Repercussions of TAP’s Selection
Europe is to receive gas from the Caspian Basin, the second largest gas basin in the neighborhood after Russia, via the fourth route also known as the Southern Gas Corridor. Construction of the Trans-Adriatic Pipeline (TAP) is set to kick-off in 2015. The following is an analysis of the impact of TAP's selection.
Implications for Azerbaijan
The decision to realize TAP will have an immense impact on Azerbaijan in many respects. First, TAP opens access for Azerbaijan to the southeastern Europen market. Second, Azeri gas may reach central and western Europe thanks to the fact that TAP finishes at the landfall point on Italy’s southeastern coast. "There, TAP is planned to link up with Italy’s transmission pipelines operated by Snam Rete Gas. The Swiss Axpo owns gas-based electrical power plants in Italy’s north. Snam’s transmission pipelines run the length of the Italian peninsula and connect with Switzerland’s.” (Socor, June 27, 2013)
Furthermore, the fact that the Belgian Fluxys will join TAP (expected sometime August 2013) drastically increases the project's chances to enter western Europe. “Fluxys is a major operator of gas transmission pipelines and storages in six countries, mainly in Europe’s northwest. It holds ownership stakes in the Transitgas pipeline that links Switzerland with Germany, as well as in the Belgium-Britain and Netherlands-Britain interconnector pipelines. (Socor, June 27, 2013)
Besides its pipeline, storage and LNG terminalling assets in Belgium, Fluxys’ partnerships include ownership in the Interconnector and BBL pipelines linking the UK with mainland Europe, the Dunkirk LNG terminal under construction in France, the NEL and TENP pipelines in Germany and the Transitgas pipeline in Switzerland. (TAP, June 17, 2013)
Collaboration with the owner of the pipeline to the UK leaves theoretical opportunities for TAP to discover new, previously unexpected gas markets. Hence, being a pioneer of Southern Gas Corridor for Europe, TAP is of high priority to Azerbaijan as a project facilitating exposure of the country as a gas supplier to the EU market.
On the other hand, new perspectives for Azerbaijan in terms of functioning as a transmission operator occurred after its acquisition of Greek TSO DESFA.
In addition, the fact that DESFA possesses a LNG Terminal in Revithoussa (Greece) presents new opportunities for SOCAR in terms of supply of LNG to Europe alongside its own gas. With the Revithoussa LNG terminal, SOCAR gains an asset currently used below capacity. This might, in the future, become a transit point for gas sourced from the Mediterranean basin to European countries via DESFA transmission pipelines. (Socor, June 25, 2013)
In the meantime it was widely discussed that there is also a high probability for Israeli gas to be linked with the Trans-Adriatic Pipeline (TAP), since the vice-President of the European energy regulators council, Valeria Termini, has had talks with Israeli senior officials from the Ministry of Energy on the issue, which would likely include the transfer of LNG quantities to Greece. (Natural Gas Europe, July 1, 2013)
Therefore, the level expediency of the acquisition of DESFA can be evaluated only after certain period of time, but already today one may observe the makings of the future success.
Recently there was a Cooperation Agreement signed between TAP and DESFA on the technical support for the realization of the TAP's section in Greece. Other joint activities will include the review of interconnection points with the DESFA pipeline system to further enhance security of supply and technical cooperation. (Natural Gas Europe, July 4, 2013) The implications for Azerbaijan firstly is the absence of additional costs on the gas deliveries since the Greek TSO guarantees and easy access to the Greek market sans of the necessity to build distributory pipes along the market.
Last but not the least is the fact that Azerbaijan holds majority shares in TANAP creates new perspectives in terms of operating transmission systems in Turkey. Turkey will secure its gas demands by purchasing an additional 6 bcm/y to already receiving gas from Azerbaijan (in addition to already 8 bcm/y) and thus diversify its gas sources.
Implications for Greece
Undoubtedly TAP’s selection must be viewed as advantageous for Greece, which is in a painstaking struggle as its economy deteriorates. Therefore, this credibility must be considered by its government as a 'gift from the skies'.
Prime Minister Antonis Samaras said that Greece has been struggling through more than three years of deep financial crisis, and has been desperate for foreign investment to inject cash into the economy and generate jobs at a time when unemployment is above 27 percent. TAP represents an investment of more than €1.5 billion ($2 billion) in Greece alone. According to Samaras, the project will generate 2,000 direct jobs and 10,000 more in companies that will be supporting the project. (Today’s Zaman, June 28, 2013)
New investments lead not only to the accumulation of tax revenues, but also add means for the recovery of Greek economy. Since Greece was able not only to join the Southern Gas Corridor but also to sell its Transmission System Operator, it could become a gas hub, for instance by modernizing and developing the capacity of the LNG terminal that DESFA possesses. Successful implementation of TAP and development of the Southern Gas Corridor might turn Greece, alongside Turkey, into energy hub.
Implications for Albania
Albania will also benefit from the cash flow into its economy. Executive director of TAP Kjetil Tungland mentioned that the construction in the territory of Albania will bring the investments in excess of $1 billion and will decrease the unemployment by a thousand employees. (Alizade, June 28, 2013)
Moreover, Albania will be better off due to the new gas infrastructure that will be constructed in the country. "SOCAR will be working on establishing gas infrastructure in Albania, as well as utilizing its gas storage," said Elshad Nasirov, VP of SOCAR.
Nasirov also mentioned that in Albania's gas infrastructure is at a zero level due to the fact that natural gas is not used there. (Region Plus, June 28, 2013) As such, parallel to obvious advantages such as diversification of energy routes and security of supply, Albania will gain the new gas base and alternative tools for developing its economy.
Implications for Italy
Since gas from Southern Italy is to be transported north, substantial investments for transport infrastructure will be needed. Supply of gas is expected to be reversed in Italy, since the traditional gas route was from the north to south and that will require additional costs. All this would seem to entail using Italy mainly as a transit corridor, rather than main market (TAP’s public announcements do not mention swap operations, which might also be envisaged). Italy is already saturated with gas supplies from multiple sources by varying delivery modes, and is massively building additional LNG reception capacities. (Socor, June 27, 2013)
It is obvious the country could become a transit base for both Caspian gas and LNG deliveries to western European markets. TAP will play an integral part in these objectives.
What does it mean for Nabucco West countries?
In spite of the bitterness behind the decision on the final route for the members of Nabucco West consortium, there is a light at the end of the tunnel, and that light is closely linked to the Commission's aim to build the grid of interconnectors in Europe, called the North-South initiative.
Although Nabucco West countries cannot get gas directly from the Caspian Basin, thanks to this initiative they will be able to receive gas through interconnectors. One example could be the already existing interconnector between Hungary and Romania. Azeri (or swapped) gas might also be shipped from Italy to Austria’s Baumgarten Hub, the original destination of Nabucco West through the TAG pipeline. (Bryza, Koranyi, July 2, 2013)
Austrian OMV is among those who lost the most as a result of Nabucco West's defeat. As the leading shareholder of Nabucco West (GDF Suez joined Nabucco West at the very end, that is why we do not count it) it spent a great deal of capital on planning and design. (Reed, June 26, 2013)
However, that Austria is still a "natural market" for Azeri gas, adding that new developments in ACG Deep, Absheron, Umid and Shafag-Asiman would boost gas exports. We see the pipeline route towards Austria as a natural market for this gas, SOCAR President Rovnag Abdullayev said in a statement. (Natural Gas Europe, June 28, 2013)
Bulgaria seems to be the least affected for several reasons. The interconnector from Greece is to be completed by 2015, which in the future might potentially deliver gas from the Caspian Basin to Bulgaria through Greece. (Socor, June 25, 2013)
Noteworthy is the fact that SOCAR's DESFA is a shareholder of the IGB Project. This pipe connects Greece to Bulgaria and has the capacity of 5 bcm/year and thus can also be seen as bringing Azeri gas to Bulgaria. Building the Greece-Bulgaria Interconnector, the rights to which are owned 25% by Greek DEPA, 25% by private Italian company Edison, 50% by the Bulgarian state energy holding company EAD, could provide gas from TAP to Bulgaria. (Bryza, Koranyi, July 2, 2013)
Preference for the Trans Adriatic Pipeline, which will supply Azerbaijani natural gas to Europe, does not mean Azerbaijan has given up its plans to provide gas to Bulgaria, said Elshad Nasirov. If it is technologically possible, Bulgaria will be able to buy Azerbaijani gas from the very first stage of its transportation to Europe, said Nasirov. Bulgaria plans to buy 1-2 billion cubic meters of Azerbaijani natural gas a year, says the website. (Natural Gas Europe, June 30, 2013)
SOCAR has stated that once, amount of gas exceeds the capacity of TAP, the residual gas can be sold to Hungary and Austria. (Day.az, June 30, 2013)
Western Balkans
Access to the western Balkan market was considered one of the most important factors in the selection of the project. Therefore it is important to understand how and to what extent this region will be affected by the final selection of TAP project.
According to a SOCAR official, gas to the western Balkans can be delivered via the Ionian Adriatic Pipeline (IAP), if the supply of gas is boosted. Additional supplies would overwhelm the first phase of supplies in amount of 10 bcm/year. As it was already mentioned the necessary MOU's have been signed between TAP and Croatian Plinacro, BH-Gas of Bosnia and Herzegovina, as well as with the governments of Montenegro and Albania. (Alizade, July 1, 2013)
It is worth mentioning that both TAP and Nabucco West could coexist in the future. However there are certain criterions that must be implemented to realize both projects, such as the agreement over Trans-Caspian Pipeline or the substantial rise of production of gas in Azerbaijan. So, the selection of TAP should be considered as the question of sequence rather than exclusivity.
To conclude, the evaluation of the impact of the victory of TAP over Nabucco West is somewhat premature. That is the result of previously latent preferences of the project such as the visible attachment of TAP's triumph with the acquisition of DESFA (by SOCAR) and opportunities that collaboration presents. For instance, one would hardly assume that there would be possibility for SOCAR to supply Europe with LNG, in addition to the natural gas it plans to supply. However, in the event of LNG terminal renovations belonging to DESFA, SOCAR will get such a chance. Furthermore, partnership with Fluxys may open new markets for Azerbaijani gas (such as western Europe and the UK) previously not considered. Therefore, it is too early to make final remarks on all of the consequences, yet undisputed remains the fact that the unconditional winners are Greece and Albania due to the direct cash flow into the economy of the former and totally new gas infrastructure for the latter.
Farid Osmanov and Elmar Baghirov are graduates of International Affairs Master program at Azerbaijan Diplomatic Academy and are focused on the energy security issues.