IT'S ABOUT TIME

On June 12, Azerbaijan celebrated the first anniversary of the Trans-Anatolian Gas Pipeline (TANAP), which has become a landmark and the largest energy project in world history to create the Southern Gas Corridor (SGC). This year, the initiators and implementers of the project have become even closer to ensure the diversification of gas supplies to Europe, which is the main objective of the project.

Energy cooperation is perhaps the most important aspect of economic relations between Azerbaijan and Europe, although the non-oil component of trade relations is gradually increasing.

Regional leader

Azerbaijan is the main trade partner of the EU in the Caucasus with 78% of EU trade with the countries of the South Caucasus. According to latest data, the EU countries have so far invested $33.6 billion in Azerbaijani economy, while Azerbaijani investments in European countries hit $15 billion.

Azerbaijani Minister of Economy Shahin Mustafayev said that relations between Azerbaijan and the EU are developing successfully in all directions, both politically and economically, in particular in the fields of energy, trade, investment, ICT.

In turn, the EU Commissioner for Enlargement and Neighbourhood Policy, Johannes Hahn, said that the EU pays special attention to cooperation with Azerbaijan and considers the country to be its main strategic partner in the energy sphere. At a meeting with President Ilham Aliyev, J. Hahn mentioned Azerbaijan as one of the leading partner countries for the EU and noted that Brussels pays special attention to cooperation with Baku in all areas. Hahn also stressed that Azerbaijan is the main strategic partner of the European Union in the energy sector, and expressed confidence in the completion of the SGC project in a short time.

Such a trustworthy attitude towards Azerbaijan and the high hopes of the EU in the energy sector are quite understandable. Yury Sentyurin, Secretary General of the Gas Exporting Countries Forum (GECF), said at the Oil & Gas 2019 conference in Baku that the role of Russia, Azerbaijan, Kazakhstan and Turkmenistan in supplying Europe with natural gas would gradually grow given the declining gas production in Europe and a gradual reduction in the use of other types of fuel. Thus, gas production in Norway by 2040 will be reduced from 50 to 25 billion cubic meters, and there will also be a significant reduction in production in the Netherlands.

However, natural gas currently accounts for about 23% of the continent’s energy balance. Moreover, the demand for it will be able to demonstrate some growth, and according to experts, natural gas will be the only hydrocarbon resource that will increase its share in the energy balance of the continent, reaching 26% by 2040.

That is why Europe, naturally, will need additional sources and is ready to be friends with new suppliers, especially if they are reliable partners.

Step by step

Positive results of new exploration projects and the growth of proven reserves in Azerbaijan confirm the above tendencies. According to SOCAR's Deputy Vice President for Investments and Marketing, Vitaly Baylarbayov, Azerbaijan has constructed the Southern Gas Corridor not only for the Shah Deniz project: "The fields in Azerbaijan and outside the country are taken into account. It does not matter whether it is the Trans-Caspian pipeline or pipelines along SGC; all manufacturers can join this corridor."

In early 2020, Azerbaijan will begin exporting 10 billion cubic meters of Azerbaijani gas to Europe through the Trans Adriatic Gas Pipeline (TAP) connecting Greece, Albania, the Adriatic Sea and southern Italy. Construction phase of the project is ongoing in accelerated pace. Before that, the second phase of TANAP will be completed: “We hope that we will be ready by July 1 and will begin commercial deliveries to Europe after the completion of TAP construction,” Saltuk Duzyol, CEO of TANAP Consortium, said.

In general, despite some periodical political and environmental disagreements, Europe is impatiently waiting for the completion of the project, hence easily removes all obstacles. Both TAP and SGC are a certain guarantee of gas independence and stability not only for Europe, but also for Azerbaijan, as well as Georgia and Turkey. According to the head of SOCAR Turkiye Enenrji, Zaur Gahramanov, until the end of June 2019, the total volume of Azerbaijani gas supplies via TANAP will reach approximately 1.8 billion cubic meters, while in general the supply is expected to hit 3 billion cubic meters. Beginning from 2020, the annual volume of Azerbaijani gas supplies via TANAP will be 6 billion cubic meters. “TANAP gas pipeline will cover 12% of Turkey’s gas needs,” Z. Gahramanov said.

In addition, for this strategic trio of countries, SGC is a source of considerable future revenues, although it became one of the most expensive projects in the world with a budget of $40 billion. Azerbaijan’s share of this amount accounts for only a quarter of all expenses, and we have almost completed our investments in project. According to the Director General of Southern Gas Corridor CJSC Afgan Isayev, another $0.4 billion remains to be invested, and Azerbaijan's obligations are considered fulfilled. By the way, Azerbaijan took for these purposes a loan of only $2.8 billion from international financial institutions, the rest was repaid at the expense of SOCAR and the State Oil Fund.

Certainly, the volume of dividends from the project cannot be compared with the above amount. According to preliminary forecasts, Azerbaijan will receive $30-$50 billion from the sales and transportation of hydrocarbons through SGC.

What is next?

Remarkably, SGC's benefits for Europe do not consist of TAP only. Additional benefit will be available if it is possible to somehow accomplish a fantastic project to build an underwater Trans-Caspian gas pipeline to take Turkmen gas to Europe. This will probably be a very powerful offer on the global gas market. At present, even taking into account the supply of natural gas only from Azerbaijan, there are already specific plans for an almost twofold increase in the pumping capacity for SGC and its further branching.

According to the director of design company ICGB AD, Theodor Georgiev, thanks to the construction of the Interconnector Greece-Bulgaria (IGB), Bulgaria and neighbouring countries will have access to alternative supplies of natural gas from the Caspian region and liquefied natural gas (LNG) from different sources. “We have successfully overcome many problems and difficult moments, until we reached the construction stage. The support we received from many interested parties underlines the strategic importance of the project,” Georgiev said.

Initial capacity of IGB will be 3 billion cubic meters. In accordance with market conditions, this volume can be increased to 5 billion cubic meters per year. Next year it is planned to connect the gas networks of Greece and Bulgaria so that the latter will receive 1 billion cubic meters of Azerbaijani gas via interconnectors, which is a quarter of Bulgarian demand for natural gas.

Meanwhile, as reported by the Ministry of Environment and Energy of Greece, the IGB is the foundation of the Vertical Corridor, which will transport natural gas from the TAP to the Balkans. “In the future, the pipeline may supply gas from fields in the Eastern Mediterranean to European markets. IGB will also help create an integrated gas market in the Balkans with stable product flows and low prices, which will encourage the emergence of new players,” ministry said.

Romania has already declared its interest in becoming a part of SGC. It suggested that the Southern Gas Corridor consortium sign a memorandum of understanding to connect the RO-BG interconnector (Romania-Bulgaria) and the Bulgaria-Romania-Hungary-Austria pipeline (BRUA) with SGC. As stated by the Romanian Deputy Minister of Energy, Julian-Robert Tudorache, it will have a positive impact on many countries in the region in terms of increasing regional energy security, diversifying sources and routes of energy supply and reducing energy vulnerability. “Connecting BRUA and SGC is in the interest of expanding the infrastructure of the Southern Gas Corridor to the Balkans and Central Europe through a safe and efficient transport infrastructure,” said Tudorache.

BRUA will physically provide a continuous bidirectional flow between Romania, on the one hand, and Bulgaria and Hungary, on the other. The capacity of the BRUA after the completion of the first stage will be 1.75 billion cubic meters of gas per year to Hungary and 1.5 billion cubic meters per year to Bulgaria, and after the completion of the second stage 4.4 billion cubic meters of gas per year to Hungary and 1.5 billion cubic meters - to Bulgaria.

In general, according to Azerbaijani experts, the implementation of the Southern Gas Corridor project will be able to satisfy up to 50% of the gas needs of the Balkan countries. In addition to clear economic benefits, this is an extremely important moment of energy independence for a number of European countries. Accordingly, this will ensure political stability, which is extremely important not only for Europe, but also for the West in general.

In his congratulatory message to President Ilham Aliyev concerning the opening of the 26th annual oil and gas exhibition in Baku, U.S. President Donald Trump stressed that Azerbaijan adds stability to the global energy market through oil and gas production and the implementation of the SGC project. “Thanks to partnership with Turkmenistan and other potential gas suppliers from the countries of the Eastern Mediterranean basin, Azerbaijan can become an even more successful leader. It’s time to expand the success of your country,” Trump said.

Well, that's about time...