By Gulgiz Dadashova
Last week, Baku hosted the 20th Caspian Oil and Gas Conference, which focused on the role of Azerbaijan as a key gas supplier to Europe. The conference also discussed the chances of the rival Trans Adriatic Pipeline (TAP) and Nabucco West projects that are competing to deliver Caspian gas to European markets.
AzerNews had the opportunity to interview TAP External Affairs Director Michael Hoffmann, who shared his insights as to why, in his view, TAP would be the preferred Southern Gas Corridor route.
Q.: The end of "race" for the final selection of the route for the Southern Gas Corridor is just around the corner. How do you assess the chances of TAP? What are the advantages of TAP compared to its rival?
A. I think TAP has an excellent chance of being selected to deliver Caspian gas to Europe. We are very confident that the information we submitted in March and updated at the end of April, known as the decision support package, will persuade the Shah Deniz Consortium to decide in TAP's favour. The reason why I am confident is that we have concluded our Front End Engineering Design - a major engineering process and milestone. This enables us to have a high degree of confidence with respect to the technical design of the pipeline, our routing, and finally, and probably most importantly, an accurate tariff that we are offering to Shah Deniz, which we believe is very competitive. In addition, as part of the Shah Deniz tender process, we submitted close to 900 documents, fulfilling all eight of the Shah Deniz selection criteria. We have advanced the project very far in commercial terms and concluded a number of major cooperation, funding, equity and shareholder agreements with members of the consortium during 2012. We have also provided a fully termed gas transportation agreement, which is one of the key agreements that Shah Deniz needs from the transportation side.
When you go back a year or so, you will see the tremendous advances made by TAP. For example, we were selected by the consortium in February last year as the preferred southern route; in June 2012, the Shah Deniz partners signed a Cooperation Agreement with TAP, followed in August by a Funding and Equity agreement, and in November last year, TAP and Shah Deniz partners SOCAR, BP and Total concluded the Shareholder Agreement which defined how the TAP Joint Venture would be governed when it is selected. So, I think that we are ahead in this competition.
We also have a project that is owned by major European shareholders: Axpo from Switzerland, Norway's Statoil and E.ON from Germany. As a result, TAP is very strong financially, technically and commercially, as these companies are world leaders in building and developing pipelines. Statoil and E.ON alone have constructed twenty thousand kilometres of pipelines across Europe. In addition, from the financing aspect we have letters of interest from the European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD) and also from various export credit guarantee agencies.
From the political aspect, again, TAP has moved ahead incredibly quickly over the past year. A major inter-governmental agreement was signed in support of TAP in February 2013 between our host countries, Italy, Greece and Albania. In addition, Albania and TAP have signed a Host Governmental Agreement and a Host Government Agreement between TAP and Greece will be concluded shortly - in a matter of weeks. TAP has also secured Third Party Access Exemption from the national regulators of each of its host countries and this has been approved by the European Commission.
We continue to enjoy tremendous political support from Italy, Albania, Greece and also the strong backing of the European Commission. Beyond that, we have managed to secure the support of the Western Balkans - here I am referring to Montenegro, Bosnia and Herzegovina, Croatia, Slovenia, etc. Moreover, four of these Western Balkan governments (Albania, Montenegro, Croatia and Bosnia Herzegovina) signed a MoU to support the realisation of TAP and the potential link to the Ionian Adriatic Pipeline. This was followed by a declaration in support of the TAP project issued by the Adriatic and Ionian Council, which included eight European governments -- Albania, Bosnia and Herzegovina, Croatia, Greece, Italy, Montenegro, Serbia and Slovenia. This shows TAP's ability to deliver strong political support from South Eastern Europe (SEE) and the Western Balkan region in particular.
From the political perspective, we were able not only to get complete support from the Western Balkans, but we can also look at the delivery of gas to Bulgaria, Western Balkans, Italy and beyond.
So, as an entire concept I believe TAP is in a very strong and competitive position.
Q.: As you mentioned, there was a certain breakthrough for TAP in 2013 in terms of project development, political and financial support. What additional support would you want for the project? Is TAP satisfied with its cooperation with Shah Deniz?
A.: I think we have done everything possible and more. I really don't think that there is anything more we could do in order to be selected. We have concluded all required political, commercial and financing agreements, and our technical offer is very strong.
As for cooperation with the Shah Deniz Consortium, it is excellent. The agreements that TAP has with some of the Shah Deniz shareholders, as mentioned earlier, were concluded six to eight months ahead of the competition. This confirms just how strong the cooperation is between us. We were also the first pipeline to be pre-selected by the Shah Deniz Consortium and entered into exclusive negotiations for the 'southern' route, to transport gas to Italy. Today we find ourselves ahead of the game.
Q.: What is your overall assessment of the European natural gas market in the future? Is TAP ready to meet the challenges of a changing energy world?
A. I should clarify that TAP is a transportation project and is not responsible for selling any gas. The marketing and selling of gas is taken care of by the Shah Deniz consortium that will determine which markets they will sell their gas to. As for Italy as a target market - as the second largest gas market in continental Europe, we are confident that Italy is a very strong market that offers solid demand and good prices for Shah Deniz gas. In addition, TAP can facilitate deliveries of gas to a host of other potential markets including Greece, Albania and Bulgaria. When TAP is realized, the connections to the South Eastern European markets will be implemented quickly.
Q.: Turkmenistan has also stated its willingness to supply gas to Europe, which could make Azerbaijan an even more important energy player in the region. In certain cases (such as the realization of the Trans-Caspian Gas Pipeline), experts note that indeed two pipelines may be built (both Nabucco West and TAP). How would you evaluate this possibility?
A. We have stated publicly that we believe in time there will be a need for additional export capacity from the Caspian and beyond. However, at this stage, only one project can be selected due to the limited amount of gas volumes from Shah Deniz -- 10 billion cubic meters. We believe that TAP will be the first project to be selected for the reasons I mentioned earlier. In time, however, this can all change as there will be more gas from Azerbaijan, such as Azeri-Chirag-Guneshli (ACG), Shafag, Absheron, Babek, Umid and many others.
However, if other volumes come from further fields like Turkmenistan or the Middle East, if all of these gas opportunities are realized, then we believe that at least two pipelines will come to Europe - TAP that will open up the corridor and then Nabucco West will follow with gas from other sources.
Q. SOCAR recently announced that it does not plan to stifle Europe with high gas prices. What is your view about that? How would you assess Azerbaijan's role as an energy hub in the future?
A. Shah Deniz gas will bring more liquidity to the European gas market, so it will be a real benefit for Europe and European customers. That is why the European Commission is very supportive of bringing Azerbaijani gas to Europe. It reduces the dependence on the few suppliers that are transporting gas to Europe today. As for what the specific gas price will be, I see the market moving now increasingly towards spot pricing as opposed to long-term oil index pricing. So, from that point of view, I think we will see changes in long-term gas sales contracts.
Certainly, Azerbaijan will become more and more important as an exporter of gas. I also think it is important for Azerbaijan to monetize the value of its own gas. Once Azerbaijan secures an exit route to Europe, it can start to reconsider other options for bringing gas from Turkmenistan and beyond, and be a potential energy hub for the wider region.
The future is most definitely bright for Azerbaijan.
Source: Azernews