Southern Corridor: TANAP as the Foundation

Speaking about the Trans Anatolian Pipeline (TANAP) gas pipeline project and Azerbaijan's energy policy in that context at the Frankfurt Gas Forum, Vladimir Socor, Senior Fellow, Eurasia Program, The Jamestown Foundation, described the tensions that often arose between commercial and strategic policy considerations in joint projects with multinational players. He commented: “Usually such tensions are resolved in the final analysis to mutual satisfaction. I believe that this will also be the case in regard to Shah Deniz and TANAP.”

TANAP, he said, was the foundation of the EU's concept of a Southern Corridor, because the entire corridor would be impossible without it. He recalled that when the EU launched the Corridor in 2009 it was a concept with various pipeline projects as participants, among them ITGI, Nabucco, TAP, Trans Caspian Pipeline, etc.

According to Mr. Socor, Azerbaijan initiated TANAP in late 2011 and continued to develop the plan following then. He listed milestones like the Azerbaijan-Turkey Memorandum of Understanding and signing of the project agreement. Gas was scheduled to flow by 2018 and would reach European Union territory by 2019, he said, running from the Greek-Turkish border to the EU border in Greece.

“This would, for the first time, physically connect Azerbaijan and the Caspian Basin with the consumer countries in the European Union,” he observed, adding that TANAP addressed the EU criteria, being dedicated scalable, stand-alone and would operate under and EU compatible legal and regulatory regime.

When operational, he said, TANAP would incentivize further developments of additional gas fields in Azerbaijan, Turkmenistan and beyond. Azerbaijan would be the project's main investor and shareholder, he added.

Mr. Socor offered: “In practice, TANAP replaces Nabucco on the territory of Turkey. The European Union was unable to mobilize political or financial support for Nabucco and even for Nabucco West.

“The Shah Deniz partners could not or would not, themselves, finance a pipeline across the entire length – East-West – of Turkey's territory.”

Without TANAP, he explained, the Nabucco West versus Trans Adriatic Pipeline (TAP) competition would have remained a purely theoretical matter. “TANAP enables the construction of any further pipeline on the continuation route into European Union territory.”

From Azerbaijan's perspective, he said, TANAP “recycled” the country's oil revenue into the natural gas sector, prolonging the country's prospects as an energy supplier to Europe. Meanwhile, SOCAR was allowed to directly enter the European gas business.

The present shareholding of TANAP, he said, could change depending on shareholders' final agreement regarding project costs and capacity. Issues being debated included the costs, diameter of the pipeline and the amount and schedule of further routing and compression power, according to Mr. Socor, who said that on Georgian territory TANAP's capacity expansion would be correlated with the expansion of the South Caucasus pipeline running from the Azerbaijan-Georgia border to Georgia-Turkey.

Capacity could be expanded from 7BCM to 24-25BCM/year, while SOCAR hoped it would reach 30BCM as it could become the operator and majority shareholder, he opined.

Turkey's role as a transit country for Caspian energy, he noted, was growing off the strength of Azerbaijan's resources and initiatives towards infrastructure across Turkey's territory. “Turkey's ambitions to become a transit country of international significance is being fulfilled thanks to the Baku-Tblisi-Ceyhan (BTC), South Caucasus pipeline and now by TANAP, largely the function of Azerbaijan's national decisions to export its energy westward to Europe,” he said.

Azerbaijan, he noted, was the biggest foreign direct investor in Turkey, with USD 17 billion “in the pipeline” (figuratively speaking). SOCAR, said Mr. Socor, was entering the value chain along the entire length of the Southern Corridor.

“It is in the South Caucasus pipeline, TANAP project, has entered TAP, has recently acquired 66% of the Greek transmission system, Desfa, via which Azerbaijan has inherited a stake in the Greece-Bulgaria interconnector and Azerbaijan stands to extend its role and gasify Albania, either as a direct consequence of the TAP project or outside of it using the Desfa connection,” he said.

All of this, he said, highlighted Azerbaijan's indispensable role in the Southern Gas Corridor to Europe.

As far as Turkmenistan was concerned, via the Trans Caspian pipeline Azerbaijan was a possible transit country for Turkmen gas, according to Mr. Socor, who said Turkmenistan could contribute 30-40 BCM/year into the Southern Corridor. He reported that a trilateral commission consisting of the EU, Azerbaijan and Turkmenistan was discussing that possibility.

“Most of you are familiar with the obstacles that exist in the way of this project,” he said. “From our point of view, it is interesting to discuss Azerbaijan's possible role and TANAP's possible role in conveying Turkmen gas to Europe.”

According to him, Azerbaijan faced a dilemma: allowing large Turkmen gas volumes to be transferred via Azerbaijan to Europe could undermine the price of gas originating in Azerbaijan, due to the superior volumes of Turkmen gas that would transit through the plant one day. On the other hand, small volumes of Turkmen gas that would not undermine that price would make it less than worthwhile for Turkmenistan to assume the risk of exporting gas to Europe and thereby antagonizing Russia.

Mr. Socor explained: “From Turkmenistan's perspective, only large volumes of gas going westward would warrant the risk of antagonizing Russia.”

Azerbaijan, he said, would make its infrastructure available for the transit of Turkmen gas, which represented the present state of discussions on the matter.