FINAL JUMP TO EUROPE

While the Southern Gas Corridor (SGC) project is nearing its logical and successful conclusion, the initiators and partners are already setting new goals to expand its potential. This topic was one of the main topics of the recent meeting of the SGC Advisory Council in Baku.

"We are grateful to all our partners, primarily to the SGC partner states—Georgia, Turkey, Greece, Bulgaria, Albania and Italy. I believe that in the coming years, we will strengthen our cooperation and, possibly, create a wider format of cooperation between all countries. Perhaps in February next year, we will be joined by the countries that do not participate here."

Step away from the finish line

The SGC Project was officially launched by Ilham Aliyev on May 29, 2018 and has been successfully used for gas supplies from the Shah Deniz Stage-2 development via the Trans-Anatolian Gas Pipeline (TANAP) to Turkey. In 2018 and 2019, the volume of deliveries through the SGC reached 2 and about 4 billion cubic meters (bcm) of natural gas, respectively. In 2020, it is planned to increase it to 6 bcm in addition to 6 bcm delivered to Turkey as part of the Shah Deniz Stage-1 project.

In 2019, TANAP already reached the European border. Now all efforts are focused on the completion of the TAP gas pipeline, 92% of which has already been built. The commissioning of the gas pipeline is expected in the fourth quarter of 2020, which will start with the supply of 10 bcm of Azerbaijani gas annually to southern Europe.

"The past problems have been solved. In general, the project to create the Southern Gas Corridor is now close to completion. Our conservative plan to start TAP is late 2020, perhaps earlier. The entire TAP system will be commissioned in one go. All customers are lined up waiting for deliveries. I hope there will be no more obstacles," Vitaliy Beylarbeyov, SOCAR Deputy Vice President for Marketing and Investment, said in his interview with EURACTIV.

Thus, with the launch of SGC in Europe, Italy will receive 8 bcm of Azerbaijani gas from the Shah Deniz Stage-2 annually for eight years, Greece and Bulgaria—a total of 2 bcm (1 bcm each).

By the way, according to IHS, Azerbaijan’s share in gas supplies to Italy in 2030 will be 12%. At the same time, the main suppliers will remain Russia (30%), Algeria (23%), and Libya - 12%.

The Italian side believes that the supply of Azerbaijani gas will play an important role in terms of satisfying consumer demand within Italy and will increase mutual trade with Azerbaijan by 2 billion euros.

“Last year, the mutual trade turnover between Azerbaijan and Italy reached almost 6 billion euros. The launch of SGC will further boost our relations, bringing an additional 2 billion euros in mutual trade turnover annually,” Italian Secretary of State for Foreign Affairs and International Cooperation, Manlio di Stefano, said.

Some EU officials proudly share in social networks the information that the SGC project will be completed in the near future. “I met with the Azerbaijani Minister of Energy of Azerbaijan, Parviz Shahbazov, on the sidelines of the Munich Conference. Together, we worked hard to improve Europe’s energy security. Our efforts to supply Caspian gas to Europe are reaching the finish line,” EC Vice President Maroš Šefčovič in his Twitter account.

Klaus-Dieter Borchardt. Deputy Director General for Energy, European Commission, speaking at the Baku meeting of the SGC Advisory Council, also expressed the optimistic attitude of the EU in the timely completion of the construction of the Trans-Adriatic gas pipeline.

"We are confident in the successful completion of the TAP project before the end of this year. This is good news both for Azerbaijan as a gas exporter, and for Georgia as a transit country, as well as for Turkey, which is a transit country and importer and for consumers in Europe," Borchardt said. "The SGC project is vital for the EU, as it will strengthen our energy security and is part of our diversification strategy, a new source and, more importantly, a new route to the European market."

Borchardt also outlined the new EU expectations from SGC, pointing out the need for further development of the corridor, since "such a wonderful project should not be used exclusively for the supply of 10 bcm of gas annually."

New goal

The EC representative has thoroughly prepared for the meeting of the SGC Advisory Council and, speaking about the future of the Southern Gas Corridor, also identified new potential areas for gas export and pointed to the availability of sources.

“We are considering the possibility of expanding SGC in Europe by 2 times - up to 20 bcm, and this has already been agreed. We have new directions. First of all, these are Western Balkan countries and Southeast Europe. There is interest in other European countries - Hungary, Romania. There will be others. Thus, the direction is clear and there are opportunities. The new gas fields in Azerbaijan, which are currently under exploration, are being considered as a source of gas during the expansion of SGC,” he said.

Indeed, conversations about the expansion of SGC have been going on for several years, but, apparently, now the project participants are focused on specific actions. According to SOCAR, in the summer of 2019, marketing research began to determine the demand for the expanded capacities of the Trans-Adriatic gas pipeline. Based on the results of these studies, TAP shareholders are expected to determine a scenario for the future development of this pipeline. By the way, according to Reuters, two options for expanding TAP are currently being considered, but a final choice has not yet been made. Clarity in this matter can be expected in 2021. Reuters notes that the first version of the expansion of TAP provides for an increase in the gas pipeline capacity to 48.8 mcm of gas per day (about 17.8 bcm per year), the second option - up to 59.5 mcm per day (more than 21.7 bcm per year).

According to the Ministry of Energy of Azerbaijan, the first phase of SGC provides for the supply of 16 billion cubic meters of gas per year to Turkey and Europe. In the framework of the second phase, the throughput capacity of the South Caucasus pipeline and the Trans-Anatolian gas pipeline can be increased from the current 16 to 30 billion cubic meters, the capacity of the TAP pipeline - from 10 to 20 billion cubic meters.

The Azerbaijani side has repeatedly stated that there are technical opportunities for expanding the SGC potential by 2 times without high costs, and interest from the EU gives an additional incentive for its implementation. As a new source ensuring the energy security of Europe, the European Union supported SGC from the very beginning. European financial institutions have provided loans for the TAP and TANAP gas pipelines. It is not difficult to predict the fate of the project without European support, because it was the uncompromising position of the EC that at one time put an end to the construction of the South Stream gas pipeline, aimed at supplying Russian gas to the EU through Bulgaria.

Speaking on February 14 at a round table on the topic Energy Security at the Munich Security Conference, Ilham Aliyev said that in the second stage, three Balkan countries — Bosnia and Herzegovina, Montenegro and Croatia — will join the SGC project. “Our technical potential and gas reserves allows us to supply these countries with gas too. We have increased gas production and, of course, there will be a need for even greater support from the European Commission. If this project is also included in the number of projects that meet the common interests of the EU, then its implementation will go faster,” Aliyev said.

Considering the EU’s repeatedly voiced interest in increasing gas supplies from the Caspian region and the support provided so far by the U.S. and European countries in the implementation of the SGC project, there is little doubt that this pipeline infrastructure will be expanded. The question is only in the financial side of the issue, but it seems that it will be resolved likely through international financial institutions. Ultimately, this fully meets the interests of Azerbaijan, aimed at a serious increase in gas exports.

Transit benefits

Georgia has also calculated its benefits from the expansion of SGC, satisfying almost 100% of its natural gas needs through imports. According to the government’s estimates, with an increase in the capacity of SGC, the volume of gas that the country receives in the form of transit fees will increase.

“Georgia will receive serious benefits from the project, because the gas quota that our state receives for performing the transit function is growing. Ultimately, this will improve the supply of natural gas to our country, our population and enterprises,” Natiya Turnava, Georgian Minister of Economy said.

Currently, Georgia receives about 300 mcm of gas free of charge for the transit through the SGC. According to estimates, Georgia may receive an additional 75 msm as a transit share from the Southern Gas Corridor project in 2020, about 125 mcm in 2021, and 1.15 bcm by 2023 .

“The Shah Deniz consortium invested up to $2 billion to make both TANAP and SGC functional, to increase its throughput only in Georgia. In particular, a new 62-kilometer pipeline, two additional compressor stations and a new station for regulating gas pressure have been constructed,” Director General of Georgian Oil and Gas Corporation (GOGC) Georgy Bakhtadze said.

Resources for SGC

It is known that the resource base for SGC is the Shahdeniz field with reserves of 1.2 trillion cubic meters, developed since December 2006. At the end of 2019, the field produced 117 bcm of gas and 28 million tons of condensate.

However, one gas field to implement plans to increase exports is clearly not enough. Analysts believe that an expanded version of SGC will become commercially attractive if, in addition to Azerbaijan, it will also transport Turkmen, Russian or gas from other producing countries to Europe.

The authorities of Azerbaijan also understand this. Therefore, in recent years, large-scale exploration work has been carried out in Azerbaijan, thanks to which new deposits of hydrocarbons, mainly natural gas, has been discovered.

“Our proven gas reserves are 2.6 trillion cubic meters. Estimated reserves are 3 trillion cubic meters. Therefore, Azerbaijan can be a reliable supplier of hydrocarbon resources for more than 100 years,” President Aliyev said.

The active process of gas production from new fields will start in the near future. In particular, in 2021, SOCAR, together with Total, will start gas production from the Absheron field with 300 bcm of reserves.

SOCAR jointly with the Norwegian Equinor carries out appraisal drilling at the Karabakh field also to install a stationary offshore base. Production will begin in 2021. Recoverable reserves of the contract area are estimated at 16 million tons of oil and 28 bcm of gas.

SOCAR is also actively developing the Umid-Babek block of fields. Currently, 3 mcm of gas are produced daily from the Umid field, while the potential of the field exceeds 200 bcm.

Joint work is underway with BP to develop the D-230 project, as well as at the Shafag-Asiman gas field, where the first well will soon be drilled.

SOCAR and BP are also negotiating to develop deep-seated gas strata at the Azeri-Chirag-Guneshli fields.

“This will contribute to the implementation of the strategic goal of expanding our participation in international markets, implementing diversified hydrocarbon exports and, thereby, improving the welfare of the nation,” Azerbaijani President Ilham Aliyev said.

It means that only a few months remain for the launch of SGC in entirety. The main result of any project is the achievement of the goal. A long way has been passed and the last steps remain so that the idea of ​​exporting Azerbaijani gas to Europe becomes a reality. However, we believe that this is not the end and the history of the SGC project will get an interesting continuation, which is likely to be discussed in detail at the next February meeting in Baku.