23 February 2019

Saturday, 12:25



TANAP takes Azerbaijan closer to the goal of becoming one of the main actors in the European gas market



On June 12, one of the world's most ambitious pipeline projects, the Trans-Anatolian Gas Pipeline (TANAP), was officially launched in the Turkish province of Eskişehir, marking the start of the actual filling of the almost 2,000-kilometer-long pipeline with natural gas. TANAP is supposed to take natural gas from Azerbaijan from the Georgian-Turkish border to European borders of Turkey.

Thus, Azerbaijan and its partners made one more important step towards the creation of the Southern Gas Corridor (SGC), which is the largest energy project in history. The official launch of SGC took place two weeks earlier at the Sangachal Terminal in Baku. Now, the project participants are getting closer to the main goal – the long-term supply of Azerbaijani gas to Europe. 

TANAP is the second very important component of the Southern Gas Corridor. In general, the project consists of three parts: the extended South Caucasus Pipeline (SCP) running through Azerbaijan and Georgia, and the second development stage of the Azerbaijani Shah Deniz gas field (Shah Deniz Stage II); construction of TANAP in Turkey; and the Trans-Adriatic gas pipeline (TAP) passing through the territories of Greece, Albania, and Italy.

The construction of TANAP was completed in a relatively short period – the ground-breaking ceremony of the new gas pipeline took place on March 17, 2015.


Full support

Distrust and political intrigues have followed the SGC project since the very beginning. This was not surprising, however, as Azerbaijan faced the same challenge during the construction of the Baku-Tbilisi-Ceyhan oil pipeline, as well as the implementation of other major regional projects. Therefore, the doubts of some foreign “experts” about the availability of “enough gas” to fill in the pipeline, and attempts to oppose SGC to other gas pipeline projects, and Azerbaijan to the countries that implement them were no longer surprising. Yet a few days before the grand opening, a number of foreign media outlets have published articles challenging this biggest undertaking in the energy sector and trying to throw mud at the TANAP. However, Azerbaijan and its partners had, from the outset, publicly announced the main objective of TANAP, which is the diversification of gas supplies to Europe. Therefore, the unequivocal support of both Europe and the US at all stages of the project implementation is quite logical and expected.

The statement that the OPEC Secretary General Mohammed Barkindo made recently in Baku was even more comprehensive: “SGC fundamentally changes the global energy landscape and will improve the energy security in the world”.

According to the incumbent US President Donald Trump, who strongly supported the SGC implementation, the gas produced by Azerbaijan “will contribute to ensuring the energy security of Turkey and Europe.”

High-ranking representatives of the European Union have repeatedly underlined the significance of SGC, considering the project one of the priority projects for Europe.

In particular, the Vice-President of the European Commission Maroš Šefčovič noted at the official opening ceremony of TANAP: “We all stand to gain from this 'bridge' between the Caspian region and the EU market. It is in our joint interest to make it a success. Our long-term objective is to create a pan-European energy market based on free trade, competition and diversified supplies, sources and routes. This shows that the Energy Union does not stop at the EU's borders and it has a strong external dimension. Only like this it can be truly resilient.”

Interestingly, the main competitor of SGC in the European gas market, Russia, also expressed quite a friendly position. According to President Vladimir Putin, Russia welcomes diversification of gas supplies to the European market, as this creates market conditions. “We welcome any economic activity in this area. We welcome diversification of energy supplies to the European market, as this creates market conditions for working. That’s exactly what we are interested in,” said the Russian president.

Currently, the SGC project involves seven countries: Azerbaijan, Georgia, Turkey, Bulgaria, Greece, Albania, and Italy. As noted by President Ilham Aliyev however, three more Balkan countries will join the project at the next stage: Bosnia and Herzegovina, Croatia, and Montenegro. According to Aliyev, Europe has a demand for Azerbaijani gas. “We are also interested in increasing gas supplies to Europe, as this is the most attractive market for us,” Aliyev said.


Diversification for Europe

What is so attractive about the European gas market and why is it so interested in Azerbaijani gas? According to Secretary General of the Gas Exporting Countries Forum (GECF) Yury Sentyurin, by 2024, the export of natural gas will increase by 1.5 times. According to the EU forecasts, by 2030 Europe will need additional 77 billion cubic meters (bcm) of gas per year, and 88 bcm by 2040, which is taken into account in Azerbaijan's long-term gas export policy.

“There is a lot of competition in the European gas market. The fact that Azerbaijan has 25-year contracts with nine European companies shows that Azerbaijan is a successful negotiator and trustworthy seller,” said Gulmira Rzayeva, expert at the Centre for Strategic Studies under the President of Azerbaijan.

So, thanks to the Shah Deniz Stage II, Italy will receive 8 bcm of gas annually, which is equivalent to 33% of Russian gas supplies through Gazprom. Greece will receive 1 bcm per year, while Gazprom sells to Greece about 2.9 bcm per year. In Bulgaria, the volume of the Shah Deniz Stage II gas will reach 30% of the volume supplied by Gazprom. According to Azerbaijani Energy Minister Parviz Shahbazov, the construction of the Interconnector Greece-Bulgaria (IGB) to take Azerbaijani gas delivered to Greece via SGC to the Bulgarian market will start in June. “We have an agreement on the supply of 1 bcm of Azerbaijani gas to Bulgaria every year. But IGB will have a higher capacity that can be used in the future,” said P. Shahbazov.

In general, 16 bcm of gas (10 bcm for the EU countries, 6 bcm for Turkey) will be pumped through the SGC at the first stage (2020-2024) thanks to the Shah Deniz Stage II.

As noted by SOCAR President Rovnag Abdullayev, “Azerbaijani gas will fill the future deficit, which is expected in Europe as a result of the difference between consumption growth and existing offers. Hence we will turn into one of the decent suppliers of natural gas to the European market.”

In short, Azerbaijani gas will actually allow the EU to diversify sources of energy supplies. “Thanks to contracts between SOCAR and nine European companies, Azerbaijan will receive tangible financial profit and Europe – gas at favourable prices,” said G. Rzayeva.

As to the price of natural gas supplied through the SGC, some experts believe that the commissioning of TAP in 2020 can reduce gas prices in Europe by 3-5% to current levels, which would be beneficial for buyers. Note that in February, Gazprom forecast an average annual price for its gas in Europe in 2018 at $220 per 1,000 cubic meters.

According to experts, the 15-year contract between SOCAR and Turkish Botaş on gas supplies from the Shah Deniz Stage II is also highly beneficial to Azerbaijan. “It is very important that we fill a critical niche in gas supplies to Turkey, because gas prices in this market are higher than in Europe. This will bring Azerbaijan a stable income,” said G. Rzayeva.

Today Azerbaijan, along with Russia and Iran, is one of the three leading suppliers of gas to Turkey. Almost 6.6 bcm of gas from the Shah Deniz Stage I development has been transported to the fraternal country since 2007 annually.


Gas is and will be available

Does Azerbaijan have enough gas for such a large-scale project? As President I. Aliyev stated, the confirmed gas reserves of Azerbaijan reach 2.6 trillion cubic meters (tcm). “I am sure that we have larger gas resources. Subsequent exploration and operational works will confirm this assumption,” Aliyev added.

In support of this statement, President of SOCAR Rovnag Abdullayev reported that the development of gas fields Umid, Babek, and Absheron will follow the Shah Deniz Stage II. “The volume of gas produced until present was enough, and we did not need to increase it. But the launch of SGC promises a significant growth perspective,” said R. Abdullayev.

SOCAR also expects positive results from exploratory drilling on the promising Shafag-Asiman structure in the Azerbaijani sector of the Caspian Sea. The first exploration well in this area will be drilled in 2019. Also, it is expected that BP will start developing natural gas reserves in the deep waters of fields Azeri, Chirag, and Gunashli.

According to experts, the peak period of gas production in Azerbaijan will be in 2021-2027, when annual production will reach almost 50 bcm against 28 bcm in 2017.

“Access to numerous gas sources from various projects in Azerbaijan and the countries interested in SGC guarantees investment in the expansion of this gas pipeline,” said Gulmira Rzayeva.

In fact, the companies from neighbouring states have long been interested in SGC. According to the presidential assistant for political and public affairs Ali Hasanov, the government of Azerbaijan may consider the transportation of gas from Turkmenistan, Iraq, and Iran via TANAP.

Energy Minister of Azerbaijan Parviz Shahbazov also said that Azerbaijan was ready to cooperate with Turkmenistan regarding the transportation of Turkmen gas through SGC. “Turkmenistan shows interest in SGC. Azerbaijan has already announced its readiness to cooperate with Ashgabat in this direction. We have both technical capacity and political will to ensure gas supplies from Turkmenistan. If Turkmenistan decides to take concrete steps in this direction, it is quite possible, and we are ready for cooperation,” P. Shahbazov said.

In other words, SGC is a project designed for a long and successful future, expansion, multilateral business partnership and honest business. The experience of Azerbaijan in this area is a guarantee of successful implementation and continuation of such large-scale projects.