Europe will not take any notice of Southern Gas Corridor

The Southern Gas Corridor, which will be an alternative to the Russian gas supply to Europe, will partially be launched next year. Meanwhile, European experts cast doubt on the feasibility of the project both in terms of gas supplies and the financial costs half of which will be provided by the EU banks.

The Trans-Anatolian gas pipeline (TANAP), which is the longest stretch of the Southern Gas Corridor, will be launched early next year, general manager of the project Saltuk Duzyol told the Turkish Daily Sabah. According to him, in June 2018, Turkey will start receiving gas from Azerbaijan via the pipeline. A year later, in mid-2019, the construction of the Trans-Adriatic Gas Pipeline (TAP) will be completed in Greece and Italy, and gas supplies to the EU will begin in March 2020.

According to Saltuk Duzyol, the cost of TANAP was reduced to $7.9 billion and the 1,350-kilometer pipeline across Turkey has already been built at 93%.

"We are now expecting the approval of a $1.3-billion loan from the European Investment Bank," the general manager of TANAP said. In total, the project attracts loans for $3.95 billion. The main creditors are European banks. The European Investment Bank is a public financial and credit institution of the European Union. Starting from 2020, EU consumers are to receive 10 billion cubic meters from Azerbaijan annually; the project is actively supported by Brussels which views the Southern Gas Corridor as an alternative to deliveries of the Russian gas. Today, 10 billion cubic meters account for 2.5% of gas consumption in the EU, and European experts are not sure that the project will effectively reduce the dependence of Europe on Gazprom and it is worth the investments made.

Senior Visiting Research Fellow on the OIES Natural Gas Program at the Oxford Institute for Energy Studies Simon Pirani told Climate Home News that dreams of additional gas volumes through the pipeline are unlikely to come true.

“I have doubts about any significant quantities of additional gas going along that route, because it’s not clear which gas fields in the Caspian they could come from,” Pirani said.

“There is a field being developed by [Azerbaijan state oil company] SOCAR with Total but that will not produce significant quantities of gas and those companies have already agreed that the gas produced there will go to the domestic Azerbaijan market. There won’t be any left for export. So the amount that Azerbaijan can contribute to [Europe’s gas market] is really quite minor.”

Europe hopes for diversified sources of supply via the pipeline, but the senior analyst at the Oxford Institute believes that hopes are hardly justified “with neighboring Turkmenistan far more interested on exporting eastwards to China, and little gas availability in Iran’s northwest, from where it could be pumped to Europe.”

Another bad news for the planned expansion of the Southern Gas Corridor may be reports that one of the largest LNG traders Shell negotiates to purchase annually 5 billion cubic meters of gas from the Israeli Leviathan field for liquefaction in Egypt. Sea deposits in Israel are also considered as an additional source of gas supplies to the Southern Gas Corridor. Instead of the Israeli gas, there can be gas from Iraqi Kurdistan. However, we wrote that this project with the participation of Rosneft is now running too many political risks.

Climate Home News noted that the cost of the Southern Gas Corridor (estimated at $ 45 billion) is comparable to all EU investments in the transition to clean energy in 2014-2020. In addition, the publication recalled a scandal with money laundering by Azerbaijan and bribery of European politicians. Thus, Kalin Mitrev, a Bulgarian member of the Board of the European Bank for Reconstruction and Development (EBRD), allegedly received $500,000 from Baku, and the EBRD is a creditor of the Southern Gas Corridor. Kalin Mitrev himself claims that he got the money for consulting services.

Earlier, Gazprom's deputy chairman of the board, Alexander Medvedev, said that Azerbaijan does not have enough gas, as it is forced to pump it back to the fields to support oil production. This is why Gazprom and the state company Socar negotiated to increase the supply of Russian gas to Azerbaijan. Now the Russian holding has a contract for the supply of up to 2 billion cubic meters of gas per year. Socar is interested to increase the volume by another 3-5 billion.

A statement by the Turkish foreign minister is another indication that things may not be that smooth even with the planned supplies to the "Southern Gas Corridor". Mevlut Cavusoglu said last year that the first line of the Turkish Stream gas pipeline will receive 16 billion cubic meters annually, while surpluses which are not in demand by Turkey will go to TANAP.

"I believe that even 10 billion from Azerbaijan to Europe is not guaranteed in the foreseeable future," said Alexei Grivach, deputy director of the National Energy Security Fund (FNEB).

“The deep-water part of the Shah-Deniz-2 field, which is planned as a resource base for the Southern Corridor, is a very difficult project in terms of technology, geology, and climatic conditions. Therefore, Azerbaijan can be very much interested in having a security net from Russia, so as not to get penalties for incomplete or untimely fulfillment of obligations."