ACG oil and gas fields and the Shah Deniz gas field. Shareholders in the Shah Deniz consortium are: BP (25.5%), StatoilHydro (25.5%), Total, Lukoil, SOCAR, Naftiran each hold 10%, and TPAO (9%). StatoilHydro and BP are the operators, responsible for commercial and technical operations, respectively.

In 2008, Azerbaijan produced 572 billion cubic feet of natural gas and consumed 376 billion cubic feet. Almost all of Azerbaijan's natural gas is produced from offshore fields. The country's leading natural gas fields are the ACG and the new Shah Deniz natural gas and condensate field, which started up in 2007. The Guneshli field, part of the ACG oil and gas fields system, provides associated gas to the Azerigaz system for domestic use via an undersea gas pipeline to Sangachal Terminal at Baku. The Sangachal Terminal, located south of Baku, is one of the world's largest integrated oil and gas processing terminals. It receives, stores, and processes both crude oil and natural gas from the ACG fields and from Shah Deniz, then ships these hydrocarbons through the BTU and SCP pipelines for export.

Azerbaijan's major natural gas production increases in the future are expected to come from the continuing development of the Shah Deniz field. Industry analysts estimate that Shah Deniz is one of the world's largest natural gas field discoveries of the last 20 years. According to the project's technical operator, BP, the field contains potential recoverable resources of roughly 15 Tcf of natural gas and 600 million barrels of condensate. Shah Deniz is located offshore in the Caspian Sea, approximately 60 miles southeast of Baku.

Phase 1 of the Shah Deniz field's development was completed in 2007 and includes a fixed offshore platform, 2 subsea pipelines to bring the hydrocarbons ashore, and a new onshore gas-processing terminal adjacent to the existing oil terminal at Sangachal, near Baku. The Shah Deniz consortium members (most of whom are also members of AIOC) began producing natural gas for export during spring 2007. The field produced 110 Bcf in 2008 and is expected to increase production to 270 Bcf in 2009. Phase 1 output is expected to peak at 304 billion cubic feet as well as 45,000 bbl/d of condensate in 2010. Phase 2 of the Shah Deniz development is expected to have peak capacity of 700 Bcf but its completion is being delayed from 2013-2014 to 2016 due to lack of a transit agreement between Turkey and Azerbaijan, according to statements by StatoilHydro in May 2009.

Azerbaijan became a net exporter of natural gas in 2007 with the startup of the Shah Deniz natural gas field; in prior years it had been importing natural gas from Russia. In 2008, Azerbaijan exported an estimated 196 bcf, shipping it via the South Caucasus Pipeline (SCP).

The main conduit for Azerbaijan's natural gas exports is the 429-mile SCP, also known as the Baku-T'bilisi-Erzurum pipeline (BTE), which runs parallel to the BTC oil pipeline for 429 miles, most of its route, before connecting to the Turkish gas pipeline network at Horasan. The pipeline began exporting in 2007 with an initial capacity of 233 Bcf per year, which is to be increased in the future to 700 Bcf with the addition of compression stations. The Shah Deniz consortium owns and operates the pipeline.

Azerbaijan has been involved in negotiations with both Turkey and Russia in 2009 over 2 competing export pipeline proposals for its Shah Deniz Phase 2 natural gas output. These pipelines, Nabucco and South Stream, are both still in the early planning stages.

The proposed Nabucco pipeline would run for 2,050 miles from Erzurum, Turkey to Baumgarten, Austria, passing through Bulgaria, Romania, and Hungary. The pipeline's feasibility rests on its ability to tap into the large natural gas resources of the Caspian area. An agreement between the European countries involved was signed July 13, 2009 in Ankara. Although Azerbaijan has expressed support for Nabucco, Azerbaijan is not currently a party to the Nabucco agreements, nor is any other potential gas producer.

The South Stream pipeline is another proposal to transport Russian and Caspian natural gas to Europe via a pipeline running under the Black Sea, through Turkish territorial waters, with terminals ending in Italy and Austria. It is widely seen as a rival to Nabucco. Azerbaijan is not a party to the South Stream pipeline agreements negotiated between Russia and its pipeline transit countries. However, on June 29, 2009 Azerbaijan and Russia signed a contract for Azerbaijan to export natural gas into southwestern Russia starting in January 2010. The amount of gas agreed, 17.6 bcf per year, is modest but could be increased. A Soviet-era gas pipeline between Baku and southern Russia that runs 200 km along the Caspian coast is being modernized, according to both Russian and Azeri press reports.

There has also been international discussion of a Trans-Caspian subsea gas pipeline. However, this would require an agreement among the 5 littoral states of the Caspian Sea, which is not expected to happen in the near or mid-term.

Due to tensions between Azerbaijan and Armenia, Azerbaijan in late 2006 began a swap deal with Iran that provides natural gas to Azerbaijan’s geographically separate Nakhchivan enclave. Azerbaijan ships natural gas into Iran via the Baku-Astara Pipeline and Iran then delivers the gas via a new 30-mile pipeline into the enclave. Iran receives a 15 percent commission on transit fees. Transit levels started at 2.47 Bcf/y in 2006 and were slated to rise to 12.4 Bcf/y by 2009.