Southern Corridor Gas: From Strategic to Commercial
In a session dedicated to Challenges and Prospects for the Southern Corridor, one of the speakers at the 2nd Annual Frankfurt Gas Forum asked, “How does a mouse dance with the elephants?”
That's how John Baldwin, Vice President Southern Corridor, BP, UK, characterized BP's position among bigger players influencing the Southern Corridor natural gas project like the EU, the Russians, Americans or Azeris.
He said, “I think the trick is, how one can create a commercial project? How does a company like BP actually weave its way amongst these elements?”
Mr. Baldwin emphasized the importance of such projects being strategic, “But I sometimes think the word strategic is used to mean actually it's a project that doesn't make any money, and as I'm sure it's obvious to everyone, the trick is actually to create a commercial project, because at the end of the way there isn't a lot of free money lying around on the street, at least I haven't ever found any.”
He noted the gloom in the industry at similar natural gas events in Europe.
“With good reason. There are actually a lot of people who are hurting in the business in Europe in particular, but I think the fundamentals actually remain, roughly speaking, the same.”
Of course renewables were growing, he said, but despite that they were only a relatively small proportion of the overall energy mix going into the future. Gas continued to grow.
Yet, demand in Europe, with the exception of Turkey, he pointed out, was flat.
“But the key thing,” he added, “is that domestic production in Europe is declining, so therefore Europe is going to need to import more gas. The need for additional gas in Europe is actually quite clear, and if you happen to be supplying Turkey as well, that's even better.”
To have a commercial project, said Mr. Baldwin, meant that one had someone to sell the gas to and having the gas itself. Azerbaijan had gas, he said, from Shah Deniz, 9BCM/annum of which was being shipped to Turkey. “We hope the Shah Deniz II expansion to add 16BCM/a to that 9BCM/a, making 25BCM/a in total. There will be 6BCM/a going to Turkey and 10BCM/a going to Europe, with more to come.”
He pointed out that Shah Deniz was a gas condensate field. “So it's also producing condensate, which will be shipped down the Baku-Tblisi-Ceyhan pipeline, and that actually means that the project can support the additional infrastructure across Turkey and into Europe to sell this gas.
“This actually represents a unique opportunity,” he explained. “It's very difficult indeed to make dry gas fields work if you've got an awful lot of pipeline that you need to build. Shah Deniz is unique in the sense that it can provide an anchor to create all this infrastructure that is necessary to supply this gas to Europe.”
These were the factors, he said, which could translate a strategic project into one that was commercial as well. One built, he added, infrastructure could be expanded later; this was the case with the Trans Anatolian Pipeline (TANAP), according to Mr. Baldwin, as well as for the Trans Adriatic Pipeline (TAP).
He noted the need for being realistic in planning such projects.
Of the “straightforward” decision to build TAP over Nabucco West, he recalled, “We went out and talked to all the buyers along both routes and they made their offers, and we looked at the cost of the pipelines. When we talk about the regrets that there may be politically along the Nabucco route, the choice wasn't actually TAP or Nabucco; the choice was 'do you want a Southern Corridor?' which, in effect, meant TAP, because that was the more attractive project.
“The economics of projects like this are pretty tight,” added Mr. Baldwin, who noted that the complicated nature of the project, with 30 major legal agreements, actually tied everyone together.
Regarding the final investment decision for Shah Deniz II, he said much work remained to be done.
Lisa Givert, head of communications, Trans Adriatic Pipeline – TAP, provided an update on the pipeline project, an investment which she said totaled around USD 40 billion. First gas, she said, was scheduled for 2019 delivery.
TAP, she said, won the competition against Nabucco West based on the project's commercial and technical capabilities. Following TAP's coronation, she noted that SOCAR, Total and BP joined TAP as shareholders, as well as Statoil, Fluxys, E.ON and Axpo.
Of TAP's key features, she said, “We've obviously been designed to expand from 10BCM, so we were designed to deliver the gas volumes that were available from Shah Deniz II, however we do have built-in flexibility, so that when gas reserves come on stream in the Caspian we're able to easily expand to 20BCM.”
Ms. Givert added that TAP had a built-in physical reverse-flow option and potential gas storage once the pipeline was up and running.
“We will connect directly to TANAP at the Turkish border and we have the ability to interconnect with various existing and proposed pipelines along the route in southeastern Europe,” she explained, offering that TAP could connect to two options: 1) the proposed Interconnector Greece-Bulgaria pipeline, or 2) the existing pipeline which delivers Russian gas from Bulgaria into Greece.
This, she said, would counter the contention that TAP could not deliver gas beyond Italy.
Numerous high-level agreements regarding TAP, she said, had been signed in 2012-13 with players like Greece, Italy and Albania, providing real stability to traverse those countries.
Regarding the FID to be taken at the end of December, she said TAP was aligned with the Shah Deniz timetable. Numerous activities were taking place like construction preparation, environmental assessments and land easement and acquisition.
Of the benefits that TAP's construction would entail for the countries it passed through, Ms. Givert said it would provide a real contribution to economic growth in the transit countries, some direct and some indirect. “There will be direct contribution from taxes that TAP will pay to each of the country's governments, and obviously direct and indirect employment that's created during construction and operation.
“TAP is committed to, where possible, hiring locally,” she said, adding that the company would be putting together programs to help up-skill workers in each of the transit companies.
“Long-term, the Trans Adriatic Pipeline will boost the countries' roles as energy hubs in the region,” she concluded.