After years of fierce competition among Europe’s energy giants, the developers of a major Azerbaijani natural gas field in the Caspian Sea recently picked the Trans-Adriatic Pipeline (TAP) project over the Nabucco West project to transport Caspian natural gas to Europe. According to the Financial Times, the estimated cost of the project is around $5 billion. The decision has major implications for European energy requirements and will help ease dependence on Russian gas.
The pipeline will transport natural gas from the SECOND Shah Deniz field in the Caspian Sea, which is set to begin production in 2018. (The first Shah Deniz field is currently operational and has exported 40 billion cubic-meters (bcm) in its first five years in operation to Turkey through Georgia via the South Caucasus Pipeline.) The Shah Deniz consortium responsible for the decision is a joint project owned by Britain’s BP (25.5 percent), Norway’s Statoil (25.5 percent), Azerbaijan’s national oil company Socar (10 percent), Russia’s Lukoil (10 percent), Iran’s NIOC (10 percent), Turkey’s TPAO (9 percent), and Total of France (10 percent).
The TAP consortium, which has won the lucrative contract to build the pipeline, is Statoil (42.5 percent), Switzerland’s Axpo (42.5 percent), and Germany’s large utility company E.On (15 percent). Belgian Fluxys is also expected to join TAP this month. With construction set to begin in 2015 and be completed by 2019, the 800km long pipeline will run from the Turkish border through Greece and Albania, and then cross the Adriatic sea to Santa Foca, Italy, and is expected to supply 10 to 20 bcm annually or 2% of Europe’s natural gas needs. This is more than double Greece’s annual The Italian terminus will allow Caspian gas to link to existing and planned pipelines, bringing the gas north to the rest of the European continent. Gas will then be distributed through existing and planned pipelines to Switzerland, Belgium, and Germany and, through the Netherlands or Belgium, to Great Britain.
TAP was chosen, say analysts, because it is 450 km shorter and therefore cheaper than Nabucco. Additionally, gas prices in Italy and Greece are higher than in the eastern European markets that would have been reached initially by Nabucco.
The competing Nabucco West proposal was led by Austria’s OMV (34.76 percent), with support from Hungary’s FGSZ (13.11 percent), Bulgaria’s BEH, Turkey’s Botas, and Romania’s Transgaz, each with 17.38 percent ownership. It would have transported Caspian gas from Turkey to Austria, passing through Bulgaria, Romania and Hungary.
The Nabucco project was originally proposed in 2002, as a 3,900 km pipeline that would carry 31 bcm of gas annually from Georgia to Austria. It was seen as a critical project for European energy security, and was supported by the European Commission. In 2009, the European Investment Bank and European Bank for Reconstruction and Development said they were prepared to finance up to 25 percent of the cost of Nabucco, around 200 million euros, if it secured an international agreement to proceed. When TAP was proposed, however, the EU determined they would not take an official position of supporting one pipeline over the other.
The situation became more complex in 2012, when Turkey and Azerbaijan decided to build a pipeline between the Shah Deniz II field and Kipoi, Turkey near the land border with Greece. After the Trans-Anatolia Pipeline (Tanap) decision, Nabucco was scaled back to the current Nabucco West project, beginning at the Turkish border instead of in Georgia.
TAP will connect to the Tanap. The combined cost of developing Shah Deniz II and Tanap is estimated at $40 billion.
After the 2009 gas crisis when Russia suspended energy delivery to the Ukraine over price disagreements, and effectively halted gas supplies through Ukraine to the EU for nearly two weeks, the push to diversify European energy supplies assumed real urgency. It was hoped that the Nabucco project could have provided an alternative source of gas to those eastern European countries in the EU that are particularly dependent on Russia.
Russia currently provides approximately 150 of Europe’s 500 bcm annual gas consumption. The Financial Times reportsthat Russian energy giant Gazprom’s managers have written the Azeri gas off as “just about enough for a barbecue.”
During the hard fought competition, the Nabucco West group criticized TAP for not contributing to Europe’s energy diversity, as Italy already enjoys diverse sources of energy. On the other hand analysts pointed out that TAP will help Europe increase its overall energy security, even in many Balkan countries due to the construction of the Ionian Adriatic Pipeline (IAP) that would link to TAP in Albania. Croatia’s Plinacro, Bosnia’s BH-Gas, and the Government of Montenegro are promoting the IAP, which would result in a 516 km pipeline to deliver 5 bcm annually of gas to those countries
But other other EU countries, such as Bulgaria, Romania and Hungary, will be negatively impacted by the decision not to proceed with Nabucco West. Since they will be bypassed by TAP, they remain heavily dependent on Russian gas and cannot profit from the transit fees they would have received with Nabucco West.
The TAP decision makes Azerbaijan a key player in Europe, and particularly influential in Greece. Not only is a large stretch of TAP located in Greece, but just weeks before the decision to go with TAP, Shah Deniz consortium member Socar (the Azerbaijan State Oil Company), bought a controlling stake in Greece’s gas network operator, Desfa. The TAP choice provides the opportunity for a direct supply relationship between Azerbaijan and Greece.
Greece stands to benefit significantly from TAP. The financial crisis has intensified the need to generate foreign investment to boost the still weak Greek economy. TAP would invest 1.5 billion euros in Greece alone, and create 2,000 direct jobs, as well as 10,000 more in companies that support the project, according to Prime Minister Antonis Samaras.Greek Deputy Energy Minister Assimakis Papageorgiou estimates a tax revenue of 320 million euros from the pipeline in the first 15 years.
It is possible that the Shah Dinez gas is just the tip of the iceberg. Once the pipelines are underway, other countries, such as Iraq, Turkmenistan, Israel, and others, will be able to export to Europe via Tanap and TAP
Upon learning of the TAP decision, EU Energy Commissioner Gunter Oettinger said, “We have a definite commitment from Azerbaijan that gas will be directly delivered to Europe… Whether the system consists of two gas pipelines – Tanap and TAP – or one single pipeline…does not make any difference in terms of energy security. We now have a new partner for gas, and I am confident that we will receive more gas in the future.”
