“Connecting to EastMed would elevate geopolitical significance of TAP”

Baku, Azerbaijan, May 23

By Leman Zeynalova – Trend:

Connecting to EastMed would elevate geopolitical significance of the Trans Adriatic Pipeline (TAP), Charles Ellinas, CEO of Cyprus-based energy consultancy e-CNHC told Trend.

Italian Prime Minister Giuseppe Conte has said that EastMed pipeline, which envisages transportation of East Mediterranean resources to Greece via Cyprus and Crete, could join the Trans Adriatic Pipeline (TAP).

Talking about the construction of Poseidon pipeline, the final leg of EastMed, he said that Italy is not prepared to allow the Poseidon pipeline landfall in the southern city of Otranto but the infrastructure to deliver East Mediterranean Sea gas could join the TAP pipeline.

“Before you talk about the viability of such a connection, it is important to consider the viability of the East Med gas pipeline itself. So far it has had the support of the governments of Israel, Cyprus and Greece and the European Commission, but no international oil company (IOC) or investor has yet expressed interest to join and there are no buyers for its gas. And this is for a good reason. The total cost of the pipeline has been estimated to be about $7 billion, but most experts consider this to be optimistic, expecting it to be closer to $8 to $10 billion,” said the expert.

Ellinas noted that gas prices in Israel are high, with the cost of the gas expected to be between $4 to $5 per mmbtu, even before in enters the pipeline. “Allowing for the cost of the pipeline, by the time such gas reaches Italian and European consumers will be too expensive to compete with the low gas prices prevailing in Europe. It would need gas prices in Europe to exceed $8/mmbtu to make it commercially viable. This is a highly unlikely possibility even in the longer term - gas prices in Europe will not increase to such levels.”

The three governments and the EU cannot fund the project, he said, adding that this requires IOC and investor participation, and above all it requires buyers for its gas, something which is not forthcoming.

“Even if it these challenges were to be overcome, TAP can accommodate the 10 bcm/yr gas - the EastMed pipeline is designed to carry initially - only if its capacity is expanded to 20 bcm/yr. Even though this is possible, it would be at the expense of increasing gas exports from Azerbaijan to Europe.

Should this ever happen, it would of course elevate the geopolitical significance of TAP,” noted Ellinas.

The Eastern Mediterranean (EastMed) pipeline project relates to an offshore/onshore natural gas pipeline, directly connecting East Mediterranean resources to Greece via Cyprus and Crete.

The project is designed to transport up to 16 billion cubic meters of gas per year from the off-shore gas reserves in the Levantine Basin (Cyprus and Israel) as well as from the potential gas reserves in Greece.

TAP project, worth 4.5 billion euros, is one of the priority energy projects for the European Union (EU). The project envisages transportation of gas from Azerbaijan's Shah Deniz Stage 2 to the EU countries.

Connecting with the Trans Anatolian Pipeline (TANAP) at the Greek-Turkish border, TAP will cross Northern Greece, Albania and the Adriatic Sea before coming ashore in Southern Italy to connect to the Italian natural gas network.

The project is currently in its construction phase, which started in 2016.

Once built, TAP will offer a direct and cost-effective transportation route opening up the vital Southern Gas Corridor, a 3,500-kilometer long gas value chain stretching from the Caspian Sea to Europe.

TAP shareholders include BP (20 percent), SOCAR (20 percent), Snam S.p.A. (20 percent), Fluxys (19 percent), Enagás (16 percent) and Axpo (5 percent).

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Follow the author on Twitter: @Lyaman_Zeyn

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