Baku, Azerbaijan, June 4
Both the Sangachal terminal launch and the upcoming inauguration of TANAP, later in June, constitute noteworthy steps towards the timely implementation of the Southern Gas Corridor pipe network, energy analyst Mariana Liakopoulou said in an interview with Azernews.
However, it is not that the project has faced zero hindrances, since 1999, when the first drillings took place in the Shah Deniz contract area, according to the expert.
"We all remember the security challenges for SCP as a result of the 2008 South Ossetian conflict, the wrangling among SOCAR, BOTAS and TPAO, that held back TANAP’s shareholders’ agreement for a couple of months, back in 2012, and the 2015 prolongation by the EC and the Greek, Albanian and Italian regulatory authorities of the validity period of TAP’s exemption from EU’s third-party access rules due to a delay in the pipeline’s scheduled completion timeframe," she said.
But, overall, beginning of the SGC’s operations is not likely to miss its 2020 deadline, when deliveries from SD2 will have reached their plateau level of 16bcm (6bcm contracted for the Turkish market and 10bcn for European buyers), Liakopoulou noted.
"The importance of the SCG for Europe lies in its contribution to the pursued gas-supply diversification and long-term energy security, a core pillar of the envisioned Energy Union strategy aiming at building a fully integrated intra-EU gas market," she said.
"Latest approval of loan packages by the EIB, EU’s lending arm, and the EBRD for TAP and TANAP, despite the unfolding fossil fuel divestment campaign, that brought about a motion by the Green MEPs against the inclusion of new gas infrastructure in the PCI list, reaffirm Europe’s determination to move the project forward by providing the much-needed external financing to complement the Azerbaijani State Oil Fund’s spending," the expert noted.
Unique chance for Azerbaijani gas supplies
As for Azerbaijan itself, the SGC serves as the gas value chain through which the country will have the chance to export significant gas amounts to markets beyond Georgia and Turkey, according to Liakopoulou.
"It will also enable SOCAR’s energy partnerships with member-states traditionally over-reliant on a single gas supplier, like Bulgaria, as well as with ill-gasified candidate countries, like Albania. Let’s not forget that TAP was chosen as the third segment of the SGC in 2013 because of its notably shorter and cost-effective (in comparison with other discussed projects, such as Nabucco) length, which allows Europe to utilize reverse flows towards multiple existing and proposed directions (Kula-Sidirokastro, Interconnector Greece-Bulgaria, Ionian-Adriatic Pipeline, Trans Austria Gas Pipeline)," she added.
Furthermore, its underground storage facilities ensure a secure and reliable gas supply in case of future energy shortages, like the ones experienced by the EU during the 2006 and 2009 Russia-Ukraine gas disputes, according to the expert.
"As the initiator, and currently the only supplier of the SGC, Azerbaijan automatically becomes involved in a broader effort to speed up the gasification of the EU-hopeful Western Balkans and treat gas market integration issues in Southeast Asian (SE) and Central and Eastern Europe (CEE) markets, including through the considered Greece-Ukraine Vertical Gas Corridor, starting from TAP’s connection to the IGB line on the border between Greece and Bulgaria," she said.
Liakopoulou went on to say that notwithstanding being a major interstate gas system, the SGC’s initial 10bcm capacity represents no more than a rather symbolic 2 percent of the EU’s total gas consumption.
"It should be reminded that TANAP’s capacity is scalable up to 23-31BCM/a by 2023-2026, while TAP is also expected to double supplies, as soon as it branches off in the Balkans via IGB and IAP. Against the backdrop of an upward EU gas demand trend, declining domestic production in view of Groningen phase-out by 2022, and in order for the investing companies’ netback margin to increase, it is vital to have a full SGC," she said.
Investment decisions for two additional compressors as part of TAP, and for another five as part of TANAP, will have to be taken, so that the aforementioned throughput is achieved, according to the expert.
"Azerbaijan could possibly add some extra 10BCM to the route by 2025, as by that time the country will have managed to essentially up indigenous gas output either from already producing fields, like Umid, or from currently developed fields, like Absheron. Nevertheless, EU’s fundamental vision on the fourth/southern gas corridor, worked out since the start of the 21st century, has to do with a wider number of suppliers from the Caspian and the Middle East," she added.
Additional sources for SGC
Speaking of other gas-rich countries’ possible participation in the project, Liakopoulou noted that Turkmenistan is the first country that undoubtedly comes to mind when talking about prospective SGC contributors.
"For one thing, the country has the reserves in place and ready for delivery following completion of the East-West pipeline in 2015. But the lack of the SGC’s eastward extension link, namely the Trans Caspian Gas Pipeline (TCGP), renders this plan presently unfeasible, although still not abandoned by the EU, who will fund the project’s study under its 2017 CEF energy call," she said.
Optimism, mainly exuded by Russia, regarding the settlement of the Caspian legal status within 2018, a development that will facilitate bilateral or trilateral cooperation on projects like TCGP without the need for consent of all five littoral states, creates new hope for Turkmenistan’s gas exports to Europe, according to the expert.
"Furthermore, the August 2017 rapprochement between Presidents Ilham Aliyev and Gurbanguly Berdimuhamedov could lead to the two countries at some point finding common ground on their Serdar/Kyapaz quarrel, which has also prevented TCGP progress to this day," she stressed.
Still, commercial viability remains a cause of concern after nearly over twenty years of deliberations on the pipeline materialization, according to Liakopoulou.
"Finally, the construction of White Stream, that will connect to the Bulgaria-Romania-Hungary-Austria (BRUA) pipeline on the European territory, is highly likely to be set as a prerequisite, in order for Ashgabat to agree to send gas through both strings of TCGP," she added.
The expert pointed out that Iran’s willingness to negotiate its accession to the SGC had been repeatedly demonstrated after the 2015 nuclear deal conclusion.
"Its participation would entail either construction of a 1,800km pipeline from South Pars to the Iranian-Turkish border for direct transportation of domestic supplies through TANAP or further gas swap transactions with Turkmenistan, projected to grow in spite of an ongoing bilateral gas debt tiff. However, the U.S. exit from the JCPOA will discourage investments in new energy infrastructure projects and upstream activity in Iran, possibly bringing negative implications for Iran’s SGC ambitions," she said.
Liakopoulou further noted that Kazakhstan and Uzbekistan are thought of as two more supplier alternatives for the SGC.
"The former could seek to attract investment interest in a 600km-long onshore line from Tengiz field up to Turkmenbashi seaport, although the government has prioritized response to domestic gas demand, especially in the poorly interconnected Astana and Central and Northern regions, prior to any large-scale export projects. The latter’s highly sulfurous gas constitutes a deterring factor due to processing costs," she said.
No matter which of the above suppliers will get to find a place on the SGC, it is evident that a great deal of new infrastructure has yet to be built in the east of Azerbaijan, a fact that begs the question as to the exact number of bidders for TAP’s remaining 10bcm through the open season auctions, in two years’ time, according to the expert.
New hub for Europe
In conclusion, Liakopoulou said that at a moment when gas LTCs are dying out in Europe, and while the Commission is trying to handle a monopoly abuse case in relation to its dominant gas supplier and gain transparency and liquidity for its markets, the term of regional gas trading hubs has been excessively used with reference to an array of SE countries.
"Caspian shipments via the SGC network, along with U.S. LNG imports via the planned Alexandroupolis FSRU in northern Greece, the export versions of the Eastern Mediterranean supplies (East Med pipeline, Israel-Turkey pipeline, Egypt LNG exports) and even the Russian-devised southern supply corridor via Turkish Stream (towards Greece and Italy or Bulgaria and the Balkans), all constitute interconnections and entry points that could set into operation a hub between Greece and Turkey determining spot prices," she said.
Even though it is too early to speak of hub aspirations, one should recognize SGC’s conducive role for an impeding proper implementation of the Energy Union precepts concerning obligatory access of SE and CEE member-states and Energy Community parties to at least three different sources of gas, the expert concluded.
The Southern Gas Corridor, worth $41.5 billion, is considered as one of the priority energy projects for the EU, which strives for diversification of gas supplies. The project envisages the transportation of gas from the Caspian region to the European countries through Georgia and Turkey.
At the initial stage, the gas to be produced as part of Stage 2 of development of Azerbaijan's Shah Deniz field is considered as the main source for the Southern Gas Corridor projects. Other sources can also connect to this project at a later stage.
As part of Stage 2 of the Shah Deniz development, gas will be exported to Turkey and European markets by expanding the South Caucasus Pipeline and the construction of Trans Anatolian Natural Gas Pipeline and Trans Adriatic Pipeline.
The first gas within the Shah Deniz-2 project will be delivered to Turkey in 2018, and to Europe in 2019.