SPANNING THE CONTINENTS

Europe's energy landscape is undergoing significant changes due to geopolitical shifts and the quest for energy independence. Azerbaijan is becoming a key player in this transformation, offering its gas resources as a reliable alternative to traditional suppliers. The expansion of the Trans Adriatic Pipeline (TAP) and the growing interest in Azerbaijani gas present new opportunities for Europe's energy security and enhance Azerbaijan's role as a crucial energy hub.

Expansion Prospects

The pipeline expansion initiated by TAP AG will increase gas supplies by 1.2 billion cubic meters annually starting in 2026. This development aligns with the European Commission's strategy to phase out Russian fossil fuels by 2030. TAP is already a vital part of the Southern Gas Corridor, delivering 10 billion cubic meters of gas annually to Italy, Greece, and Bulgaria, with potential growth to 20 billion cubic meters.

The first phase of the expansion includes constructing a new compressor unit at the Kipoi station on the Greek-Turkish border. This indicates TAP AG's commitment to making substantial investments to ensure long-term gas supply stability to Europe. The project, with a budget of 132 million euros, is financed from the company's own resources.

Infrastructure work will take place from September 19 to 30. During this period, TAP AG aims to maximize capacity at the interconnection points of Kipoi (349,887,515 kWh daily) and Melendugno (290,866,796 kWh daily). According to Luca Schipatti, Managing Director of TAP AG, the pipeline capacity expansion is offered to market participants on an open, transparent, and non-discriminatory basis. Market tests are conducted at least once every odd-numbered year and consist of two stages: optional and mandatory.

Additionally, TAP must provide short-term spare capacity to the market, maximizing the supply of short-term capacity on a day-ahead basis. Since mid-February 2022, TAP has been operating at nearly full capacity, with significant short-term orders supplementing long-term commitments.

Since TAP's inception on December 31, 2020, over 37.53 billion cubic meters of gas have been transported, including 2.29 billion cubic meters to Bulgaria, 3.63 billion to Greece, and 31.33 billion to Italy. In 2024 alone, the pipeline has moved over 6.53 billion cubic meters of gas, including 0.46 billion to Bulgaria, 0.6 billion to Greece, and 5.42 billion to Italy.

The first phase of TAP's capacity expansion could pave the way for further growth, achieved through subsequent market studies. Market testing of TAP, announced for 2023, is currently underway. The next step involves the approval of the project proposal by the national regulatory authorities of the three host countries, followed by the opening of the mandatory bidding phase, anticipated in mid-2025.

Further expansion potential and volumes will be determined through market testing. "The Trans Adriatic Pipeline continues its preparations to address anticipated market needs. We are also developing concepts for future expansion scenarios based on electrically driven compressors," stated the Managing Director of TAP AG.

Geopolitical Challenges

The development of TAP is particularly significant amid the ongoing Russian-Ukrainian conflict and the decline of Russian gas supplies to Europe. In light of supply shortages and rising energy prices, Azerbaijan emerges as a reliable alternative capable of stabilizing the market.

Ukraine, traditionally a transit country for Russian gas, faces significant challenges as its transit agreement with Russia expires at the end of 2024. Maintaining its status as a transit country and ensuring the operation of its costly gas transport system (GTS) is crucial for Kiev. The economic benefits are substantial, with Ukraine earning about $1 billion annually from transit fees. Official Kiev is exploring possibilities for gas transit involving third states or EU consortia, provided Russia is not involved.

While Ukraine's domestic gas reserves are sufficient for its own needs, EU member states like Slovakia, the Czech Republic, and Austria could face energy security disruptions if there is a gas shortage, potentially straining interstate relations.

If transit is halted, gas prices may rise further, marking the end of the era of cheap Russian raw materials. This forces the EU to seek new solutions. Norway, once a hopeful alternative, cannot meet member states' energy needs at low prices, and the situation with Algerian gas is similar. The EU's own resources are also insufficient, with regional gas production down by a third due to field depletion.

One potential scenario is supplying Azerbaijani gas across the Russian-Ukrainian border after the Russian-Ukrainian transit agreement ends. This initiative could benefit all parties involved. It would meet EU demand, allow Ukraine to maintain its transit status and generate stable income, and strengthen Azerbaijan's role in ensuring Europe's energy security. For Russia, Azerbaijan's intermediary role could also be significant.

Ukrainian Energy Minister German Galushchenko has noted that there are currently no concrete proposals for the transit of Azerbaijani gas through Ukraine after the contract with Russia ends in early 2025, but such proposals may emerge in the future.

Environmental Aspects

The TAP expansion project aligns with Europe's broader energy transition strategy aimed at reducing greenhouse gas emissions and achieving climate neutrality. TAP AG has developed a long-term strategy for 2022-2025, including a plan for managing hydrocarbon emissions, and has already made notable progress.

By 2025, TAP aims to reduce greenhouse gas emissions by 5%, methane emissions by 8%, and fugitive emissions by 54% compared to the 2022 forecast. In 2023, TAP has already reduced greenhouse gas emissions by approximately 30% and methane emissions by 70% relative to annual expectations. Studies show that 90% of the company's carbon dioxide emissions come from gas compressor operations.

In the future, TAP plans to develop the capacity to transport carbon-neutral energy sources such as hydrogen and biomethane. "As Europe advances towards climate neutrality, TAP is focused on ensuring a sustainable transition," remarked Luca Schipatti.

TAP could be particularly crucial for Southeastern Europe and the Western Balkans, where the energy sector relies heavily on some of the most polluting fossil fuels. Over time, TAP can play an important role in achieving the objectives of the European Green Deal and the Paris Agreement by supplying carbon-neutral energy sources (hydrogen and biomethane) to the EU when the market is ready for their commercialization.

According to Schipatti, TAP's goal is to establish infrastructure for transporting hydrogen initially in a mixture with natural gas. The technical feasibility of transporting such a mixture is currently under assessment. Initial studies conducted in 2021 confirmed TAP’s readiness for this purpose. The pipeline materials are presently undergoing testing in an internationally recognized laboratory in the Netherlands. The first results for the offshore section are expected by the end of the third quarter of 2024. 

Apparently, the TAP expansion thus represents an important step towards both energy security and transitioning towards sustainable energy sources.