By Drew Leifheit
Scalability is a key part of the Southern Gas Corridor (SGC), a major new transportation route that will bring gas from the BP-operated Shakh Deniz 2 project. The first line is to carry just 10bn m³/yr beyond Turkey but a second, also of 16bn m³/yr, is planned, once gas can be found to flow through it. The project was discussed at a panel discussion at the Atlantic Council last week and note taken of the challenges it faces in today's environment.
The line will bring natural gas from the Caspian region into Europe, posing a threat to Russia's regional dominance in countries with no real alternative supplies.
A senior BP official responsible for the SGC, Joe Murphy, called it “absolutely paramount” to bring gas from other resources through the pipeline. “We need double the gas. The next cheapest gas will be Azeri gas, and there's nothing to say that we can't in the future bring Turkmenistan gas through the Southern Corridor, but at the moment we see that's politically very sensitive."
He said that the $45bn complex pipeline project running from Azerbaijan to Italy and consisting of four mega projects – Shah Deniz 2, South Caucasus Pipeline expansion (SCPX), Trans-Anatolian Pipeline (Tanap), and the Trans-Adriatic Pipeline (TAP) – would be delivered and will come in under budget, eventually delivering 16-32bn m³/yr.
Tanap, said Murphy, was on schedule for completion in mid 2018, with 700 km of pipeline already welded. First gas is scheduled for 2020, although the project is seeing challenges.
Among those, he named obtaining regulatory permits in Italy, land acquisition in Greece and Albania, and technical delays. The local mayor has been vocally opposing the project which Rome wants to see built as it would create jobs and boost the economy in a relatively poor region.
The relative cheapness of Tanap was due to the oil price falling but Murphy said the economics of the project are now very different from what they were when the final investment decision was taken in 2013. And they do not threaten the project, which is a long-term initiative and not something that reacts to day-to-day market conditions.
He said: “The low oil price brings pressure on all partners who are contributing to pay for the project, but if we continue to deliver it on time and succeed in reducing the budget, the project will be economic.”
As for whether contracted gas will need to be renegotiated in light of the reduced prices, he replied: “We have 25 years of gas sales agreements in place underpinning the 16bn m³/yr that's to be sold across the SGC and those contracts have separate deals within them linked with the oil price – there's not going to be a renegotiation of those.”
Agnia Grigas, Nonresident Senior Fellow, Dinu Patriciu Eurasia Center, Atlantic Council, expanded on some of the threats, such as the gas glut, depressed prices, new sources, a rise in global LNG trade and more interconnections in Europe.
“These have created more of a buyer's market and more favourable conditions for importing states,” she said, adding that this had reduced the strategic importance of the SGC for the diversification of Europe's gas imports. On the other hand, worsening relations between Russia and the West, and the conflict in Ukraine, did make the project more necessary.
Southeast Europe remains a key battleground for Russia in terms of being a sole supplier, despite its concessions such as the elimination of destination clauses and being more open to spot trade. She explained, “This is where they would like to maintain their monopoly over these markets.” This is why Moscow is so keen on its own southern corridor plan, Turkish Stream, which is intended to bring Russian gas into the region from the south.
Meanwhile, she noted the “isolated suppliers” in Central Asia (other than Azerbaijan), which are not on the Caspian, for whom pipeline infrastructure like the SGC would be the only way of delivering their gas to global markets. Turkmenistan, she said, was interested in selling gas to Europe, but is now trying to keep up with Chinese demand.
Daniel Stein, who has held senior roles in the US State Department relating to energy, portrayed Turkmenistan's focus on exporting to China, on which the country had been very dependent because demand was not as great as it once was and a lot of the gas is repaying a loan received by Turkmenistan to develop its gas fields and infrastructure to China.
Stein described the “real vulnerabilities” in the Balkans and central and eastern Europe being addressed by the Southern Corridor project: their dependence on a single supplier of gas, which had been highlighted by Russia's shut-offs of gas to those countries in 2006 and 2009, while it was engaged in a dispute with Ukraine. He said, “Even 10bn m³/yr can have an impact.”
Stein added that the Interconnector Greece-Bulgaria would help with competition in that region, even if the volume was relatively small. Even 3-5bn m³/yr reduces their dependence on a single supplier, he said.
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Tanap, said Murphy, was on schedule for completion in mid 2018, with 700 km of pipeline already welded. First gas is scheduled for 2020, although the project is seeing challenges.
Among those, he named obtaining regulatory permits in Italy, land acquisition in Greece and Albania, and technical delays. The local mayor has been vocally opposing the project which Rome wants to see built as it would create jobs and boost the economy in a relatively poor region.
The relative cheapness of Tanap was due to the oil price falling but Murphy said the economics of the project are now very different from what they were when the final investment decision was taken in 2013. And they do not threaten the project, which is a long-term initiative and not something that reacts to day-to-day market conditions.
He said: “The low oil price brings pressure on all partners who are contributing to pay for the project, but if we continue to deliver it on time and succeed in reducing the budget, the project will be economic.”
As for whether contracted gas will need to be renegotiated in light of the reduced prices, he replied: “We have 25 years of gas sales agreements in place underpinning the 16bn m³/yr that's to be sold across the SGC and those contracts have separate deals within them linked with the oil price – there's not going to be a renegotiation of those.”
Agnia Grigas, Nonresident Senior Fellow, Dinu Patriciu Eurasia Center, Atlantic Council, expanded on some of the threats, such as the gas glut, depressed prices, new sources, a rise in global LNG trade and more interconnections in Europe.
“These have created more of a buyer's market and more favourable conditions for importing states,” she said, adding that this had reduced the strategic importance of the SGC for the diversification of Europe's gas imports. On the other hand, worsening relations between Russia and the West, and the conflict in Ukraine, did make the project more necessary.
Southeast Europe remains a key battleground for Russia in terms of being a sole supplier, despite its concessions such as the elimination of destination clauses and being more open to spot trade. She explained, “This is where they would like to maintain their monopoly over these markets.” This is why Moscow is so keen on its own southern corridor plan, Turkish Stream, which is intended to bring Russian gas into the region from the south.
Meanwhile, she noted the “isolated suppliers” in Central Asia (other than Azerbaijan), which are not on the Caspian, for whom pipeline infrastructure like the SGC would be the only way of delivering their gas to global markets. Turkmenistan, she said, was interested in selling gas to Europe, but is now trying to keep up with Chinese demand.
Daniel Stein, who has held senior roles in the US State Department relating to energy, portrayed Turkmenistan's focus on exporting to China, on which the country had been very dependent because demand was not as great as it once was and a lot of the gas is repaying a loan received by Turkmenistan to develop its gas fields and infrastructure to China.
Stein described the “real vulnerabilities” in the Balkans and central and eastern Europe being addressed by the Southern Corridor project: their dependence on a single supplier of gas, which had been highlighted by Russia's shut-offs of gas to those countries in 2006 and 2009, while it was engaged in a dispute with Ukraine. He said, “Even 10bn m³/yr can have an impact.”
Stein added that the Interconnector Greece-Bulgaria would help with competition in that region, even if the volume was relatively small. Even 3-5bn m³/yr reduces their dependence on a single supplier, he said.
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