PENDULUM OF THE MARKET

The whole world intently followed the negotiations on the settlement of the Greek debt crisis and the agreement on Iran's nuclear programme. What will happen to the euro? Will the Grexit be implemented and how will it affect the world economy? How will Iran's return to the market affect the price of oil? How will the political landscape in the Middle East change with the lifting of sanctions against Iran? And there were a lot of questions like that.

The settlement of both problems plays an important role in ensuring the diversification of energy supplies to Europe. For example, Greece is one of the main transit routes for the Southern Gas Corridor (SGC), in particular, for the Trans-Adriatic Pipeline (TAP). The exit of Greece from the eurozone threatened with its expulsion from the EU, which could potentially cause problems with the implementation of the project. After all, the whole package of agreements on the construction of TAP was signed with Greece in view of pan-European laws. The new Greek government headed by the SYRIZA coalition raised a number of questions on the project, but was forced to agree with the documents that were signed. However, the State Oil Company (SOCAR) believes that the situation surrounding Greece will not affect TAP.

According to the vice-president of SOCAR for investments and marketing, Elsad Nasirov, Athens is interested in the pipeline passing through its territory. "Because in any case, the passage of the pipeline through Greece means the creation of new jobs, investment and the growing competitiveness of the economy. In addition, the implementation of TAP means the presence of additional gas sources and the energy security of Greece. In a word, without taking into account the small nuances, the implementation of TAP is a strategic decision for Greece," Nasirov said.

At the same time, Greece is pinning hopes not only on TAP, but also on the position of a gas hub within the framework of the Turkish Stream project promoted by Russia. But in this case, it's not as easy as it was a couple of months ago. Despite Gazprom's hopes for the imminent conclusion of an agreement with Turkey on the construction of the Turkish Stream, things seem to have finally come to a standstill. Negotiations with Ankara have failed so far for several reasons. One of them is the lack of agreement on the rate of discounts on the price of gas purchased by Turkish Botas. But no less important is Gazprom's intention to extend the Turkish Stream to Greece and establish the main hub for Eastern and Southern Europe there. It was originally assumed that the hub will be located in Turkey and make Ankara an important player on the European gas market, taking into account the SGC project. The role of a mediocre gas transit route clearly does not suit Ankara. Apparently, Turkey's intransigence radically affected Gazprom's plans. For example, the Russian monopoly planned to begin laying the underwater part of the Turkish Stream pipeline from 15 June in order to begin deliveries to Turkey from the end of 2016. But in early July, Gazprom refused the services of Italian Saipem, which was to lay the gas pipeline under the Black Sea. Moreover, the gas monopoly froze work on one of the two branches of the gas pipeline, which was to be laid on Russian territory as far as the Black Sea. As a result, the capacity of the Turkish Stream will be reduced from the initially planned 63bn cubic metres of gas per year to a maximum of 32bn cubic metres.

But at the same time as the freezing of work on the Turkish Stream, Gazprom announced a new initiative - the Nord Stream-2 gas pipeline with a capacity of 55bn cubic metres.

The memorandum with Gazprom on the construction of two new branches of the gas pipeline to Germany across the Baltic Sea was signed in mid-June at the St. Petersburg Economic Forum by E.ON, Shell and OMV.

But this initiative does not promise rapid implementation, and most importantly, cost-effectiveness.

According to the partner of the RusEnergy consulting agency, Mikhail Krutikhin, in Northern and Western European countries - Germany, France and Belgium - there is no demand for additional amounts of gas.

"For Europe and for Germany, it is an absolutely unnecessary project. Even the two lines of the Nord Stream, which already exist, are not fully loaded, and the use of this route is about 65 per cent on average. And it is not because one of the host pipelines - OPAL - is not working at full capacity (because of the restrictions of the European Commission on the third energy package), but simply because there is no demand for gas there," Krutikhin said in an interview with Radio Liberty.

Interestingly, in late June, Russian President Vladimir Putin instructed Gazprom to negotiate with Ukraine on gas transit to Europe from 2019, when the current agreement expires. But Gazprom notes that the conditions of transit through Ukraine may be unacceptable to the monopoly, as Kiev insists on increasing the transit fees from 2.7 to 5 dollars per 1,000 cubic metres per 100 km of territory.

It is precisely for the complete abandonment of the Ukrainian gas transport system that the South Stream project with access to Bulgaria was originally conceived and then transformed into the Turkish Stream. But the EU, which forced Bulgaria to block the South Stream, also took a hostile approach to the option of a gas pipeline through Turkey, noting that the Ukrainian gas transport branch is quite reliable for gas supplies to Eastern Europe. The EU is not in a hurry to agree with Gazprom's ultimatum about the impossibility of pumping gas through Ukraine from 2019 and the need to build new pipelines to connect to the Turkish Stream.

According to European Commis-sion Vice-President on Energy Union Maros Sefcovic, Russia's plans to abandon the gas transit through Ukraine endanger European energy security and are not acceptable to the EU.

"This would have very negative consequences for energy security in Europe, because Ukrainian transit is very important, it is the largest and it is 140bn cubic metres per year," Sefcovic said.

He said that the gas transportation system of the EU, especially in Central Europe, is fully compatible with the transit of gas through Ukraine.

At the same time, the EU is not worried about permanent "gas wars" between Russia and Ukraine, when the latter periodically refuses to buy Russian gas, citing its high cost. In any case, in recent years, no matter how relations evolve in the gas and political spheres between the two countries, they have never affected the transit of gas to Europe. It is clear that Ukraine is vitally interested in maintaining the reputation of a reliable transit country for gas and is ready for any measures to this end - up to reducing gas consumption, switching to coal, etc., without reducing transit. And such actions actually testify to the unjustified fears of Gazprom about the unreliability of the Ukrainian gas transport system.

As Gazprom is dashing between separate projects, the issue of alternative supplies is becoming more important for Europe, and the EU sees this not only as the diversification of routes but also as a chance to get gas from new sources.

So far, the only new source for the EU is Azerbaijan with the Sah Daniz [Shah Deniz] projects and the TANAP and TAP gas pipelines. The latter, incidentally, was included on another list of priority projects of European states.

According to the European Commission, 15 countries of Central, Eastern and Southern Europe have agreed to accelerate the construction of missing elements of the gas infrastructure and diversify sources of gas supply. In the future, each state shall have at least three independent sources of gas. To this end, seven infrastructure projects were selected, which should be completed as soon as possible and which can count on financial support.

"A number of infrastructure projects such as the Trans-Adriatic Pipeline (TAP), the LNG terminal in Croatia and the system of supplies from it, the strengthening of systems in Bulgaria and Romania, the interconnectors between Greece and Bulgaria, as well as between Serbia and Bulgaria have been identified as a priority," the statement said.

"Local production in the EU is declining, and this can lead to an increase in the EU's dependence on imports. Thus, we have to diversify supplies. We must make sure that no one has a dominant position that would have a negative impact on our energy security," Bloomberg quotes Sefcovic as saying.

According to Bloomberg, perhaps the parties consider the TAP pipeline to be the most important of the projects.

Although, as noted above, at this stage, the main alternative source of gas for Europe is Azerbaijan, the Southern Gas Corridor system that is being created could well be used to pump gas from other producers. In particular, the work on the Trans-Caspian gas pipeline project to deliver Turkmen gas to the European market has become more active. The other day, Brussels hosted the first meeting of the working group on this project attended by representatives of Azerbaijan, Turkey, Turkmenistan and the EU, as well as Georgia. "The working group proceeded to consider options for the building of a trans-Caspian pipeline that would connect Turkmenistan to the largest network of pipelines originating in the Southern Gas Corridor," Maros Sefcovic told the Slovak publication Ekonomika.

"Ashgabat has already declared its readiness to supply Europe with 30 to 40bn cubic metres of gas per year," the representative of the European Commission said, adding that Turkmen gas will be able to meet 10 per cent of total consumption in Europe.

Moreover, in the same period, Turkmenistan suddenly accused Gazprom of failing to pay for the gas supplied to Russia. According to the Turkmen side, the Russian monopoly has not paid the cost of gas purchased from Ashgabat since the beginning of 2015. Although Gazprom made no official comments, experts believe that this demarche of Ashgabat is due to a sharp decline in the volume of purchases by Gazprom - from 10bn cubic metres last year to 4bn this year. In this matter, Gazprom's position is understandable, since the demand for the monopoly's own gas is low, which affects production figures. In these circumstances, there is no need to purchase gas from the side, especially as Turkmenistan is already quite tough on prices, insisting on European prices minus transportation costs. In any case, this situation will prompt Turkmenistan even more to supply its gas to the European market, the main route for which could be the Trans-Caspian pipeline with further connection to the SGC. However, Turkmenistan is committed to the practice of selling gas on its border, which raises more questions about the financing of the construction of the Trans-Caspian pipeline. Azerbaijan has already declared that it is ready to provide every opportunity for the transit of Turkmen gas, but does not intend to fund the Trans-Caspian pipeline. At the same time, Baku sees no legal and environmental obstacles to a gas pipeline under the Caspian Sea, which was stated by SOCAR Vice-President Elsad Nasirov.

"Imagine, they say that a pipeline cannot be laid under the Caspian Sea. It is explained by the fact that the project could lead to the death of the fauna in the Caspian Sea. How come that a pipeline can be built under the Black Sea, but not under the Caspian Sea? We believe that the construction of a gas pipeline under the Caspian Sea cannot cause environmental problems," he said.

But a greater alternative source of gas for Europe could be Iran. With the settlement of the issue of Tehran's nuclear programme and the lifting of sanctions, most global companies are lining up to gain access to the economy of Iran, and in particular, to its energy sector. After all, Iran, apart from huge oil reserves, has enormous natural gas reserves exceeding 33 trillion cubic metres (second place in the world). It is clear that the development of gas resources requires time and large investment. But it is precisely in the issue of gas production that opportunities of export are of primary importance. The best way for Iran is transit through Turkey to enter the European market. Given that the TANAP pipeline will be laid from the east to the west of Turkey, Tehran is already eyeing the infrastructure being created by Azerbaijan. "Joining TAP and TANAP is very interesting for Iran. The issue is currently being discussed by the Ministry of Oil and the National Oil Company of Iran. We are also negotiating with SOCAR. If we consider that one of these pipelines will be commissioned in 2018, we still have enough time for a final decision," Iranian Ambassador Mohsen Pakayin said recently.

And finally, the US is giving special support to the SGC project, to which EU is strongly connected.

"I believe that the SGC project being implemented by Azerbaijan will ensure the real energy security of Europe. Therefore, the US government will continue to support this project at all levels as a key to ensuring Europe's energy security," the special envoy of the US State Department Bureau of Energy Resources, Amos Hochstein, said during a recent visit to Baku, noting that some countries are opposed to this project.

But Baku has repeatedly stated that the SGC is not a competitor for any project and has consistently opposed such comparisons. This is understandable - the initial volume of Azerbaijani gas supplies is 10bn cubic metres - it is only a drop in the overall energy balance of Europe. Here the main role is played by a new source of gas, which will be delivered by a new route. This corresponds to EU plans for the free flow of energy throughout Europe from the largest possible number of sources.