22-02-2012 11:48:08

Race for Caspian gas - 2. First losers

Despite the fact that the final decision on the route of export of Azerbaijani gas from Shah Deniz field in the Caspian Sea is still far off, the first losers in the race for Caspian gas have already appeared. The Interconnector Turkey-Greece-Italy (ITGI) pipeline project has been ruled out.

Partners on Shah Deniz project no longer consider ITGI as a project of export of Azerbaijani gas from this field to Europe. Now there is only one project by which Azerbaijani gas could be delivered to Italy - Trans Adriatic Pipeline (TAP).

The decision was based on previously announced criteria for selecting a route for the export of gas from Shah Deniz field to Europe, the consortium said. Despite the fact that Shah Deniz does not cite specific conditions under which ITGI didn't satisfy it, we can assume that one reason was the difficult economic situation in Greece, the state gas pipeline company of which, DEPA, is a participant of this project. In addition, the pipeline in which there was the least of specificity, in fact was repeating the route of TAP. The lack of political support for the pipeline is also important.

Thus, three projects will continue the race for the gas from Shah Deniz and other fields of Azerbaijan in the future - Nabucco, Trans Adriatic Pipeline (TAP) and the South-East Europe Pipeline (SEEP) proposed by BP, which is one of Shah Deniz shareholders.

At the same time partners on Shah Deniz actually divided the routes of gas supplies to two directions - Italy and South-Eastern Europe - by the decision on Shah Deniz. All is clear with the Italy route, and Nabucco and SEEP proposals are being discussed for the South-Eastern Europe route.

The division into two routes of gas transportation does not exclude the possibility that they both could be used to export increasing volumes of gas from the region. If during the first stage (from 2017) it is only about 10 billion cubic meters of gas annually from Shah Deniz field, then later it can be supplemented by gas from new fields explored in Azerbaijan: Umid (reserves of 200 billion cubic meters), Absheron (350 billion cubic meters) and Azeri-Chirag-Gunashli (300 billion cubic meters). In addition, the stocks of such promising structures as Shafag-Asiman are estimated at 500 billion cubic meters, Babak - 400 billion cubic meters, and Nakhchivan - 300 billion cubic meters of gas.

Azerbaijan, Turkmenistan and the EU have been negotiating the possibility of laying the Trans-Caspian gas pipeline, which will open the way for Turkmen gas to Europe.

The emergence of new pipeline projects such as Trans Anadolu pipeline (TANAP) indicates the significant increase in gas exports from the Caspian region. Though the pipeline will transport gas only on the territory of Turkey, it is the foundation of the Southern Gas Corridor, which envisions all possible alternative gas export projects providing the diversification of supply and energy security of Europe.

Significant is the fact that TANAP with the design capacity of transporting 16 billion cubic meters will have the opportunity to expand it to 30 billion cubic meters. Thus, it will be the basis for the delivery of gas to the Turkish-European border, from where the routes of gas supply within the EU will originate.

Though the Shah Deniz partners do not specify details due to which the ITGI project was not accepted, it should be a warning for the other projects.

It is significant that the Nabucco project has introduced a new concept. Whereas before this project was the largest of all the proposed routes (3,900 kilometers and 31 billion cubic meters of gas per year), now it is proposed to lay it from the Turkish-Bulgarian border to the Austrian Baumgarten. It shows a significant reduction in the route, in the cost of the pipeline and possibly in the capacity. Exactly the capacity of pumping raised the largest number of questions from the suppliers. With such pipe capacity of Nabucco, those suppliers that would transport natural gas through it would have to pay empty volumes in the event of the absence of sufficient amounts of gas. At the same time, TANAP, which actually will be laid along the route where the Nabucco pipeline was to be laid, has played a significant role in shortening the pipeline.

Despite the rather frequent statements about the advantages and disadvantages of various projects of the Southern Gas Corridor, constantly changing market conditions and proposals of gas pipeline projects as well as quite a long time of making a final decision do not allow to name the route through which Caspian gas will be supplied with sufficient accuracy. But it was always clear that the partners will choose the path that will allow them to deliver gas to European markets by the most economically attractive route.

ITGI is one of the proposed projects within the Southern Gas Corridor, which involves gas supplies from the Caspian region and the Middle East to the EU countries. The project includes modernized Turkish pipeline infrastructure, as well as an Interconnector Turkey-Greece (ITG) projects and Italy-Greece Interconnector (IGI). The project shareholders are the Greek company DEPA and Italy's Edison. The total estimated project cost is 1.5 to 2 billion euros.

The initial planned capacity of the ITGI pipeline will be 10 billion cubic meters per year. 1 billion cubic meters will be transported to Bulgaria, another 1 billion cubic meters - to Greece, while the remaining 8 billion cubic meters will go to Italy.

Its maximum capacity was planned at 24 billion cubic meters, 5 billion cubic meters of which are to be supplied to South-Eastern Europe, 3 billion cubic meters – to Greece and 16 billion cubic meters to Italy.

The Edison and Depa companies established IGI Poseidon SA to develop and construct the Greece-Italy pipeline known as Poseidon.

Trans Adriatic Pipeline project, developed in 2003 by the Swiss company EGL Group, will transport gas from the Caspian region to Europe. The initial pipeline capacity of TAP will be 10 billion cubic meters per year, expandable to 20 billion cubic meters per year.

TAP's shareholders are EGL of Switzerland (42.5 percent), Norway's Statoil (42.5 percent) and E.ON Ruhrgas of Germany (15 percent).

The pipeline will begin in Greece and pass through the territory of Albania and the Adriatic Sea to Italy. Estimated value of pipeline construction is 1.5 billion euros. The pipeline will be connected to existing gas transmission infrastructure in Italy and Greece.

SEEP project is proposed by BP, operator of Shah Deniz field in Azerbaijan, which should be the main resource base for gas pipelines of the Southern Gas Corridor.

South-East Europe Pipeline will supply 10 billion cubic meters of gas through the existing pipelines to Bulgaria, Romania, Hungary, Serbia, Croatia.

The Nabucco gas pipeline is one of the Southern Gas Corridor projects, which is designed to transport gas from the Caspian region and Middle East to the EU. The construction of Nabucco pipeline is planned to start in 2013 and first supplies will start in late 2017. The maximum capacity will be 31 billion cubic meters a year. The project's shareholders include Bulgarian Energy Holding, Turkish Botas, Austrian OMV, German RWE, Hungary's FGSZ and Romanian Transgaz.

All these Southern Gas Corridor projects provide increasing diversification of gas exports to Europe. The main source for these routes is Shah Deniz field in Azerbaijan.

The contract to develop the Shah Deniz field was signed on June 4, 1996. Parties to the agreement are: BP (operator) - 25.5 per cent, Statoil - 25.5 per cent, NICO - 10 per cent, Total - 10 per cent, LukAgip - 10 per cent, TPAO - nine per cent and SOCAR-10 per cent.

TAGS: Despite, final decision, export, Azerbaijani gas, Shah Deniz field, Caspian Sea, Interconnector Turkey-Greece-Italy pipeline project, Italy - Trans Adriatic Pipeline