EU says opening of Southern Gas Corridor a priority in European Commission’s energy agenda

EU says opening of Southern Gas Corridor a priority in European Commission’s energy agenda

Azerbaijan, Baku, Feb. 27 / Trend A.Badalova /

The opening of the Southern Gas Corridor is a priority in the European Commission's energy agenda, and this year will be pivotal for the Corridor with the ultimate decision on the pipeline route and the final investment decision on the entire project, EU Energy Commissioner Gunther Oettinger said in an interview with Trend.

"The aim of the Commission has always been to open the Southern Gas Corridor for the EU in order to directly and physically link the EU gas market to the largest deposits of gas in the world in the Caspian Sea basin and the Middle East," Oettinger said.

With regard to the two pipeline options in the EU, pre-selected by the Shah Deniz partners, Oettinger said that the Commission is neutral where the gas ends up in Europe, and the Commission equally supports TAP (Trans Adriatic Pipeline) and Nabucco-West.

"Our policy remains that we firstly, want to see a dedicated pipeline to be built outside the EU, and if its capacity is limited at the start, it should be ensured to legally and technically increase the capacity to transport higher volumes at a later stage when these become available, and secondly, we want a clear and transparent legal framework for the pipeline which would ensure uninterrupted gas supply to the EU," Oettinger said.

"We understand from our contacts with the Turkish and Azerbaijani authorities that TANAP (Trans-Anatolian Gas Pipeline) meets both of these requirements.

Oettinger expressed the confidence that with the recent signatures of Inter-Governmental Agreements for TANAP and TAP, shareholder agreements for Nabucco-West and TAP, the projects, in any eventual configuration, will deliver new gas to the European Union and the Energy Community countries.

The Southern Corridor is one of the EU's priority energy projects aimed at diversifying the routes and sources of energy supply, thereby increasing secure delivery. Gas which will be produced during the second stage of the Azerbaijani Shah Deniz field development is considered as the main source for the Southern Gas Corridor projects.

Currently, the Shah Deniz consortium is considering two variants for its gas transportation to Europe - TAP and Nabucco West. The final decision on the pipeline route will be made in June, 2013.

TANAP project envisages gas transportation from Shah Deniz field to Europe via Turkey. The initial capacity of the pipeline is expected to reach 16 billion cubic meters per year. Around 6 billion cubic meters will be delivered to Turkey, and the rest - to Europe.

Trans-Caspian Pipeline project

According to Oettinger, the Trans-Caspian pipeline project is important for the further development of the Southern Gas Corridor.

"Aside from the export of Azerbaijani gas to EU, the development of the Trans-Caspian Pipeline is important to further develop the Southern Gas Corridor that has a significant impact on the EU gas supply diversification," Oettinger said.

The Commissioner stressed that the corridor should ultimately bring more than 40 billion cubic metres (bcm) of natural gas to the Union every year and the export of gas resources in Turkmenistan through the Trans-Caspian Pipeline can contribute to this objective.

With regard to the negotiations on the Trans-Caspian Pipeline, Oettinger said that the first rounds of talks of the EU with Azerbaijan and Turkmenistan on this project, which took place in 2011 and 2012, helped to understand the positions and the ambitions of the different parties around the negotiation table.

"During the most recent rounds of negotiations, serious progresses have been made on the design of the framework agreement for the development of this project," Oettinger said.

The next meeting, according to Oettinger, should help the parties around the table to find a common view on the remaining points of the framework agreement concerning the deliveries of gas volumes from Turkmenistan and the associated transit in Azerbaijan.

"We share with Azerbaijan and Turkmenistan the ambition of reaching rapidly an agreement on the respective rights and responsibilities, but it would be too speculative to give a final date for the negotiations at this stage," Oettinger said.

The Trans-Caspian gas pipeline is planned to be laid from the Turkmen coast of the Caspian Sea to the Azerbaijani coast. The pipeline's length will hit about 300 kilometers.

Negotiations on the construction of the pipeline between Turkmenistan, the EU and other countries have been held since the late 1990s.

The negotiation process has been intensified after the European Union delivered a mandate to start negotiations on the preparation of an agreement between the EU, Azerbaijan and Turkmenistan on the Trans-Caspian project in September 2011. However, Iran and Russia later expressed their negative attitude towards the project. Tehran and Moscow think the pipeline construction may damage the Caspian Sea's ecology.

In February Azerbaijani Minister of Industry and Energy Natig Aliyev said that two documents which must be signed at the level of the Azerbaijani, Turkmen presidents, head of the European Commission and the governments of the two Caspian-littoral countries, are being prepared within the Trans-Caspian gas pipeline project.

He said that three sides will support the corridor within the first document. The second document must be signed between the Azerbaijani and Turkmen governments.

EU internal energy market

The EU internal energy market will create the potential for partnerships benefiting the EU, its Member States and the EU's partners, Oettinger said.

"The EU internal energy market, in particular its solid legal framework for energy trade, investment and safety, gives the EU much strength and create the potential for partnerships benefiting the EU, Member States and the EU's partners abroad," Oettinger said.

The Commissioner stressed that 27 EU European Heads of States or Governments set a clear deadline of 2014 for the completion of the EU's internal energy market, "which is a key instrument in delivering what EU citizens and business aspire to most: economic growth, jobs, secure coverage of their basic needs at an affordable and competitive price, and sustainable use of limited resources."

"The regulatory framework which has been progressively put in place at the EU level entails important consequences towards partner countries such as in the field of network access, safety and competition provisions. This is why we also want to build up the external dimension of our internal energy market," Oettinger said.

To create a genuine internal market for energy is one of the EU's priority objectives. The European Commission believes that the existence of a competitive internal energy market is a strategic instrument in terms both of giving European consumers a choice between different companies supplying gas and electricity at reasonable prices, and of making the market accessible for all suppliers, especially the smallest and those investing in renewable forms of energy. Moreover, a truly integrated market will contribute to diversification and thus to security of supply.

In February 2011 the EU Heads of States declared the need to complete the internal energy market by 2014.

Oettinger stressed that the EU energy market depends on high levels of imports to function, and therefore depends on free and transparent markets. According to Oettinger, supply security in one part depends on security across the market as a whole.

"We want to use the leverage of the EU internal energy market to facilitate large-scale infrastructure projects linking the EU network to third countries," Oettinger said.

Gas demand in EU countries

According to the Commissioner's information, the EU's natural gas consumption for the first half of 2012 represented the EU's lowest first half year consumption of the last ten years.

"It was 7 percent less than in the first half of 2011 and 14 percent less than in the first half of 2010," Oettinger said.

Oettinger stressed that gas will be critical for the transformation of the energy system.

"Substitution of coal (and oil) with gas in the short to medium term could help to reduce emissions with existing technologies until at least 2030 or 2035," Oettinger said.

According to Oettinger, gas will stay high in sectors such as the power sector over a longer period. "With evolving technologies, gas might play an increasing role in the future," Oettinger said.

The Commissioner said that the scenarios are rather conservative with respect to the role of gas.

"The economic advantages of gas today provide reasonable certainty of returns to investors, as well as low risks and therefore incentives to invest in gas-fired power stations. Gas-fired power stations have lower upfront investment costs, are rather quickly built and relatively flexible in use," Oettinger said.

"Investors can also hedge against risks of price developments, with gas fired generation often setting the wholesale market price for electricity. However, operational costs in the future may be higher than for carbon free options and gas fired power stations might run for fewer hours," Oettinger added.

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