Trans Caspian Pipeline: four critical elements for implementation

Trans Caspian Pipeline:  four critical elements for implementation

BAKU, Azerbaijan, Aug.21

By Leman Zeynalova – Trend:

There are four critical ingredients for successful transnational pipelines: a dedicated source of oil or gas, a competent commercial champion, favorable economics, and political support,
Daniel D. Stein, a senior fellow in the Global Energy Center, says referring to the Center for Strategic and International Studies (CSIS), Trend reports.

“How does the Trans Caspian Pipeline (TCP) stack up against these four critical elements? First of all, there is no dedicated source of gas. Turkmenistan has huge gas reserves, but while production at its newer gas fields has increased in recent years, the bulk of it is committed to China under long-term contracts. The production capacity at older fields, which previously supplied Russia, is unclear and it is safe to assume their capacity has been reduced. Therefore, a new source of gas would have to be developed to supply TCP.

Second, there is no one currently willing or able to play the role of commercial champion for TCP,” reads the article published by the Atlantic Council.

The author notes that if an international oil company were given an upstream stake in Turkmenistan, it would be in a position to develop the resource base needed to fill the pipeline and act as its commercial champion.

“However, the Turkmen government continues to prohibit foreign investment in onshore gas production. A pipeline development company could serve as commercial champion. In fact, the initial push to promote TCP in the late 1990s involved just such a company, PSG. That effort failed miserably. In the twenty years since, no pipeline company has expressed serious interest in TCP. That is not surprising, since it is hard to find an example outside of North America of a transnational pipeline being developed as a merchant project without the financial involvement of an upstream resource holder,” reads the article.

Stein points out that even if the requirements of an adequate resource base and a competent commercial champion are met, it is unlikely Turkmen gas could be delivered to Europe profitably.

“Not only is the cost of developing the gas high —given that Turkmen gas has a high sulfur content—but the entire delivery chain is also expensive. While Turkmenistan has constructed an East-West pipeline connecting its large fields with the Caspian Sea, it has not installed the compressors needed to move 30 bcma of gas. Add to that the cost of TCP itself just to get the gas across the Caspian. To deliver the gas to Europe, the string of pipelines that constitute the SGC could be expanded, but at most only by 15 bcma, which would mean additional investment in brand new infrastructure for the remainder. A final economic challenge is the fact that Turkmen gas is condensate light, unlike Shah Deniz gas-in essence, Shah Deniz condensate subsidizes its gas,” reads the article.

Stein notes that a detailed evaluation of the economics of Turkmen gas is contained in a 2018 report from the Oxford Institute for Energy Studies.

“The basic conclusion, unsurprisingly, is that Turkmen gas would not be price competitive in Europe. When future European gas demand is in question, due to both the economic impact of COVID-19 and questions around the role of gas in future EU energy policy, it is difficult to imagine European buyers signing long-term, large-scale purchase agreements for Turkmen gas. So even if the project were subsidized, it would fail to achieve its goal of delivering a competitive source of gas to Europe,” he says.

“Having fallen short on the first three critical ingredients for success, how does TCP measure up regarding the fourth, political support? No doubt TCP has political support—Azerbaijan and Turkmenistan, as well as both the United States and the EU, have consistently voiced that support. But as have we have seen from experience, political support is a necessary, but not sufficient condition for success. It does not substitute for and cannot itself create the commercial and economic preconditions for success.”

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Follow the author on Twitter:@Lyaman_Zeyn

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