A NEW OPPORTUNITY

Russia's decision to abandon the South Stream gas pipeline project along the bed of the Black Sea to Bulgaria has alerted European companies towards seeking alternative gas supply routes in southern Europe. The EU was originally opposed to the South Stream project, pointing out that it would not provide Europe with alternative sources of gas but merely increase dependence on Russia. At the same time, Russia has no plans to abandon the European market and has announced the construction of a new gas pipeline across the Black Sea with an outlet to Turkey and the supply of gas to the Greek-Turkish border. The announcement of this project was made during Russian President Vladimir Putin's visit to Turkey.

This project has fuelled some concern in Azerbaijan, which implements the Southern Gas Corridor project. However, SOCAR (Azerbaijani State Oil Company) believes there are no grounds for concern. SOCAR's President Rovnaq Abdullayev said that South Stream and the projects focused on the supply of Azerbaijani gas in the context of the Southern Gas Corridor have never been rival competitors because each has its own market. This means there are no problems standing in the way of the implementation of the Southern Gas Corridor project. By the same token, Russia's rejection of South Stream means that the participating countries in the project, which include Bulgaria, Hungary, Slovenia, Austria, Croatia, Italy, Greece and Romania, will have to seek alternative options for their gas supplies.

Incidentally, both Turkey and the EU have already spoken about the priority ranking of the Southern Gas Corridor. According to Turkish Foreign Minister Mevlut Cavusoglu, TANAP holds greater priority for Turkey than Russia's latest proposal about a joint project. He said that although Turkey has signed a memorandum of mutual understanding with Russia this doesn't mean that TANAP has been pushed into the background. "We are aware of the importance of TANAP for Georgia and for Europe. We have already ordered the pipes for the project. This project will not depend on a reduction in oil prices and will be completed. We are always emphasizing the importance of TANAP," Cavusoglu said.

According to the deputy chairman of the European Commission, Maros Sefcovic, the EU will be aiming to speed up the construction of the Southern Gas Corridor, which is designed to deliver gas from the Caspian Sea fields to Europe. "The supply of Caspian gas to the EU is important for the diversification of routes and sources of energy," he stressed after a meeting of energy ministers at the Council of the EU.

"I briefed ministers about my meetings in Baku and Astana, the purpose of which was to speed up the construction of the Southern Gas Corridor," Sefcovic said. "I received very clear assurances from Azerbaijan that they would be working to schedule and were very interested in the prompt implementation of the project for the supply of Caspian gas to the EU border. They asked us for assistance in the coordination of the European part of this gas corridor."

"I received assurances from Azerbaijan and Turkey that this was an important project for them and they want to complete it on time," Sefcovic said.

It should be noted that the plans for the supply of Russian gas to the border of Turkey and Greece specified the possibility of using the Trans-Anatolian gas pipeline (TANAP), which runs from eastern Turkey to the west. SOCAR, which is TANAP's main shareholder, has already expressed its position on this question. According to the company's head, Rovnaq Abdullayev, "this (the transportation of Russian gas via TANAP) was not taken into account during the design study, which could be considered if an approach is made".

It will be recalled that on 17 December 2013 a final investment decision was made on the second stage of the development of the Azerbaijani Shah Deniz [Sah Daniz] offshore gas-condensation field. As part of the second stage of the project, gas would be exported to Turkey and to European markets by means of extending the South Caucasian gas pipeline and constructing the Trans-Anatolian (TANAP) and Trans-Adriatic (TAP) gas pipelines. The first gas would be supplied to Turkey in 2018 and Europe at the beginning of 2020.

The first boost

This may be chance or coincidence, but it has now emerged that the British engineering company Penspen, after lengthy preparations, has presented to the shareholders of AGRI (Azerbaijan-Georgia-Romanian Interconnector) the final version of a feasibility study of this project. In February 2011 the sides set up a joint enterprise to carry out this project - SC AGRI LNG Project Company SRL. The final version of the study was considered by the board of directors and was then recommended for review at a general meeting of shareholders scheduled for January-February 2015.

Of some importance is the fact that the Hungarian MVM and the Romanian Romgaz are participants in the AGRI project, along with SOCAR and a Georgian oil and gas corporation.

The AGRI project provides for the transportation of Azerbaijani gas through pipe lines to Georgia's Black Sea coast, where it will be liquefied at a special terminal, after which it will be delivered by tankers to a terminal at the Romanian port of Constanta. It will then be turned into a gaseous state and forwarded via the gas infrastructure in the country to meet the requirements of Romania and other European countries.

Long-term plans provide for the laying of two separate gas pipelines from Constanta to Bulgaria and Hungary for the export of Azerbaijani gas to countries of the European Union. Up to 8 billion cu m of liquefied gas a year are due to be exported as part of the AGRI project. According to preliminary estimations, the implementation of this project will set the parties back from 1.2 to 4.5bn euros (depending on the capacity of the terminals). 

The revival of the AGRI project could be the first boost in the start of work to find new sources of gas for the countries of Central and South-east Europe in these rather tense conditions of struggle.

Azerbaijan's position here is clear. The country has immense reserves of gas (proven supplies alone amount to 2.55 trillion cu m), and therefore different routes and options for supplying the world's market are needed. According to Abdullayev, all projects have the right to exist: "Azerbaijan possesses major supplies of gas, new plans are now underway, particularly at the Absheron field, and preparations are going ahead with BP to draw up a long-term Safaq-Asiman structure. Work is also in progress to develop the Umid-Babak block. To bring them onto the market requires an infrastructure, a role which could in the future be played by AGRI." At the same time, the state company's head emphasized that, first and foremost, work was now underway on projects in the context of the Southern Gas Corridor, which has great potential for expansion. "If the need arises, and also depending on the situation on the market, we can also go back to the AGRI project," Abdullayev noted.

Azerbaijan has always been and remains a supporter of the diversification of energy export routes. The European Union and Azerbaijan can obtain benefit from the integration of energy markets and thereby strengthen their own energy security. At the same time, SOCAR, which is now on the threshold of becoming a major international company, is committed to the principle of matching participation in projects and their implementation to the country's economic interests. The end result must always meet the interests of all the sides. There may be many people wanting to buy the goods, but the last word is always with the vendor.