S&P Global Platts comments on Trans Caspian Pipeline’s economic viability
Baku, Azerbaijan, Sep.18
By Leman Zeynalova - Trend:
Although Caspian production costs could be low, potential upfront investments in a new pipeline are massive, leading to high transportation costs, Elena Anankina, credit analyst focusing on energy and the primary analyst on SOCAR at S&P Global Platts told Trend.
She was commenting on the economic viability of Trans-Caspian pipeline, which envisages transportation of gas from Turkmenistan to Europe through Azerbaijan.
“Economic viability of Trans-Caspian pipeline remains questionable in our view. Although Caspian production costs could be low, potential upfront investments in a new pipeline are massive, leading to high transportation costs. Also, environmental aspects require close analysis (burning natural gas leads to lower CO2 emissions but methane itself is a powerful greenhouse gas),” said Anankina.
She pointed out that coordination between multiple agents with diverging agenda is never easy.
“European gas markets experience a glut in 2019, given recent LNG supply increments and very modest demand growth, which led to a rapid decline in spot gas prices to barely above $3/mmbtu, from above $8 a year ago. Although we expect European gas prices to gradually correct due to seasonal factors and potential coal-to-gas switching, gas prices are likely to remain challenging for high-cost producers, and it remains to be seen whether they could ensure adequate payback for large upfront investments in a new pipeline,” she said.
Anankina noted that LNG development made gas a global commodity, with increasingly interconnected and volatile global markets, so that traditional long-term oil-linked contracts are unlikely to ensure investment payback, as they are being gradually replaced with spot sales and market hedging.
Trans-Caspian Pipeline envisages transportation of Turkmen gas to Europe through Azerbaijan.
Turkmenistan is studying the possibility of bringing its energy products to the European market. To this end, a 300-kilometer gas pipeline will have to be laid along the Caspian seabed to the shores of Azerbaijan.
Turkmenistan has declared its readiness to supply Europe with an annual volume of up to 40 billion cubic meters of gas.
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