The Selection Criteria of Shah Deniz
On the eve of the Shah Deniz Consortium’s announcement about the gas pipeline project selected to transport Azeri gas to Europe, regional political leaders and energy representatives gathered in Istanbul, on November 15th and 16th, for the Atlantic Council Energy and Economic Summit. As expected, the southern gas corridor was at the top of summit’s agenda.
“In the next months, gas will be the thing,” said the Hon. Ross Wilson, director of the Dinu Patriciu Eurasia Center at the Atlantic Council, inaugurating the summit’s discusion on the Shah Deniz gas fields and the southern gas corridor. The Shah Deniz Consortium’s deliberations were initially expected to end in December 2012, but will now continue until March 2013. The consortium’s decision will close a decade of negotiations and will open the age of the connected southern gas market. The pipeline, running from Azeri fields to Europe, is expected to be reinforced soon by other pipelines, including some running from Northern Iraq and Cyprus. An American embargo currently keeps Iran out of these international plans. Wilson noted, “the gas for the southern energy corridor may come from Northern Iraq as well as the Caspian, or even from both.”
The southern gas corridor project was envisioned to bring gas from the Caspian basin to Europe in order to increase the EU-27’s gas supply sources, currently dominated by Russia. Therefore, since 2004 the EU has backed a number of projects: Nabucco, the Interconnector Turkey-Greece-Italy (ITGI), and the Trans-Adriatic pipeline (TAP). In response to this European strategy for new gas import roads, Russia proposed the South Stream gas pipeline project, running from Caspian offshore fields to the Balkans via the Black Sea.
This bipolar situation changed slightly when, in December 2011, the main transit country, Turkey, and the only completely reliable supplier, Azerbaijan, also developed their own gas pipeline project, running from Azeri fields to Turkey’s Bulgarian border – the Trans-Anatolia Pipeline (TANAP). Nabucco Gas Pipeline International GmbH, worried about the joint Azeri-Turk project, decided to revise its proposal. Nabucco Gmbh diminished the length and capacity of the original Nabucco gas pipeline project, instead proposing the Nabucco West scenario. Nabucco West will be a gas pipeline project running from Turkey’s Bulgarian border to Baumgarten in Austria – a 1300 km project instead of the 3893 km in the original Nabucco project.
The situation’s first selection occurred when BP, the leader of the Shah Deniz consortium, released a press statement on June 28, 2012 regarding the evaluation of potential gas export routes to Southeastern and Central Europe. In the press release TANAP was selected as the main pipeline, running from Azerbaijan’s offshore fields to Turkey’s border with Bulgaria. ITGI’s proposal was completely rejected.
Now Shah Deniz partners are considering options for the road between the Turkish-Bulgarian Border and the rest of Europe. Their options are TAP and Nabucco West.
In this context, learning what the Shah Deniz consortium’s selection criteria will be brought an audience of hundreds to the Atlantic Council summit in Istanbul. Al Cook, the vice president for Shah Deniz Development at BP, noted there will be two main selection criteria: “We should make sure we satisfy two sides – the commercial side and the political side. Commercially, we should make sure that we have the right gas prices and the right transportation. Politically, we are looking for strong governmental support.”
To help meet these concerns, at the end of September 2012 Greece, Italy, and Albania finally signed an intergovernmental agreement between their governments to allow the go-ahead of TAP. This permitted TAP to eliminate its main shortfall compared to its competitor Nabucco – a perceived lack of political support. A few days after the signing, Günther Oettinger, the EU’s energy commissioner, publically welcomed the agreement. All transit countries have already ratified Nabucco’s international agreement, giving it demonstrated political support as well.
During the Istanbul discussions, Reinhard Mitschek, the managing director of Nabucco Gas Pipeline International, emphasized that an internationally-ratified project has the value of law at the domestic level as well. Mitschek also noted Nabucco’s interstate cooperation aspects: “Nabucco is not only a pipeline, but also a market place that creates regional opportunities. It will combine national grids and enable transactions to the other hubs of Europe.”
Beside this competition between Nabucco and TAP representatives, Rovnag Abdullayev, the president of the State Oil Company of the Azerbaijan Republic (SOCAR), and Mehmet Konuk, the chairman and general manager of Turkey’s Petroleum Pipeline Corporation (BOTAS), both expressed confidence in the success of their joint project, TANAP. Even though the agreement signed between Turkey and Azerbaijan is not yet public, Konuk, when questioned by Natural Gas Europe, said that SOCAR will lead the project, and that Turkey’s share of 20% will be divided between Turkish Petroleum Company (TPAO) and BOTAS, with TPAO taking 15% and BOTAS taking 5%. Abdullayev, SOCAR’s president, added that he was launching a call for investors, for SOCAR’s project share of 80%.
Mehmet Konuk’s statement on Turkey’s expectations for the southern gas corridor highlighted the driving forces behind Turkey’s standing negotiations. For Konuk, Turkey is looking to meet its energy demand, to ensure security of supply, and to become an energy transit country. For the CEO of BOTAS, TANAP seems the project which best satisfies this triangular agenda.
This decision does create some new doubts however, as BOTAS did not join the southern energy corridor process with TANAP, but with Nabucco. Since 2004, BOTAS has owned 16.67% of Nabucco Gas Pipeline International GmbH and has always advocated for the Nabucco gas pipeline.
Since December 2011 Turkey’s government has given its full support to the competing project TANAP. As Taner Yildiz, the Turkish minister of energy, said at the conference, “Turkey has seen it can develop an energy project with one of its neighbors without disturbing the others.” For R. Mitschek, Nabucco’s CEO, Turkey’s attitude represents pure pragmatism. When speaking with Natural Gas Europe, he said, “Turkey is looking to maximize its profits.”
The Hon. Richard Morningstar, the US Ambassador to the Republic of Azerbaijan and a former special envoy for Eurasian energy, concludeed the discussion by calling on stakeholders to be mindful of the difference between companies’ interests and countries’ interests. While countries emphasize strategic aspects, companies emphasize commercialization. This difference creates some issues, such as those concerning partners in the Shah Deniz consortium when they are approaching competitive projects. Their concerns will be demand and price. Morningstar, TAP and Nabucco West, should therefore maximize and emphasize their commercial returns for the Shah Deniz consortium.
Olgu Okumuş