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TAP progressing smoothly in full alignment with Shah Deniz 2 development: Kjetil Tungland

6 November 2013 08:00 (UTC+04:00)
TAP progressing smoothly in full alignment with Shah Deniz 2 development: Kjetil Tungland

Managing Director of Trans-Adriatic Pipeline (TAP) Kjetil Tungland's exclusive interview for AzerNews

By Gulgiz Dadashova

Question.: What do you believe played a crucial role in TAP's selection for the Southern Gas Corridor? What were the advantages of your route that contributed to this decision by the Shah Deniz Consortium?

Answer: As you know, the Shah Deniz Consortium had established eight selection criteria - commerciality, project deliverability, financial deliverability, engineering design, alignment and transparency, safe and efficient operability, scalability and public policy considerations. So, at the end of the day, I would say it came down to just that: the pipeline project that best fulfilled these requirements. We always believed that TAP was the best option for Europe - more robust, more strategic and technically more advanced.

While there are several crucial points that endorse TAP's case, it is important to draw attention to the key characteristics. TAP provides access to some of the most attractive markets in Europe with significant energy demand along the pipeline route and it is able to offer a competitive gas transportation tariff. Our pipeline requires no government subsidies or contributions from the European taxpayer in order to be built.

Additionally, TAP is extremely versatile. The pipeline's capacity is scalable from 10bcm per year to over 20bcm and it has built-in reverse flow capacity. It can facilitate new supplies to those countries where new energy resources are needed the most, in South Eastern Europe as well as in the Western European markets.

Finally, I believe the human element also played an important role in the selection process. TAP had a team of world-leading engineers and experts that worked diligently every day and polished our offer to perfection.

Q.:TAP's initial capacity is projected at 10 billion cubic metres (bcm) per year, and Azerbaijan forecasts its gas production at 50-60 billion cubic metres by 2030. Given this, what changes are planned in TAP's design to increase capacity? What is the potential of TAP to bring the emerging gas volumes of the Caspian basin to Europe?

A.: Indeed, the pipeline can easily accommodate additional gas volumes in the future as these come on stream. By installing just two additional compressors along its route, TAP can double its annual capacity to over 20bcm.

That said, it is important to put things into perspective. Although the initial 10bcm of Shah Deniz gas equals approximately only 2 percent of Europe's demand, this will be a much-needed new gas from a source which was not accessible to Europe before. TAP is the first step in opening the Southern Gas Corridor, a grander energy project that in the longer-term can transport additional volumes from the wider Caspian region.

Q.:What impact do you believe Azerbaijan's gas and the Southern Gas Corridor will have on Europe's future energy security? What are the chances of other Caspian countries' joining the Corridor? What are the prospects of construction of other pipelines to bring this gas to Europe?

A.: We really need to look at the big picture. The opening of the Southern Gas Corridor is a truly significant development for Europe's energy security. It ensures a new source of natural gas and an opportunity to reduce dependence on just a few major energy suppliers.

TAP's routing offers the possibility to link to key pipeline infrastructure projects in South Eastern Europe such as the Ionian Adriatic Pipeline (IAP), thereby facilitating supplies to some of the countries where new resources are needed the most - Albania, Bosnia and Herzegovina, Montenegro and Croatia.

TAP can also facilitate new supplies to Bulgaria either via the planned Interconnector Greece-Bulgaria (IGB) or via reverse flow at the interconnection point Kula-Sidirokastro line. This latter option was already used in 2009 to inject natural gas in the Bulgaria-Greece pipeline from the Greek LNG terminal at Revythoussa.

It is important to clarify however that while we cooperate with various pipeline infrastructure project developers in several countries, TAP is not responsible for gas sales or the actual gas deliveries to those markets.

Regarding the chances of other Caspian countries to join the Southern Gas Corridor beyond 2020, I think there are good prospects as the reserves in the region are truly abundant.

Finally, concerning the likelihood of additional pipelines to Europe, I would like to emphasize the fundamental importance of a strong commercial case to ensure success.

Q.: What are key arguments regarding the benefits of the TAP route for southern Europe? What effects of TAP do you await on Western Europe?

A.: TAP's core benefit for Europe is the diversification of gas supplies. That said, our pipeline will bring significant economic benefits to Southern Europe, particularly providing economic stimuli to two important Eurozone countries as well as Albania. Independent studies indicate that in Greece alone, the implementation of TAP will be worth approximately €1.5 billion as well as it will create approximately 2,000 direct and 10,000 indirect jobs, providing a positive signal for foreign investors.

In Italy, according to an independent Nomisma study, the pipeline construction will contribute directly to the GDP in the Puglia region with approximately € 80 million per year during the construction period, and it will create approximately 150 jobs (part-time and full-time) annually.

According to an independent study undertaken by Oxford Economics, in Albania, TAP's implementation will cost approximately €1 billion and it will foster significant economic activity by generating employment, sustaining infrastructure creation and developing local skills and capabilities. The study indicates that the direct impact of the project will peak in 2017, at which point activity could generate €57 million for Albanian GDP and create 4,200 jobs (full-time and part-time) annually.

Regarding Western Europe, TAP's landfall in Italy provides opportunities for bringing gas to France, Switzerland, Germany, Austria, Belgium, and even the UK. These latter two markets look particularly promising given that Fluxys, the Belgian grid operator, recently came on-board as a TAP shareholder.

Q.: How is the progress of TAP project ahead of the start of construction works and a final investment decision of the Shah Deniz Consortium?

A.: TAP is progressing smoothly in full alignment with the development of the Shah Deniz 2 in Azerbaijan. As you know, we completed our Front End Engineering Design (FEED) in March this year, so we continue the subsequent work in this area preparing for tendering.

Also, our Environmental and Social Impact Assessments (ESIA) have been submitted in all three host countries. Our application has already been approved in Albania and consultations are currently underway in Greece and Italy.

Furthermore, in September 2013, TAP began the Land Easement and Acquisition (LEA) activities in Greece and Albania. Our contracted teams began extensive work on identifying the rightful landowners in the pipeline corridor.

On the political front, we are expecting the ratification of the Intergovernmental Agreement (IGA), signed between Italy, Greece and Albania in February 2013, in the Italian Parliament. The Italian Senate ratified the agreement on the 17th of October and the ratification in the Chamber of Deputies is pending. The IGA was already ratified in Albania (March 2013) and in Greece (April 2013).

Also, TAP is on schedule to start building access roads to construction sites in Albania in 2014 in order to be in a position to launch the actual pipeline construction in 2015.

One key upcoming milestone still this year is the Resolution to Construct, or in other words TAP's shareholders' investment decision. We remain confident that this will be successfully completed, ahead of the Shah Deniz Consortium's Final Investment Decision for the entire Southern Gas Corridor value chain.

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