BAKU, Azerbaijan, November 27. The initiative to extend the Southern Gas Corridor by a pipeline through the Alps could diversify Europe's gas supply, enhancing energy security in the continent, but it also presents significant challenges to be considered, CEO at Romania's Smartlink Communications consulting company, analyst, consultant, and think tanker Radu Magdin told Trend.
Earlier, German Chancellor Olaf Scholz said that his country has put forth a proposal to enhance the Southern Gas Corridor by extending a new gas pipeline through the Alps.
"It is of utmost importance to amplify the Southern Gas Corridor. Through the implementation of a new pipeline traversing the Alps, we aim to bolster the reliability of energy supplies to both our nations," he added.
Radu Magdin pointed out that financially, while past EU and German support for the Southern Gas Corridor is noted, additional funding for the extension is inevitable, especially in the current geopolitical context.
“Regionally, Western Europe stands to gain increased gas access, but individual countries may still bear significant costs if their industries are highly dependent on gas consumption. If we look in detail at the benefits, we can certainly talk about two most relevant ones: diversification of supply and energy security. The extension has the potential to diversify Europe's gas supply sources and routes, thereby reducing dependence on Russian resources. Therefore, this project could become crucial for bolstering energy security in Europe,” the expert added.
Magdin went on to add that in terms of challenges, technical complexity, environmental impact and financial costs are the biggest to take into account.
“The construction of pipelines through challenging terrains, particularly the Alps, presents a considerable technical challenge, therefore robust engineering solutions would be imperative to ensure the project's success. At the same time, the environmental implications of constructing pipelines in sensitive areas like the Alps need careful consideration, so mitigation measures must be in place to address potential ecological concerns. Also, among the most important aspects, substantial investment would be required and additional funding would be necessary for this extension - therefore a comprehensive cost-benefit analysis should be conducted,” said the expert.
In addition, Magdin said, because it would be a European project, the impact would have to be multi-layered: at EU level, but also for individual countries.
“The project could enhance the EU's energy security but would necessitate careful consideration of financial and environmental factors, as already noted, because increased gas supplies could benefit countries like Germany and Italy, but the impact on Eastern European countries would vary based on existing infrastructure and agreements. Some could benefit from increased gas transit, while others might not be directly affected. Moreover, this project could also impact the energy prices. By extension of a new gas pipeline through the Alps, the gas supply increase could lead to lower prices if demand remains constant. However, the volume of gas transported and overall demand in Europe are also crucial factors. Also, there is a risk of gas projects becoming stranded assets in the long term,” he said.
The expert believes that the proposed extension presents both opportunities and challenges.
“But a thorough assessment of technical feasibility, environmental impact, financial costs and regional implications is essential for making an informed decision. Careful consideration of market dynamics and future energy trends is also crucial for predicting the impact on energy prices - especially bearing in mind that we are in an energy transition process, which means that at some point in the future we will have to reduce our gas consumption,” he added.
The Southern Gas Corridor commenced the transportation of Azerbaijani gas to Europe on December 31, 2020, facilitating the movement of gas from the Caspian Sea region to European countries through Georgia and Turkey. The total cost of the project amounted to $33 billion, notably less than the initially forecasted $45 billion. Capital expenditures for the Southern Gas Corridor project are expected to be fully reimbursed within 8–10 years.
In July 2022, Azerbaijan and the EU reached an agreement to increase the volume of gas supplies via the Southern Gas Corridor from the existing 10 billion cubic meters to 20 billion cubic meters by 2027.
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