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Southern Gas Corridor has impact on PNG-LNG competition in EU

Oil&Gas Materials 6 August 2020 17:40 (UTC +04:00)
Southern Gas Corridor has impact on PNG-LNG competition in EU

BAKU, Azerbaijan, Aug.6

By Leman Zeynalova – Trend:

Southern Gas Corridor, which envisages transportation of Azerbaijani gas to Europe, has impact on the competition between the pipeline natural gas (PNG) and liquefied natural gas (LNG) in the European Union (EU), Trend reports citing Gas Exporting Countries Forum (GECF).

GECF believes that high competitiveness of PNG imports has been driven by various factors:

- The EU boasts of huge gas pipeline infrastructure to import PNG from major suppliers, such as Russia, Norway, Algeria, Libya, and Azerbaijan, with export capacity of gas pipelines from these countries exceeding 450 bcm per year equaling to over 93% of the regional gas consumption;

- PNG supply usually has lower transportation costs, while LNG supply is notable for high liquefaction, transportation, and regasification costs, especially in newer LNG projects;

- Long-term contracts, signed by PNG importers and exporters, usually guarantee a high minimum level of PNG supply under a take-or-pay clause, which ensures the security of gas supply;

- Various PNG suppliers have diversified the pricing mechanisms in long-term contracts by adding mechanisms based on gas hub and hybrid indexation;

- A few PNG suppliers have diversified supply opportunities to embrace spot gas trade, with its share in PNG supply of some exporters reaching almost 10 percent;

- Some PNG exporters have completed or are going to commission new gas pipelines, with TurkStream, Nord Stream 2, and Southern Gas Corridor as stand out examples, which increases security of gas supply and decreases gas transportation cost.

The Southern Gas Corridor comprises the following four projects: (i) operation of Shah Deniz natural gas-condensate field ("SD1" project) and its full-field development ("SD2'" project), (ii) the operation of the South Caucasus Pipeline ("SCP" project) and its expansion ("SCPX" project), (iii) the construction of the Trans-Anatolian Natural Gas Pipeline ("TANAP" project) and (iv) the construction of the Trans Adriatic Pipeline ("TAP" project) (SD2, SCPX, TANAP and TAP collectively, the "Projects").

The Projects have an estimated investment cost of approximately $40 billion. Upon completion, the SD2 project will add a further 16 bcm of natural gas per annum to 10.9 bcma (maximum production capacity) already produced under SD1 project.

Total length of the newly constructed SCPX, TANAP and TAP pipelines will be more than 3,200 kilometres.

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Follow the author on Twitter: @Lyaman_Zeyn

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