The Azerbaijani and Turkish governments have endorsed the construction of a Trans-Anatolian Gas Pipeline (TAGP, also called TANAP after its initials in Turkish) for carrying natural gas from deposits in the Caspian Sea offshore to European customers. This new project is not part of the European Union’s Southern Gas Corridor (SGC) project, but its advantages are such that, with the backing of Baku and Ankara, knowledgeable observers estimate it to have moved quickly to the “front of the pack” among competing Euro-Caspian natural gas pipeline projects.
BACKGROUND: The idea of the Nabucco pipeline, from the Caspian Sea basin to Central Europe with a design volume of 31 billion cubic meters per year (bcm/y), was launched nearly a decade ago. At the time it was paid only passing attention in the climate of opinion of the European elites, who still regarded Russia as a principally European country with which, after the fall of communism, warm political relations could be re-established on the basis of centuries-old cultural and diplomatic tradition. Two mid-winter gas cutoffs from Russia during the last decade were required for European political leaders to realize that Moscow’s respect for supply contracts was higher during the Soviet than the post-Soviet era. Also because of internal bureaucratic lethargy in Brussels and domestic political obstacles in certain of its member-states, notably Germany, the EU did not endorse the Nabucco project until its Prague Summit in May 2009. In the event, Nabucco was included as one of four projects within the Southern Gas Corridor (SGC) framework announced at that time.
The SGC named as its sponsored routes the Nabucco pipeline, the Interconnector Turkey-Greece-Italy (ITGI, 10 bcm/y), Trans-Adriatic Pipeline (TAP, across Greece then under the sea to Italy, 10 bcm/y initial volume, hypothetically to be doubled later), and the White Stream project (Georgia to Romania under the Black Sea, volume starting as low as 8 bcm/y and eventually scaling up to at least 32 bcm/y). Many of the design details for the newly proposed TAGP remain to be clarified, but in the first instance it is planned for 16 bcm/y, of which 6 bcm/y would contractually go to Turkey. Its final design volume was originally projected at 24 bcm/y, but this has now been scaled up to 30 bcm/y, nearly the same as Nabucco.
At the start of October last year, the ITGI, Nabucco, and TAP projects all submitted final bids to Azerbaijan for gas from the second-phase development of the offshore Shah Deniz deposit. At the last minute, BP (which operates the Shah Deniz consortium with a 25.9 percent share) submitted a draft of an idea for a so-called South-East European Pipeline (10 bcm across the Anatolian peninsula using existing pipeline as much as possible and upgrading segments where necessary), which it was announced would be taken into consideration despite its not being a fleshed-out proposal. It was then announced that the decision on which bid for Shah Deniz Two gas will be accepted, originally due before the end of the year, would be postponed until the first quarter of the present year, i.e. the end of March at the latest. Nevertheless, the latest press reports are now suggesting a further delay of one to two months beyond that.
IMPLICATIONS: SOCAR head Rovnag Abdullaev told the press as early as the end of October that Azerbaijan and Turkey intended to construct the TAGP, but the international energy community took note only in mid-November after he repeated this at a high-profile conference. The memorandum of understanding between the two sides was signed at the end of December, with construction to finish by 2017, when gas from the second-phase development of the offshore Shah Deniz deposit (“Shah Deniz Two”) is slated to become available.
The TAGP’s construction is set to be funded by Azerbaijan and carried out by the Azerbaijani state company SOCAR together with two Turkish state firms, BOTAS and TPAO. The first estimate of the price tag is US$ 5-6 billion but this is subject to modification as the route is still to be laid definitively out. A range of US$ 7-9 billion has also been mentioned, but that may be for the final rather than the initial planned volume capacity. The price range will be better defined as feasibility studies proceed and the planning process develops.
Until relatively recently, it was considered necessary to source gas from Turkmenistan in order to achieve Nabucco’s 31 bcm/y planned capacity. Azerbaijan had repeatedly declared that it would not supply more than 10 bcm/y from Shah Deniz Two for export to Europe through Turkey, because it wanted to maintain its multiple customer base so as not to become too dependent on any single one. Representatives of the Nabucco project have declared their willingness to work with the TAGP project, although they suggest the likelihood that “additional guarantees” would be necessary from TAGP operators for including natural gas from Turkmenistan arriving via the still to be agreed Trans-Caspian Gas Pipeline (TCGP) to Azerbaijan.
In light of recent further discoveries of large natural gas deposits in Azerbaijan’s Caspian Sea offshore, however, unofficial circles in the country have begun to suggest that it could in the long run ramp up to Nabucco’s (or TAGP’s) 30-31 bcm/y capacity. These new deposits include the Absheron and Umid fields, each of which credibly holds a minimum of 300-400 bcm of natural gas; the Nakhichevan and Zafar-Mashal blocks, which together are estimated to hold 600 bcm; and the Shafag-Asiman development, with a low-end estimate of 300 bcm. All these are in addition to the Shah Deniz field, now estimated to contain 1.2 trillion cubic meters of gas. The newly discovered fields also hold important quantities of condensates.
The Norwegian firm Statoil holds a 42.5 percent stake in TAP as well as a 25.9 percent share in the consortium developing Azerbaijan’s offshore Shah Deniz deposit, but this is no guarantee of the TAP’s eventual success. Azerbaijan will remain the owner of the 10 bcm/y that will transit the TAGP to Europe in the first instance, and it is just not clear that there will be sufficient demand for it in Italy, where TAP makes eventual landfall. SOCAR is slated to fund 80 percent of the construction cost and acquire the same proportion of ownership of the pipeline. This would be enough for it to bargain with potential gas suppliers, offering them a piece of the pipeline, while still retaining for itself an absolute majority share.
CONCLUSIONS: Indeed, Azerbaijan is known to have a distinct sympathy for the smaller countries in Southeastern Europe that especially suffered from Russia’s mid-winter cutoffs of natural gas to Europe via Ukraine during the last decade. In this line are the trans-Black Sea Azerbaijan-Georgia-Romania Interconnector (AGRI) plan for liquefied natural gas and the project to ship compressed natural gas from Azerbaijan through Georgia across the Black Sea to Bulgaria (1-2 bcm/y), both of which, discussed at the international energy conference in Batumi nearly two years ago, have moved to feasibility studies.
There is an Interconnector Greece-Bulgaria (IGB) that is connecting now to the already operating Interconnector Turkey-Greece component of the ITGI. The IGB, initially projected for a volume of 1-3 bcm/y, could be expanded later to 5 bcm/y if circumstances called for this. There is no operational reason in principle why the 5 bcm/y could not also be doubled to 10 bcm/y. Bulgaria already depends on Russia for 90 percent of its gas imports, and its participation in the South Stream project would do nothing to decrease this. However, a small additional number of relatively inexpensive reversible interconnectors in the region such as the IGB (the already completed Arad-Szeged line from Romania to Hungary) could implement a gas ring in Southeastern Europe sourced from Azerbaijan.
Such interconnectors for a gas ring are quite easy to implement in Southeast and Central Europe. If the EU cannot find a way to support them (which it should, however, under its 2008 decision in favor of a “supergrid” permitting its members to share electric power from different sources), then the EBRD could do so through its established cooperation with the secretariat of the Central European Initiative (CEI) and the latter’s associated Central European Chambers of Commerce Initiative. Indeed, the CEI is already involved in five EU-funded projects under the EBRD’s aegis. One of this is a “transport axis coordination” project in Southeastern Europe.
AUTHOR’S BIO: Robert M. Cutler is a senior research fellow in the Institute for European, Russian and Eurasian Studies, Carleton University, Canada.