Status of Southern Gas Corridor projects for December 2018

Oil&Gas Materials 5 January 2019 14:42 (UTC +04:00)

Baku, Azerbaijan, Jan.5

By Leman Zeynalova – Trend:

Southern Gas Corridor (SGC) project initiated by Azerbaijan, is one of the priority projects for the European Union (EU). It envisages transportation of gas from the Caspian Sea region to European countries through Georgia and Turkey.

This large-scale project is aimed at diversification of energy supply routes and sources, thereby contributing to strengthening Europe’s energy security. SGC project will for the first time in the history ensure the supply of Caspian gas resources to European markets.

On December 17, 2013, a final investment decision was made on the Stage 2 of the Shah Deniz offshore gas and condensate field's development. The gas produced at this field will first go to the European market (10 billion cubic meters). Around six billion cubic meters will be annually supplied to Turkey.

In November 2017, the European Commission approved the updated list of the Projects of Common Interest (PCI), which again included the Southern Gas Corridor. Gas pipeline to the EU from Turkmenistan and Azerbaijan, via Georgia and Turkey, currently known as the combination of Trans-Caspian Gas Pipeline (TCP), South Caucasus Pipeline Future Expansion (SCPFX) and Trans Anatolia Natural Gas Pipeline (TANAP), gas pipeline from Greece to Italy via Albania and the Adriatic Sea [currently known as Trans-Adriatic Pipeline (TAP)], including metering and regulating station and compressor station at Nea Messimvria, Greece are in the third list of PCIs.

The cost of the Southern Gas Corridor project is currently estimated at $40 billion.

In late December 2017, Azerbaijani government and Asian Development Bank (ADB) signed loan and guarantee agreements on allocation of $524.5 million worth syndicated loan to Azerbaijan’s Southern Gas Corridor CJSC to support the second stage of development of Shah Deniz gas and condensate field.

Loans directly attracted from the International Bank for Reconstruction and Development (IBRD) and Asian Infrastructure Investment Bank (AIIB) have been fully utilized by Azerbaijan’s Southern Gas Corridor CJSC.

IBRD allocated $400 million worth loan to the Southern Gas Corridor CJSC. The loan was issued for a period of 30 years with preferential insurance of five years. AIIB allocated $600 million loan for the implementation of the Trans Anatolian Natural Gas Pipeline (TANAP) project on December 21, 2016.

Both of the loans were fully utilized as of Feb.27, 2018.

In March 2018, Interministerial Committee of Germany agreed to provide a guarantee for allocation of up to $1.5 billion loan to finance Azerbaijan’s commitment in Shah Deniz 2 and Trans Anatolian Natural Gas Pipeline (TANAP) projects.

In April 2018, Spain's Gas Natural Fenosa transferred its obligations under the deal on gas sale within the Shah Deniz 2 project to the Italian company Edison. Edison got the right to supply gas within the Shah Deniz 2 project for a period of 25 years.The total consideration payable is 30 million euros for the gas supply contract, of which a down payment of 10 million euros and an earn-out of 20 million euros, payable starting from 2021 subject to the first delivery of gas to Italy through the TAP pipeline.

On May 29, 2018, Baku hosted the launch ceremony of the first phase of the Southern Gas Corridor project.

On June 29 of 2018, the loan and guarantee agreements were signed in relation to the syndicated loan facility to Southern Gas Corridor CJSC in the total amount of $750 million ($500 million and 215 million euros) backed with the guarantees of the Republic of Azerbaijan (sovereign guarantee) and MIGA for the purpose of financing TANAP project, which is part of the Southern Gas Corridor.

First commercial gas deliveries to Turkey commenced within the Southern Gas Corridor on June 30, 2018.

Trans Anatolian Natural Gas Pipeline (TANAP)

TANAP project envisages transportation of gas from Stage 2 of Azerbaijan’s Shah Deniz field from Georgian-Turkish border to Turkey’s western border. Currently, the total cost of TANAP is $7.9 billion.

The initial capacity of TANAP is expected to stand at 16 billion cubic meters of gas per year, with possibility of expanding to 31 billion cubic meters per year in the future. Around 6 billion cubic meters of gas will be delivered to Turkey, while the rest of the volume will be supplied to Europe.

TANAP shareholders are as follows: Southern Gas Corridor CJSC – 51 percent, SOCAR Turkey Enerji – 7 percent, BOTAS – 30 percent and BP – 12 percent.

SOCAR Turkey Enerji AS, a subsidiary of Azerbaijan’s state oil company SOCAR in Turkey, became the owner of a 7 percent stake in TANAP project. The corresponding deal was completed at the end of March 2018.

Line fill began in the TANAP pipeline across Turkey in late January 2018.

A ceremony to launch Phase 0 of TANAP took place June 12, 2018 in the Turkish city of Eskisehir.

First commercial gas deliveries to Turkey commenced on June 30, 2018.

As of December 2018, more than 98 percent of TANAP has been completed (including both phases).

It is planned to complete the Phase 2 of TANAP in June 2019. After completing the test work, gas will be delivered to Greece by late 2019.

About 750 million cubic meters of natural gas has already been delivered to Turkey via the TANAP as of mid-December 2018 and by the end of the year the volume of the delivered gas will total up to 1 billion cubic meters.

Строительство компрессорных станций турецкой компанией Tekfen в рамках проекта TANAP завершено на 93 процентов. Работы по строительству компрессорных станций в рамках фазы "1" проекта TANAP завершены на 95 процентов. В 2019 году компания планирует полностью завершить свою работу по проекту.

Construction of the compressor stations as part of TANAP is 93 percent complete. TANAP Compressor Stations Phase 1 construction work is 95 percent complete. The company will complete its work on TANAP in 2019.

Project status

The World Bank Board of Directors approved $800 million for this project on Dec.20, 2016. Of this amount, $400 million is considered for the Southern Gas Corridor CJSC (Azerbaijan) and $400 million for BOTAS (Turkey).

Asian Infrastructure Investment Bank (AIIB) approved allocation of a loan worth $600 million for the TANAP project on Dec.21, 2016.

The EBRD Board of Directors approved $500 million worth loan for TANAP on Oct. 18, 2017.

The International Human Resources Development Corporation (IHRDC), a worldwide leader in oil and gas training and competency development, won a landmark contract in May 2017 to provide its training solutions to the operations, maintenance and integrity personnel employed by TANAP.

Serimax, a subsidiary of France-based Vallourec company, successfully completed the welding scope for TANAP project in October 2017.

Turkey’s Toscelik Spiral Boru company completed the delivery of pipes for TANAP ahead of the schedule in April 2017.

The Marmara sea crossing phase of TANAP commenced in September 2017.

The European Investment Bank (EIB) Board approved 932 million euros of financing for TANAP in March 2018.

MIGA, a member of the World Bank Group, issued $1.1 billion worth of guarantees in support of TANAP in July 2018.

Global law firm Norton Rose Fulbright advised a consortium of lenders on a Multi-Lateral Investment Guarantee Agency (MIGA) financing in August 2018. MIGA’s guarantees provide protection in the event the Republic of Azerbaijan fails to honor its sovereign guarantee on SGC CJSC’s payment obligations under the loans. The fifteen-year guarantee is being offered to cover AKA Bank, Citi, Crédit Agricole CIB, ING, LBBW, Santander and Société Générale for their loans to Southern Gas Corridor.

ABB’s security, monitoring and communications technology was installed on TANAP in September 2018. As part of the project and for the first time in a subsea water crossing, ABB has installed a fiber optic leak detection and subsea pipeline monitoring system detecting events such as anchor drag.

Trans Adriatic Pipeline (TAP)

TAP project envisages transportation of gas from Azerbaijan's Shah Deniz Stage 2 to the EU countries.

TAP will be 878 kilometers in length (Greece 550 kilometers, Albania 215 kilometers, Adriatic Sea 105 kilometers, and Italy 8 kilometers).

The initial capacity of TAP will be 10 billion cubic meters per year with the possibility of expanding to 20 billion cubic meters.

TAP’s shareholding is comprised of BP (20 percent), SOCAR (20 percent), Snam S.p.A. (20 percent), Fluxys (19 percent), Enagás (16 percent) and Axpo (5 percent).

TAP can also ensure gas supply to several countries in South-East Europe, including Bulgaria, Albania, Bosnia and Herzegovina, Montenegro, Croatia and other countries by connecting to the Ionian Adriatic Pipeline (IAP).

Bulgaria can receive gas via the Interconnector Greece-Bulgaria (IGB).

Some large European markets, such as Germany, France, UK, Switzerland and Austria can receive gas from Italy, which is the end point of TAP.

It is planned to hold the next market test as part of TAP project in mid-2019.

Project status

In terms of overall progress, TAP is more than 82 percent complete.

Specifically, in Greece, as of early-December, TAP has completed right of way clearance and stringing (approximately 550 km in total). Also, over 547 km have been welded, 535 km back-filled and approximately 492 km are being reinstated.

In Albania, right of way clearance and stringing (approximately 215 km in total) have been completed, 214 km have been welded and approximately 177 km are being reinstated.

This means that between Greece and Albania, around 97 percent pipes are already in the ground (back-filled).

In Italy, at the moment, works are under way at the pipeline receiving terminal, the micro-tunnel site and the exit point at sea.

Overall progress at Fier in Albania is nearly 74 percent complete and at Kipoi in Greece, is 79 percent complete. The piping fabrication at Kipoi is complete and over 90 percent of the piping is installed, with hydro strength testing progressing on schedule. The three compressor units are installed, and final alignment is complete, with mechanical and electrical hook up in progress.

In Fier the piping fabrication is also complete with piping installation more than 80 percent finalised and hydro strength testing under way. With the three compressor units installed in June 2018, final alignment is ongoing.

At both stations TAP teams are working towards mechanical completion in the second quarter of 2019, with overall completion scheduled for the third quarter of 2019.

Finally, TAP metering station at Bilisht, Albania (near the Greek border) is 72 percent complete.

TAP marked the start of construction works for the 105km offshore pipeline section in October 2018. The offshore section is 10 percent complete as of late November 2018.

At TAP’s Albanian landfall site, work is underway for building the temporary cofferdam and causeway. In Italy, preparations for the construction of the micro-tunnel are well underway. Offshore pipeline installation will start in 2019. Saipem is TAP’s contractor in charge of the engineering, procurement, construction and installation of the offshore section of the project.

The European Investment Bank in February 2018 approved a 1.5 billion euro loan for the Trans-Adriatic Pipeline.

In April 2018, the environmental management system of the Trans Adriatic Pipeline (TAP), that covers all pipeline construction activities in Italy, Albania and Greece as well as TAP corporate activities, was certified according to the International Organization for Standardization (ISO) 14001:2015 standard. ISO 14001 ensures the effective management of environmental aspects and helps TAP continually improve its environmental performance, through more efficient use of resources and the reduction of waste.

In May 2018, a1820-meter directional drill underneath the Axios River in Greece was completed as part of the construction of the Trans Adriatic Pipeline.

On 8 June 2018, the Trans Adriatic Pipeline AG marked the successful installation of all three turbo compressors at its compressor station in Fier, Albania.

The Trans Adriatic Pipeline (TAP) carried out 19 pipeline river crossings in Albania in June 2018.

With the cooperation agreement signed between ICGB AD, the operator of the Interconnector Greece-Bulgaria (IGB) and TAP AG, the consortium for construction of the Trans Adriatic Pipeline (TAP), both parties agreed generally on the provisions of the physical connection between the both pipeline systems in June 2018. The cooperation agreement defines the interconnection facilities - interconnection point, connecting pipeline, fiscal metering and regulating station, isolating joint and fiber optic cable connection.

The Board of Directors of the European Bank for Reconstruction and Development (EBRD) approved a loan of 500 million euros for the Trans Adriatic Pipeline project in July 2018.

At the end of July 2018, the Trans Adriatic Pipeline completed the construction of the 1.5km micro-tunnel in Skrapar, Albania.

Construction work for the Trans Adriatic Pipeline reached the highest elevation point of the project, around 2.1 km above sea level, on the Ostrovica mountain in August 2018.

The Trans Adriatic Pipeline (TAP) and the Trans Anatolian Pipeline (TANAP) successfully completed their connection with the final “golden weld”, which physically connected the two pipelines in November 2018.

On 14 November 2018, Trans Adriatic Pipeline (TAP) signed a Letter of Intent, marking the final stages of negotiation of the Maintenance Agreement talks between TAP and Albgaz Sh.a and Snam S.p.a.

The Trans Adriatic Pipeline (TAP) AG and the Greek National Natural Gas System Operator (DESFA) SA signed an agreement on the maintenance of Greek section of the TAP pipeline in December 2018.

Petrofac’s Engineering & Production Services (EPS) East division secured an operations and maintenance support services contract with Trans Adriatic Pipeline (TAP) AG IN December 2018.

The work on constructing interconnection between Trans Adriatic Pipeline (TAP) receiving terminal and gas network of Italy’s Snam company will start from Jan.12, 2019. In the first weeks the company will carry out exclusively preparatory work on TAP interconnection. The physical construction of the interconnection will begin in February-March 2019. TAP Interconnection is the gas pipeline (extending for round 55 Km) from TAP PRT (Pipeline Receiving Terminal) in Melendugno (LE) to the existing Snam Rete Gas network in Brindisi/Mesagne and crossing the municipalities of Melendugno, Vernole, Castrì, Lizzanello, Lecce, Surbo, Torchiarolo, San Pietro Vernotico, Brindisi.

TAP’s construction is split into five lots (or sections) – three lots in Greece and two lots in Albania. The joint venture comprised of Bonatti S.p.A (Italy) and J&P AVAX S.A (Greece) has been awarded the EPC contract for two lots in northern Greece. The sections cover approximately 360km of pipeline, stretching between Kavala and Ieropigi (Albanian border).

SPIECAPAG (France) has been awarded the EPC contract for a 185km lot in Greece, between Kipoi and Kavala, as well as two lots in Albania (215km in total), stretching from Bilisht to Topoje.

Macedonia has expressed interest in joining TAP. The relevant request has been sent to TAP consortium in Greece, however, no response has been received so far.

Russia’s Gazprom has expressed readiness to consider TAP as an additional option for gas export to Europe.

Baku-Tbilisi-Erzurum (South Caucasus Pipeline)

The length of the Baku-Tbilisi-Erzurum pipeline is more than 700 kilometers. This gas pipeline transports the gas produced at the Shah Deniz gas condensate field in the Azerbaijani sector of the Caspian Sea. The gas is supplied to Georgia and Turkey. Azerbaijan is also a gas buyer. South Caucasus Pipeline Expansion project is underway as part of Shah Deniz 2.

Capital expenditure on the South Caucasus gas pipeline amounted to about $308 million in January-September 2018, as compared to $636 million a year before.

Operating expenditure on the gas pipeline totaled nearly $27 million during the period, while this figure was $21 million in January-September 2017.

South Caucasus Pipeline’s daily average throughput was about 22 million cubic meters of gas per day in January-September 2017.

The gas from the Azerbaijani Shah Deniz field has already gone through the first segment of the Southern Gas Corridor - from the Sangachal terminal to the expanded South Caucasus Pipeline.

The South Caucasus Pipeline Company, which owns the pipeline, has the following shareholders: BP (28.8 percent), TPAO (19 percent), AzSCP (10 percent), SGC Midstream (6.7 percent), PETRONAS (15.5 percent), LUKOIL (10 percent) and NICO (10 percent).

Project status

In January-October 2018, the South Caucasus gas pipeline (Baku-Tbilisi-Erzurum) accounted for 6.62 billion cubic meters of gas, compared to 5.97 billion cubic meters in the same period of 2017.

Currently, part of the gas from the total production is supplied to Turkey, Georgia and to the pumping stations of the Baku-Tbilisi-Ceyhan oil pipeline, and some is delivered to Azerbaijan from the Sangachal terminal by BP.

Interconnector Greece-Bulgaria (IGB)

IGB is a gas pipeline, which will allow Bulgaria to receive Azerbaijani gas, in particular, the gas produced from Azerbaijan's Shah Deniz 2 gas and condensate field. IGB is expected to be connected to TAP via which gas from the Shah Deniz field will be delivered to the European markets.

The pipeline’s length will be 182 kilometers.

The initial capacity of IGB will be 3 billion cubic meters of gas, with the possibility of exceeding 5 billion cubic meters of gas in the case of necessity.

BEH AD of Bulgaria holds 50 percent of this project, while the remaining 50 percent is owned by Greek DEPA and Italian Edison.

In January 2014, the Trans Adriatic Pipeline AG (TAP) and Interconnector Greece-Bulgaria (ICGB) signed a Memorandum of Understanding and Cooperation (MOUC) aimed at establishing the technical cooperation in order to further develop strategic infrastructure in the region.

The total investment cost of the project is estimated at around 240 million euros (excluding VAT), of which 220 million euros account for capital expenditures.

Bulgarian government has approved the state guarantee in the amount of 110 million euros for the project.

A loan agreement with the European Investment Bank (EIB) on financing the Interconnector Greece-Bulgaria (IGB) is expected to be signed in the coming months. The agreement concerns securing preferential loan financing in connection with using the state guarantee of Bulgaria for 110 million euros.

Currently, ICGB AD has an approved grant for co-financing the project in the amount of up to 45 million euros, under the European Energy Program for Recovery.

Project status

Bulgaria and Greece signed an agreement on final investment decision for IGB in December 2015.

Bulgaria’s Ministry of Regional Development and Public Works issued a permit for construction of the Interconnector Greece-Bulgaria (IGB) on Bulgaria’s territory in September 2017. The permit was issued for construction on the territory of Stara Zagora, Haskovo and Kardzhali districts.

Key agreements were signed on the Interconnector Greece-Bulgaria (IGB) project during the High Level Group Meeting on the Central and South Eastern Europe Connectivity (CESEC) on June 29, 2018 in Sofia, Bulgaria.

The following documents have been signed on IGB:

Position on the Intergovernmental Agreement – Term-sheet which will be the basis for further negotiation and signing of IGA for settling the tax regime between both countries;

Cooperation agreement between IGB and TAP for connectivity of the two gas pipelines;

Memorandum of Understanding for securing preferential loan financing in connection with using the state guarantee of Bulgaria;

Joint declaration between the shareholders in the project company for confirming a commitment for development and approval of a final business plan and an irreversible commitment of the shareholders for readiness to start construction;

Cooperation agreement for interconnection between ICGB and DESFA

Bulgaria and Greece have signed a political declaration for construction of the Interconnector Greece-Bulgaria in July 2018.

Following the decision of the European Commission on the Exemption of Interconnector Greece Bulgaria (IGB) from the requirements regarding third party access, tariff regulation and ownership unbundling, on August 8 the National Regulators of Greece and Bulgaria adopted an official Joint Exemption decision for IGB.

ICGB AD nominated the National Archaeological Institute with museum for contractor of a public procurement procedure for archaeological studies of archaeological sites found along the route of the gas interconnector Greece-Bulgaria in August 2018.

The European Commission found Bulgarian and Greek plans to support the construction and operation of a natural gas interconnector to be in line with EU State aid rules in November 2018.

On Nov.27, 2018, the offers of the participants in the procedure for selection of a consultant for construction supervision for construction of gas interconnector Greece-Bulgaria were opened. Within the deadline were submitted three offers from the following companies: ESM Ltd., Joint venture EKO BUL CONTROL and Joint venture GAS EXPERT 2018.

An administrative contract for direct grant awarding was signed between the Project Company ICGB AD and the Managing Authority of the Operational Program "Innovation and Competitiveness" 2014-2020 for the project "Construction of Gas Interconnector Greece-Bulgaria” amounting to 39 million euros in December 2018.

The intergovernmental agreement on IGB is expected to be approved in the first half of 2019.

IGB construction will begin in the first half of 2019.

Ionian Adriatic Pipeline (IAP)

Ionian Adriatic Pipeline can be connected to the Trans Adriatic Pipeline (TAP) to transport gas to many countries in South-East Europe.

The pipeline with total length of 516 kilometers will stretch from Albania through Montenegro, and Bosnia and Herzegovina, to Split in Croatia.

The capacity of the pipeline will amount to five billion cubic meters of gas per year.

TAP has already signed memorandums of understanding and cooperation with the developers of this project, in particular with companies of Plinacro (Croatia), BH-Gas (Bosnia and Herzegovina), Geoplin Plinovodi (Slovenia), as well as with the governments of Montenegro and Albania.

There has been created a TAP-IAP joint working group that gathers regularly to synchronize the timing of both pipeline projects and coordinate the technical issues of interconnection.

Project status

Possible time of implementation of the project hasn’t been announced yet.

A Memorandum of Understanding (MoU) on the Ionian Adriatic Pipeline (IAP) was signed in August 2016 by Albania, Bosnia and Herzegovina, Croatia, Montenegro and SOCAR.

In September 2016 it was announced that SOCAR will be a technical consultant in IAP project.

Western Balkans Investment Framework (WBIF) allocated 2.5 million euros worth grant for IAP in February 2017.

The work on setting up a company for implementation of the Ionian Adriatic Pipeline (IAP) project is expected to be completed in the first half of 2019. More detailed information about the sources of financing the IAP project will be available after creating the IAP project.

Implementation of Terms of Reference for the Ionian-Adriatic Pipeline (IAP) project has started.

The Terms of Reference have been agreed upon among stakeholders in April 2018, and the implementation started in May 2018.

Trans-Caspian Gas Pipeline

Turkmenistan is studying the possibility of delivering its energy resources to the European market. To this end, it promotes the project for construction of the Trans-Caspian Gas Pipeline to the coast of Azerbaijan, wherefrom Turkmen gas can be delivered to Turkey and further to Europe.

The Trans-Caspian Gas Pipeline project may be implemented as part of the Southern Gas Corridor.

Recently, Turkmenistan, Azerbaijan, Turkey, Georgia and EU have intensified the talks on the implementation of the Trans-Caspian Gas Pipeline project.

EU began to actively lobby for this project hoping to receive Turkmen gas in 2019.

Project status

Currently, there are no direct agreements on the implementation of the Trans-Caspian Gas Pipeline project.

The talks on this project have been going on since 2011 between the major interested parties: EU, Azerbaijan and Turkmenistan.

Turkmenistan has expressed its readiness to supply 40 billion cubic meters annually to Europe, 10 billion cubic meters of which can be provided by the Petronas company, which operates in the Turkmen sector of the Caspian Sea. The remaining volume can be provided by the 800-km East-West pipeline, which originates from the Galkynysh field and finishes off the coast of the Caspian Sea.

In April 2015, a declaration on development of energy cooperation was signed in Ashgabat following the multilateral talks on the Trans-Caspian Gas Pipeline project between Turkmenistan, Azerbaijan, Turkey and the EU.

Moreover, in order to consider the complex of organizational, legal, commercial, technical and other issues related to gas supply from Turkmenistan to Europe, the parties agreed to create a working group at the level of deputy ministers in charge of energy issues of Turkmenistan, Azerbaijan, Turkey and the EU.

Islamic Development Bank is ready to study the possibility of supporting the Trans-Caspian Gas Pipeline project.

In June 2018, Georgia and the European Commission agreed to jointly finance the commercial engineering of the project.

Azerbaijan-Georgia-Romania Interconnector (AGRI)

AGRI project envisages transportation of Azerbaijani gas to the Black Sea coast of Georgia via gas pipelines. Azerbaijani gas delivered to Georgia's Black Sea coast will be liquefied at a special terminal and following this, it will be delivered in tankers to a terminal at the Romanian port of Constanta.

Further, it will be brought to the gaseous state and sent via Romanian gas infrastructure for meeting the demands of Romania and other European countries.

The project’s cost is estimated at 1.2-4.5 billion euros depending on the terminals’ capacity, which can vary between 2 and 8 billion cubic meters of gas per year.

The participants of the AGRI project are SOCAR, Georgia's Oil and Gas Corporation, as well as MVM (Hungary) and Romgaz (Romania). The parties established the SC AGRI LNG Project Company SRL with the purpose of developing the Feasibility Study.

Project status

Currently, the investment issue remains unclear. Azerbaijan has expressed readiness to take part in the project in the case of availability of private investors.

Azerbaijan, Georgia and Romania signed on June 24 2015 a joint declaration on supporting the development of the Azerbaijan-Georgia-Romania Interconnector project.

British engineering company Penspen presented to shareholders of AGRI the final version of the feasibility study (FS) of the project in late 2015.

Turkmenistan is highly interested in the Azerbaijan-Georgia-Romania Interconnector project. To supply this project with Turkmen gas, it is necessary to build a separate gas pipeline along the Caspian seabed to the coast of Azerbaijan or to deliver liquefied gas through the sea via tankers.


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