PHASE ZERO

The Southern Gas Corridor (SGC) set to deliver natural gas from the Caspian region (particularly from Azerbaijan) to the markets of South-Eastern Europe is expected to become one of the large-scale projects of the 21^st century.

The works to start the production of natural gas under the Shah Deniz Stage II project are almost complete. By the start of production, a significant portion of pipeline construction works for SGC has been completed.

The expansion of the SGC pipeline network in Azerbaijan and Georgia was completed by the end of 2017. Starting from mid-December 2017, gas supplies to the pipeline for commissioning and testing of the entire gas supply system to the Turkish border began.

The filling of the section of the Trans-Anatolian Pipeline (TANAP) from Georgian border to the Turkish city of Eskishehir with natural gas (Phase Zero) starts in January 2018. “The gas will be delivered from the expanded South Caucasus Gas Pipeline in volumes, as specified by technical requirements,” said Saltuk Düzyol, CEO of the TANAP Consortium.

Thus, an important stage begins in the implementation of the global gas initiative designed to become the main milestone of the project for the diversification of natural gas supplies to Europe.

The initial annual capacity of the TANAP pipeline is expected to be 16 billion cubic meters (bcm) of gas. About 6bcm of this volume will be supplied to Turkey while the rest will be delivered to Europe.

Deliveries of Azerbaijani gas under Shah Deniz Stage II through SCP and TANAP to Turkey are projected in mid-2018. “The construction of the pipeline section from Eskishehir to the Turkish border and Greece (Phase 1) continues in accordance with the planned schedule. TANAP will be ready to deliver the first gas to BOTAS national gas grid in Eskishehir in June 2018,” said Düzyol.

Thus, Azerbaijan will complete all works related to the start of gas production and construction of pipelines within the SGC as projected. The SGC project will ensure the expansion of the South Caucasus Pipeline (Baku-Tbilisi-Erzurum), the construction of the TANAP gas pipeline to the Turkish-Greek border and the construction of the Trans Adriatic Gas Pipeline (TAP) connecting Greece, Albania, and southern Italy. The cost of the whole project is $41.5b, the share of Azerbaijan is $11.8b, of which the country has already invested $7.8b.

The significance of Azerbaijani gas for the EU countries became apparent after the explosion at OMV’s gas hub in Baumgarten, Austria on December 12, 2017, which stopped the gas transit to Italy, Slovenia, and Hungary. Most likely, the Italian authorities will speed up the works on the TAP in order to get gas from Azerbaijan by 2020. Italian Minister of Economic Development Carlo Calenda said that Italy would declare a state of emergency in connection with the problems in the supply of natural gas. According to him, Italy has serious difficulties with gas supplies, which can be solved by accelerating the implementation of the TAP project.

The statement of the high-ranking Italian official inspires hopes that all obstacles related to the construction of the TAP in Italy are lifted and by early 2020, Azerbaijani gas will be delivered to Italian consumers.

Certainly, the implementation of the SGC project, particularly the construction of the TAP, is facing routine albeit surmountable challenges, which nevertheless can slow down the pace of works.

According to the TAP Consortium, 633 km of the envisaged 878 km of pipes have been laid out so far. After the completion of construction by early 2018, the TAP's annual throughput capacity will reach 10bcm with a likely increase to 20bcm.

Incidentally, the opponents of SGC have been particularly active in Italy. Due to various pretexts such as the TAP’s alleged environmental damages (the relocation of olive trees in the region), damages to Italian farmers, negative effects on tourism in the region, etc., the timetable of the project has been shifted from 2019 to 2020. Therefore, it is no surprise that the TAP leadership announced the suspension of pipeline construction works in Italy from mid-July until the end of August 2018, which is the peak of tourism season in Italy.

Under the first stage of the project, it is planned to supply up to 8bcm of natural gas to Italy, which is approximately equivalent to 12% of the current consumption of the country. Considering that the price of Azerbaijani gas is lower than that offered by other suppliers, the Italian authorities will not only be able to diversify its supplies but also reduce the cost for Italian consumers.

Meanwhile, it is planned to hold the 4^th meeting of the Consultative Council of energy ministers of the countries participating in the SGC project in February 2018 in Baku. The participants will likely consider further expansion of the pipeline capacities to the countries of South-Eastern Europe and the geography of Azerbaijani gas supplies in general. In other words, Italy and other countries may submit proposals to increase the Azerbaijani gas supplies.

The proposed meeting will mainly focus on the prospects for increasing the supply of Azerbaijani gas to European countries. In November 2017, the European Commission approved the updated list of Projects of Common Interest, which includes the Southern Gas Corridor. In particular, the list includes such projects as the extension of the South Caucasus Railways, TANAP, TAP and even the construction of the Trans-Caspian pipeline. The prospected changes in geographical extents of gas supplies can be seen on the example of Georgia. Georgian demand for natural gas in 2018 is projected at 2.659bcm. The import of natural gas from Azerbaijan will reach 2.6bcm. Domestic gas production in Georgia is only about 9.4mcm.

The increase in Azerbaijan's export of the Shah Deniz natural gas through the SCP makes it easier for the Georgian government to supply own consumers with gas, since Georgia will keep one fifth of the transit volume. Plus, the transit through Georgia will initially reach 24bcm and 30-35bcm later. At the same time, Azerbaijan has proved itself as a reliable supplier of natural gas to Georgia and the country that represents the most competitive prices for natural gas. Therefore, it is not surprising that the Georgian leadership has chosen Azerbaijan as its main gas supplier instead of Iran and Russia.

In short, gradually promoting its large gas export initiatives, Azerbaijan demonstrates once again that it is able not only to set ambitious goals but also successfully implement them with its partners.