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I want to use the IP address of the Azure Application Gateway to use for outgoing traffic that comes from internal services and not the ones of the services. Basically I want to use the GW to act on behalf of the services - act as a forward proxy.

Unfortunately, that is not possible at the moment. The Application gateway is designed to work as a reverse proxy and not a forward proxy.

The alternative to which would be to use any of the below:

1. Azure ELB - If you are not looking for
   
   
   • cookie persistence
   
   
   • WAF capabilites
   
   
   • ssl offloading
   
   
   • ssl strengthening (use certain versions of tls and ciphers)
   
   
   • encrypt application cookie
   
   
   • disable headers (Server, X-Powered-By)
   
   
   • disable clickjacking (x-frame-options: SAMEORIGIN)
   
   
   • block blacklisted user agents
   
   
   • cookie encryption
   
   
   • schedule maintenance redirect to a webpage during a maintenance window
   
   
   • redirect HTTP error 403 to 404
   
   
   • restrict outside access to certain pages
   
   

** Most of which you can do over new Application gateway and Azure Firewall

3. 3rd Party load balancers - F5, NetSclaer etc..


4. Use Ngnix, "best option" Resume complete control over load balancing.


5. Firewall of your choice with these capabilities

Reference Links:
https://kemptechnologies.com/load-balancing-nginx/microsoft-azure/
https://docs.citrix.com/en-us/netscaler/12/netscaler-cache-redirection-gen-wrapper-10-con/cache-redirection-config/configure-forward-proxy-redirection.html
https://docs.microsoft.com/en-us/azure/application-gateway/application-gateway-faq