THE FINAL STAGE

Azerbaijan will be ready to start yet another global project as early as next year. 2018 will mark the beginning of natural gas production within the Shah Deniz Stage 2 development and the growth of gas exports to Georgia and Turkey via the new system of the South Caucasus and the Trans-Anatolian pipelines going through the Southern Gas Corridor (SGC).

Thanks to the third meeting of SGC Advisory Council held last week in Baku, all member countries of this global project were able to “synchronize watches” before entering the final stage of the project. Unlike previous meetings gathering the energy ministers of participating countries once in a year, the recent summit was fairly quiet.

This is not surprising since the major works to ensure the delivery of Azerbaijani gas to Europe are complete. In particular, the scope of works of the Shah Deniz Stage 2 is complete at 90%, expansion of the South Caucasus Gas pipeline from Baku to the Georgian-Turkish border - 80%, construction of TANAP and TAP (Trans-Adriatic Pipeline) gas pipelines - 65% and 34%, respectively. The parties have solved main problems long ago and now can univocally adopt decisions on less significant problems and delays.

"I think that we have managed to create a unique and special format of international cooperation. Of course, cooperation experience of different countries, companies and financial institutions will play an important role in the future, as a major drive behind successful implementation of the Southern Gas Corridor. After the implementation of this global project, our cooperation will continue in different directions", said President of Azerbaijan Ilham Aliyev at Advisory Council’s meeting.

With the construction of Baku-Tbilisi-Ceyhan and Baku-Tbilisi-Erzurum pipelines, Azerbaijan, Turkey and Georgia have laid ground for continental energy cooperation in the beginning of the 21^st century. Thanks to this format of cooperation, the Azerbaijani oil accessed the world markets creating an alternative version of oil exports for producers on the eastern shore of the Caspian Sea and ensuring energy security of Georgia and Turkey through the supply of Azerbaijani gas to these countries. The next step will be the delivery of Azerbaijani gas to Europe, which will provide the Old World with alternative energy source.

The EU fully acknowledges the importance of the Southern Gas Corridor initiated by Azerbaijan. "Once again, I would like to emphasize the strategic importance of this project for the European Union, European energy security and diversification of our plans, the plans to ensure the competitiveness and preservation of Europe as an open liquid market, supporting the diversification of energy supplies. We also appreciate the opportunity to have a new relationship with this very important region - the Caspian basin and such a strong partner as Azerbaijan", said at the meeting in Baku Vice-President of the European Commission in charge of Energy Union Maroš Šefčovič. He noted that talking about the need to create infrastructure for the delivery of Caspian gas to Europe being a long time, but now it is becoming a reality.

It is noteworthy that the construction of TANAP gas pipeline initiated by Azerbaijan and Turkey allowed the start of Shah Deniz Stage 2 and the SGC project.

Maroš Šefčovič expressed his confidence that the supply of Azerbaijani gas to Europe will be launched in 2020, noting that all involved countries will benefit from this project: "This project is very important for all member countries - in Europe, and in particular Italy, as the country will receive a large portion of the gas to be supplied through the SGC".

It is interesting that SGC faced the greatest resistance in Italy. This is the objection of the local authorities in Puglia, where the Trans-Adriatic Pipeline (TAP) will get on Italian shoreline. Regional authorities are opposed to the construction of the pipeline, citing possible environmental problems, coastal pollution, and the destruction of olive orchards.

However, it is still a big question to what extent environmental concerns worry the authorities and a group of environmentalists in Puglia. It's no secret that not all forces like the possibility of entering of Azerbaijani gas to Europe. It is clear that with 10 billion cubic meters (bcm) of gas per year, Azerbaijan is not a serious competitor for the main gas suppliers in the European market, consuming more than 400 bcm per year. However, even the possibility of alternative deliveries of small volumes apparently worried certain groups who are trying various methods to slow down the project.

Naturally, the topic of delays in implementing the TAP could not be left unattended at the meeting of the Advisory Council.

"We are aware that there will be certain cases of interference and pressure. There will be certain environmental and other pretexts. But we must be realists. The reality is that none of the projects implemented by Azerbaijan together with its partners such as BP, which is the strategic partner of our country and the operator of all of our oil and gas projects, have imposed environmental problems in Azerbaijan or along the transport routes. I remember when we were constructing the Baku-Tbilisi-Ceyhan oil pipeline, certain circles had launched a campaign opposing the project under the guise of environmental slogans. Baku-Tbilisi-Ceyhan pipeline has been operating for 11 years, and there was not a single episode, which would cause even a minor concern", said Ilham Aliyev in his response to opponents of TAP, noting that artificially contrived reasons to prevent the implementation of SGC will not succeed. "The only thing we can lose here is time. Why should we waste time? Time is money. We need to implement this project in a timely manner", said Aliyev.

Maroš Šefčovič is going to seriously deal with concerns of the Puglia authorities and will examine the situation on the ground. "We have individual co-operation with Italy focusing on this issue. At the 3^rd meeting of the SGC, we discussed the delay in the issuance of various permits. Italy will receive the major part of SGC gas and will get the most benefit from this project”, said Šefčovič.

During his visit to Baku, the Italian Minister of Economic Development Carlo Calenda assured that they have already begun transplanting olive groves, which was the core of main obstacles to TAP. He noted that Italy was committed to full support of the project, which is a priority and the largest energy project.

The delay in the issuance of permits for the construction of TAP in Italy reflects on plans to raise funds for the SGC project. It is noteworthy that with extreme caution in this matter right for European financial institutions. Until now, large loans allocated for the project by the World Bank (US $800 million), Asian Development Bank (US $1 billion), Asian Infrastructure Investment Bank (US $600 million). ABII loan has become the largest in the short history of this new financial institution.

"It is particularly important that the Azerbaijani gas will be transported not in Asia but in Europe. However, as we have seen, Asian financial institutions are ahead of European institutions as far as the financial support for the project is concerned. We hope that the European Bank for Reconstruction and Development, European Investment Bank will also consider providing financial support to keep up with the Asian partners. Otherwise, it will be difficult to understand their position”, said president Aliyev. He added that on its part, Azerbaijan provides great financial support to the project from both the state budget and the State Oil Fund.

The participation of European financial institutions in SGC is beneficial in terms of economical spending of the involved companies. Originally estimated at $45 billion, SGC costs were decreased to $40 billion given cheaper prices on pipes and equipment.

In addition, SGC is important for Europe more than just supply of Azerbaijani gas to predetermined markets of Greece, Bulgaria and Italy. Under the SGC, Europe actively creates interconnector systems that will expand the number of beneficiaries of the project on the continent, as well as to attract additional sources of gas. The whole system will provide the much desired diversification of sources and routes of gas supply and will enhance the establishment of free market for natural gas. This objective remains a priority of the new White House administration. "SGC will provide a broad choice for European consumers. This means that the project will be possible to further strengthen energy security, provide more competitive prices and, ultimately, greater economic growth", said in Baku Deputy Assistant Secretary for Energy Diplomacy Robin Dunnigan, noting that the project remains a strategic a priority for the United States.

The declaration on the results of the third meeting of the Advisory Council also stresses that the project participants support the start of negotiations on deliveries to Europe, additional volumes of gas with SGC, and will assess the further development of the SGC, including future volumes of gas pipelines connecting new and additional markets.

As to expansion of markets, the first stage of project concerns the opportunities to supply gas to Montenegro, Croatia and Bosnia and Herzegovina.

"Interconnector Greece-Bulgaria (IGB) will be ready by the end of 2019. Bulgaria and Romania have joined their gas networks. Montenegro, Albania, Bosnia and Croatia are actively working on the Ionian-Adriatic Pipeline (IAP). All these factors create new great opportunities for Azerbaijani gas", said the Azerbaijani Energy Minister Natig Aliyev.

Bulgaria also intends to end of 2020 to build a pipeline in Serbia. "Thus, it is a significant expansion of SGC by gas from Azerbaijani gas field Absheron and other fields, as well as through additional connecting gas pipelines", said the Minister of Energy of Bulgaria Nikolay Pavlov. In addition, SGC system will gasify a number of European countries, in particular Albania and Montenegro.

Also, the Minister of Economy of Montenegro Dragica Sekulić called the TAP highest priority for Europe. Although SGC current format does not pass through Montenegro, through the Ionian-Adriatic pipeline system, this Balkan country will also get access to natural gas.

"For us, this is the only way to get gas. So, on the one hand, IAP supports Azerbaijani gas supplies to Europe, on the other hand, the project will provide an opportunity to transfer European gas in the opposite direction. The main purpose of the pipeline is to increase security of supply, diversification of gas sources for all participants, while for Montenegro it is the only way to supply gas to the local market. Therefore, this project is important to us", said Dragica Sekulić.

Thus, at the 4^th Advisory Council scheduled for 2018, the ministers will discuss specific terms to start gas production under the Shah Deniz Stage 2, new contracts on gas supplies, and probably the possibility of expanding the system capacity for new potential suppliers of natural gas.