Robert M Cutler
MONTREAL - Just as smaller gas projects in the European Union were welcoming a decision by Azerbaijan and Turkey to build a Trans-Anatolian Gas Pipeline (TAGP), statements now coming out of Baku to the effect that Azerbaijan may be able to fill the larger Nabucco pipeline without the need of Turkmen gas - contrary to previous plans - have complicated the supply picture for southern Europe.
Design details remain to be clarified for the TAGP, which will run from Turkey's eastern to its western border and is also referred to as "Trans-Anadolu" and sometimes by its acronym in Turkish, TANAP, but it is planned to take 16 billion cubic meters per year (bcm/y) of natural gas, of which 6 bcm/y would be for domestic Turkish consumption. The Interconnector Turkey-Greece-Italy (ITGI) and Trans-Adriatic Pipeline (TAP) projects are both scaled to transport about 10 bcm/y, whereas the projected volume of the Nabucco pipeline has always been 31 bcm/y. If one does the math, then it is clear that this would leave 10 bcm/y for either ITGI or TAP.
ITGI, TAP, and Nabucco all submitted final bids to Azerbaijan for gas from the second-phase development of the offshore Shah Deniz natural gas deposit at the beginning of October, 2011. At the last minute, BP submitted a draft of an idea (the South-East European Pipeline, SEEP) that is not a fleshed-out proposal but which closely resembles the subsequently-announced TAGP project. It was then announced that decision originally due before the end of the year would be postponed until the end of March at the latest.
The various projects are continuing their publicity campaigns to position for winning the upper hand, or at least survival. Nabucco representatives have declared their willingness to work with the TAGP project, whose sponsors declare that its volume could indeed be scaled up, even though one of its selling points is that it uses long segments of existing pipeline that would require further capital investment to be expanded. However, Nabucco has suggested that “additional guarantees” might be necessary in order that natural gas from Turkmenistan, through a long-discussed Trans-Caspian Gas Pipeline (TCGP) under the sea to Azerbaijan, might be included.
The guarantees would come from the eventual operators of the TAGP, which at present is the operational responsibility of Azerbaijani and Turkish government-run companies the State Oil Company of the Azerbaijani Republic (SOCAR) and BOTAS of Turkey, although the companies have said that they are willing to include others. Under the agreement entered into by the neighbors, SOCAR will build the pipeline with BOTAS and TPAO, another Turkish state firm.
Until recently, gas from Turkmenistan was considered necessary for ramping up the quantities to Nabucco’s 31 bcm/y planned capacity, particularly in view of Azerbaijan’s repeated declaration that it was not prepared to supply more than 10 bcm/y from Shah Deniz Two, in order to maintain its ''security of demand'' (having many customers means not being beholden to any single one). Now comes the suggestion from unofficial circles in Baku that in the longer run, Azerbaijan might be able to supply gas for Nabucco by itself, without the need for Turkmenistan to get involved.
In the past few years, discoveries of further deposits in Azerbaijan's Caspian Sea offshore have increased the country's export potential to the point where Baku’s assertion of an ability to export 31 bcm/y through a version of Nabucco becomes credible, if one supposes that gas from deposits other than Shah Deniz Two will feed it.
The problem from the standpoint of Nabucco’s proponents, however, is that that then requires extending the project's time-frame into the somewhat indefinite future, since those other offshore natural gas fields are not yet even close to entering production. Clearly, this is not the same Nabucco that the European Council endorsed at its Prague Summit in 2009 and for which a Nabucco Intergovernmental Agreement (NIA) was laboriously negotiated.
Indeed, the creation of the TAGP project effectively makes it possible for Turkey to transit Azerbaijani gas to Europe without being bound by the rules of the NIA, which it signed and ratified. As spokeswoman for the European Commission Marlene Holzner told Reuters this week, the fact that “Turkey is only an observer of the European [Energy] Community ... means that it does not have to implement EU energy law.” (The European Energy Community extends the EU’s internal energy market to a number of EU non-members Southeastern Europe.) Holzner nevertheless expressed the hope that an intergovernmental agreement would be created “for any pipeline” that would reflect “certain principles.”
As for the smaller SGC projects, it is to be noted that the Norwegian firm StatOil holds a 42.5% stake in TAP as well as a 25.9% share in the consortium developing Azerbaijan’s offshore Shah Deniz deposit, although this is no guarantee of the TAP's eventual success. Azerbaijan will remain the owner of the 10 bcm/y that will transit the TAGP to Europe, and it is just not clear that there will be sufficient demand for it in Italy, where TAP makes eventual landfall.
On the other hand, an Interconnector Greece-Bulgaria is under completion that could take half of the 10 bcm/y in the first instance, which could conceivably be doubled. And Azerbaijan is known to have a distinct sympathy for the smaller countries in Southeastern Europe that especially suffered from Russia's mid-winter cutoffs of natural gas to Europe via Ukraine during the last decade....