Competing Pipelines and Biased Opinions
Energy Security Specialist at Platts, John Roberts told delegates at the European Gas Conference in Vienna, Austria that someone had said he would provide an independent point of view - something he kiddingly took issue with.
“Well, I think I’m biased, because I happen to consume gas, and I certainly want to get as much natural gas into Europe as possible – I do, therefore, have to acknowledge that I have a vested interest in getting Azerbaijan gas into Europe. It might just contribute to cutting my gas bills in the long run,” he quipped.
In connection with speculation over Europe’s Southern Gas Corridor, Mr. Roberts said he would try and present what he thought would happen.
“Why do we have the concept of looking so strongly at southeastern Europe – why is BP so strong in pushing it? For the very simple reason that we have uncertainty in every single gas market as to what gas demand will be,” he explained. “But you have in particular a situation in southeastern Europe which is two kinds of uncertainty: the uncertainty of relying on a single supplier, as well as the uncertainty of just how much demand there’s going to be.”
He showed recent demand figures from IHS Cera and said: “We are looking in the decade from 2009 to 2020 at something like a 14 bcm increase in regional demand (in Southeast Europe). But do not think that that 14 bcm translates into automatic requirement that it be filled simply by Azerbaijani gas.”
According to Mr. Roberts, the biggest single component of that 14 bcm was a 5 bcm increase in Romanian supply, including 4 bcm between now and 2015.
“But does Romania need that gas, or would Romania, which produces two-thirds of its gas anyway, do better by promoting energy efficiency and rationalizing its relative overuse of gas at the moment?”
Until Romania figured out how much gas it would use, he said, then Bulgaria wouldn’t know how it should develop interconnectors with Romania, Serbia, Turkey or Greece, and would not know what size those interconnectors should be.
“While it is certainly true that there’s a market in southeastern Europe - I don’t wish to downplay the importance of that market – I don’t think it’s the whole story. So then we go back to two other alternative views of the European market: reaching Baumgarten in Austria, or Italy.”
Mr. Roberts said Europe was beginning to see the outlines of what was likely to happen.
He explained: “You could break down into four geographic elements: There is to be an expansion of the South Caucasus Pipeline, up to 50 or 60 bcm potentially in the long run, almost certainly with the line running under the operatorship of BP itself. That will take it up to the Georgia-Turkey border.”
The second stage, which he said was the most interesting one, was a question of whether or not there would be a dedicated pipeline across Turkey, or whether it would essentially be an upgrade and expansion of the system owned by Botas, the Turkish state pipeline company.
“For an enormous period of time - from the outside - we’ve been trying to assess ‘what is the condition of the Botas system?’ And if we knew the answer to that, we could come up with clear answers – but we don’t.”
Roberts said that because of SOCAR’s enthusiasm for a stand-alone pipeline in Turkey, it could be a reasonable assumption that the eventual choice for transiting Turkey would be a stand-alone option, but the cost of that was unknown. The majority shareholder in any such pipeline would likely be the users of the pipeline, which he said was a major change from the standard Turkish practice to date.
What happened after Turkey? he asked. There were two further geographic elements to be considered: delivery of gas to a major European destination, either Italy or Baumgarten, and distribution of gas within Southeastern Europe itself.
“Where does that leave Nabucco? We have an announcement from January 17th that it’s reconfiguring, and is looking at the concept of how it can run back to what was, a long time ago, a prospect for a pipeline from Turkey to Baumgarten. How that will work out, I don’t know. After all, we thought that the final presentations were prepared. Now it has to be reconfigured completely, but that’s not entirely Nabucco’s fault.
“If you have this wonderful thing from BP (South East European Pipeline or "SEEP"), which it terms a ‘concept’ rather than a project, then if a concept is under consideration, it (the Nabucco group) has a right to make modifications and changes.”
Nabucco, he said, was of course in direct competition with the interconnector from Greece to Italy (with its equally important component, an interconnector between Greece and Bulgaria), and of course the Trans Adriatic Pipeline (TAP), which would run from essentially the Greek-Turkish border over to Italy.
Earlier this week, it was announced that TAP had been chosen over ITGI, giving credence to Mr. Roberts’ prognosis.
He set out to tell the audience what he thought would happen, given what he said was a tremendous push by TAP, ITGI and Nabucco’s reconfiguring.
“I remain skeptical about the Italian market; but then let’s face it: if we were wanting to assess the Italian market in 2017 or 2018 when Shah Deniz gas starts to flow through the pipeline, with Europe on the brink of economic recession in 2012, we have to make some assumptions,” he said.
As to whether he thought one of the three pipeline projects would be chosen, he said, “I keep changing my mind. Now I tend to think that the most likely outcome is a combination between a supply to the Balkans and a supply to Italy. That, in effect, makes it more likely that TAP would get chosen as the Italian link over ITGI, mostly because TAP has an agreement to go up and connect with the Ionian-Adriatic Pipeline, which would go up from Croatia to Slovenia, as well as opening up a Hungarian-Romanian connection, reaching Central Europe in small amounts fairly early on, even if not with a full-scale Nabucco style pipeline.”
Correct in that assumption, Roberts argued that much of the emphasis in the pipeline debate was misplaced. Instead, he said, the industry should go back to looking at the basic picture, instead of focusing solely on the pipelines. “Gas is going to come to the European Union from Shah Deniz, almost certainly a portion of which will wind up in the Balkans, and, if it winds up there, with some interconnectors and dedicated infrastructure, it will start moving north towards Hungary, and once it’s there - or in Croatia or Slovenia - how much further is it to Baumgarten? Not terribly far.
“We may not see Nabucco constructed as a dedicated project, but if hadn’t been developed we wouldn’t be where we are now and wouldn’t be seeing the prospective arrival of gas at Baumgarten, albeit not through a specific dedicated pipeline and not to a specific, dedicated timetable, but through a process of capillary action that eventually will lead to a major through route to the heart of Europe."