"GAS ATTACK" ON EUROPE

Everything that has a beginning comes to an end sooner or later. It seems that the debate about what route will be chosen to export Azerbaijani gas from the Sah Daniz-2 deposit to Europe is approaching its logical end.

The debate has been going on for years, and after eliminating all possible options, there are only two options left – the Nabucco West and TAP pipeline projects. After members of the Sah Daniz consortium chose these two routes, the consortiums of both projects submitted their expanded packages of proposals that are part of the process to select a route for the transportation of Azerbaijani gas. This includes the technical, administrative-control, financial and other aspects related to the implementation and operation of pipelines. Evaluation parameters are commercial expediency, feasibility, financial feasibility, design and engineering work, compliance and transparency, safety and rational exploitation. An important aspect is also the possibility of the phased expansion of the pipeline due to the intention to increase gas transportation. It is expected that the final decision on the pipeline that will deliver Azerbaijani gas to Europe with a total volume of 10 billion cubic metres and on its direction will be made by the end of June. In addition, in the current month the Sah Daniz consortium expects potential European gas buyers to make proposals on sale and purpose, creating legal obligations. But first things first.

The Sah Daniz field with giant gas deposits of 1.2 trillion has already turned Azerbaijan into an exporter of "blue fuel". And our supplies of gas to Turkey and Georgia largely ensure regional energy security. The country’s gas reserves of more than 2.5-3 trillion cubic metres open wide prospects for the transformation of Azerbaijan into a major player on the European energy market.

The legal basis for the construction of a new gas pipeline through Turkey – the Trans-Anatolian Pipeline (TANAP) that will carry Azerbaijani gas to the western border of Turkey – has already been prepared.

If the route of Azerbaijani gas through Turkey has already been defined, its further route is still a topic of discussion and debate among interested sides and experts.

Let's consider the strengths and weaknesses of the TAP and Nabucco projects. Each of these options has its pros and cons. Thus, the TAP pipeline should be laid from Greece via Albania and the Adriatic Sea to southern Italy and perhaps, to Western Europe in the future. Theoretically, there is a possibility that the pipeline could be extended to Switzerland and other infrastructure will be created to supply gas to that country. Such a development would be to the benefit of the project. The thing is that SOCAR owns property in the country, having acquired a chain of fuel stations from ExxonMobil. Along with the means of transportation, oil storage tanks and retail sales network, SOCAR took over the marketing agency of the company serving industrial and wholesale customers with bottled gas and a gas filling plant in Wangen bei Olten. Thus, SOCAR could cover the demand of its facilities for gas through the TAP.

The likelihood of this scenario is supported by the fact that 42.5 per cent of the stake in the project belongs to the Swiss company EGL. Another important factor in favour of the pipeline is that Statoil, which is a member of the Sah Daniz consortium, has 42.5 per cent of the shares in the project.

The consortium to implement the TAP project conducted extensive research on its logistics. Conditions for its implementation were specified with the governments of the countries through whose territory the pipeline must pass. In addition, the consortium signed agreements with operators of gas transport systems of Croatia and Bosnia. Thus, the gas from the TAP can be supplied to neighbouring Balkan countries.

Along with the positive aspects in favour of this project, the TAP has weaknesses as well. Primarily, it is due to the fact that the pipeline has to pass through the territories of Greece and Italy, where there is a deep financial crisis that could reduce demand for gas in these countries and have a negative impact on its price. In addition, Italy is turning into a centre of gas supplies from various sources - especially from North Africa. That is to say Azerbaijani gas may face stiff competition on this market. As for the Nabucco West pipeline project, it is a shortened version of Nabucco, which was intended to export gas from Central Asia bypassing Russia. The total length of Nabucco West is only 1,300 km, and it runs from the Turkish-Bulgarian border to the Austrian city of Baumgarten, passing through Bulgaria, Romania and Hungary. The shareholders of the project are Austrian OMV, Hungarian FGSZ, Bulgarian Bulgargaz, Romanian Transgaz, Turkish Botas and German RWE. This direction is very interesting for Azerbaijan: there are mostly countries of the former Eastern bloc here, with which Azerbaijan has a more or less general mentality, perception of reality and the legacy of the socialist past. In addition, Azerbaijan is very interested in investing in these economies, and this process has already been launched. Therefore, the choice of Nabucco West can be both an impulse and a reinforcing factor in the implementation of Azerbaijan’s economic plans.

The advantage of this pipeline is also that it crosses countries which import gas mostly from one source - Russia. For these countries, Azerbaijani gas is an attempt to diversify their sources of supplies. For this reason, the gas from Azerbaijan will find a consumer market with relatively high prices without any difficulties. Also, there is an increase in gas consumption in these countries, which is also a positive fact: in the long-term, gas exports from Azerbaijan may increase. And thanks to the existing gas pipeline network, gas can be supplied to Western Balkan countries such as Serbia, Croatia, Bosnia and Herzegovina. This makes it possible to create a system in which gas can be forwarded to other markets if some of them are saturated. And that possibility exists: the markets of these countries are small, and, moreover, after the discovery of new gas fields in the territorial waters of Israel and Cyprus, it is expected that in the medium term, it will also come to the markets of Central and Eastern Europe. Azerbaijani gas will also have to compete with supplies of liquefied natural gas from the Middle East and North Africa. Also, one of the consortium members, Romania, has discovered new gas deposits on its shelf in the Black Sea.

We can add to all the aforesaid that, compared with the TAP, the Nabucco West consortium is less prepared, lagging behind this project in terms of logistics.

Shareholders of Sah Daniz signed agreements with members of both projects, under which if this or that pipeline is selected as the main export route, members of the consortium will have the right to acquire 50 per cent of the shares in the TAP and Nabucco West pipelines.

As can be seen, both projects have their own advantages and disadvantages. But in general, the chances of both projects are approximately equal, and in June, either of them could be the winner. It is worth noting that the loser in this race should not despair. The probability that the services of a second pipeline will be needed in the medium-term is very high. Natural gas production in Azerbaijan will continue to grow. Export volumes will continue to grow, and Azerbaijan will seek new markets for its exports. We can say only one thing: the choice of the route is a geopolitical solution for the future, which is not limited only to the export of Azerbaijani gas and is a kind of a reference point in economic cooperation and integration with the region. The strengthening of this relationship may be the beginning of processes of a different nature. The decision of the consortium is a connection between the present and the future of Azerbaijan. But such decisions are not taken so rapidly. If a gas pipeline is extended to Switzerland, SOCAR, which has a chain of fuel stations in this country, could cover the needs of its facilities by means of the TAP pipeline. The choice of Nabucco West may serve as an impetus and a stimulating factor in the implementation of Azerbaijan’s economic plans. The probability that the services of a second pipeline to export Azerbaijani gas to Europe will be needed in the medium-term is very high.