Round 13: An Interview with TAP's Kjetil Tungland

Editor's Note: Round 13 refers to the 13th round between Joe Frazier and Muhammad Ali in the legendary boxing match known as the "Thrilla in Manila." Round 13 is considered the fiercest round in boxing history. The Trans-Adriatic Pipeline and the Nabucco Consortium have been locked in a far more gentlemanly, but no less fierce contest for the right to move Caspian gas from Azerbaijan's Shah Deniz field to Europe. 

“TAP is not only the most cost effective pipeline, but even more importantly we will not rely on public subsidies in order to be successful”

The Managing director of the Trans-Adriatic Pipeline Kjetil Tungland provides his insights on the Southern Corridor route which is going to be selected over the coming period in Baku by the Shah Deniz Consortium. Mr. Tungland emphasizes the economics behind TAP’s endeavor and the political backing it has attained and the pros regarding EU energy security. Moreover he lays down the reasons why TAP has gained a strong pace in the competition, along with the plans to expand further the pipeline project to the rest of the Southeastern European natural gas markets.  

We are reaching towards the concluding run for the selection of the Southern Corridor route. What can be said of the latest initiatives by the TAP Consortium towards achieving your aim to emerge as a selected route by the Shah Deniz Consortium?

A: The last few months have been very busy for TAP. Since February we’ve finalised our Tri-lateral Intergovernmental, ratified the Host Governmental Agreement for Albania, completed our Front End Engineering Document (FEED), secured our Third Party Access (TPA) exemption approval by the three national regulators and the European Commission.   Most recently, the Governments of Albania, Bosnia and Herzegovina, Croatia and Montenegro all signed a Memorandum of Understanding in support of TAP.  The upshot is that all of the major agreements our now in place. So it’s been a busy, but also a very successful few months for us.

In short, what constitutes the greatest advantage of TAP compared to its competition?

TAP’s major advantage? That’s actually a surprisingly difficult question – mainly because there are quite a few! Let’s start with the route – we are the shortest pipeline (450km less than Nabucco West) and the most cost-effective one. We deliver to the second largest market in Europe, Italy, and one that has traditionally higher prices than Baumgarten. Importantly our route will also allow us to meet the EU’s goal of helping to gassify South East Europe via existing and planned interconnections en route to Italy and beyond to Central and Northern Europe.

The Shah Deniz consortium reminds frequently how important commercial factors are in the decision, and that’s another area where we have a distinct edge over the competition.  TAP is not only the most cost effective pipeline, but even more importantly we will not rely on public subsidies in order to be successful.  At a time of global recession and cut backs on public spending, the value of taking a significant multi-billion dollar cost off the public books really shouldn’t be underestimated. Indeed, given that we’re the only pipeline to have completed our FEED, we’re also the only one to be able to provide, with any certainty, the economics of our project. Frankly speaking, I think we are the only project who can be certain that there will be no hidden costs.

Finally, the strength of our shareholders is important. I have already touched on the point that we will not require subsidies, but it is important to note that our shareholders have AAA credit ratings.  In addition, E.ON and Statoil have some of the best technical expertise in the world when it comes to laying pipelines, have frame contracts with major line pipe   and other long lead item (LLIs) suppliers.  This will clearly be crucial when it comes to construction and providing SDC with the confidence of our ability to construct such a strategic piece of infrastructure on time and on budget.

How do you view backingfrom countries from where TAP will transit through (Italy, Albania, Greece) and the overall EU stance towards your project?

I think it’s fair to say that when we first started several years ago, political support was one of the areas we needed to catch up on.  I think it’s equally fair to say that this is no longer the case. The European Commission has formally, and on the record, stated its impartiality and that it recognises that both pipelines will meet its strategic objectives.  The same is equally valid for the US Government.  One example of this is expressed in the speed with which the EC processed our TPA exemption application.  This was both extremely impressive and also demonstrated how seriously they are working to ensure all projects are provided with the necessary support from the Commission.

We are also impressed by and are very grateful to all three of our host Governments - Albania, Greece and Italy - for their strong show of support. In February they formally confirmed TAP’s status as a project of strategic importance by signing an intergovernmental agreement and most recently, by their formation of a trilateral cooperation committee to further coordinate their considerable support for the pipeline.

Given the impact that TAP will have in each country – to GDP in Greece (where we calculate that our $ Euro1.5 billion will be one of the largest sources of foreign direct investment), on jobs in Albania (we estimate that we will create between 2,000 to 3,000 jobs during construction) or on improving liquidity in the Italian gas market, then one can see that there’s clearly a lot at stake for them as well.

How are plans to interconnect with other Western Balkan regions with TAP proceeding (Montenegro, Croatia, Bosnia and Herzegovina)?

Well this is a good point and leads nicely from your last question. One of the areas that TAP has been challenged is that we won’t help improve South East Europe’s energy security, but that’s simply not the case. We have included physical reverse flow as a  key feature of the project, so that gas from Italy can be shipped in the opposite direction to Albania, Greece and the Balkans, and have the potential for developing a storage facility in Albania should it be needed.

We’ve also invested a lot of time in making sure that we can connect to pipeline infrastructure in South East Europe, be it through the Interconnector Greece Bulgaria Pipeline, the Ionian Adriatic Pipeline or the West Balkan Ring. The fact that Albania, Bosnia and Herzegovina, Croatia and Montenegro collectively signed an MoU in support of TAP last month, demonstrates that this is another area where TAP is ahead I think.

Is it possible to speculate that eventually the Shah Deniz will choose both TAP and Nabucco West, as it has been implied several times by EU officials, or just one pipeline would make it to the finishing line, at least for the foreseeable future?

We’re confident that TAP is the best project to open the Southern Gas Corridor. We also know that the first 10bcm to come from Shah Deniz is very much the tip of the iceberg. Just last week BP was talking about the additional reserves they have found in Shah Deniz deep. Part of TAP’s importance is definitely its potential as a pathfinder project, which will open up the route for other supplies. 

Having said all of that, I think it’s important to note that both pipelines won’t be built simultaneously, it would have to be consecutively. There will not be enough gas for both initially.

Lastly, regarding the capabilities of TAP to ensure energy security and stability in the European natural gas market, especially in light of the EU's stance to rely more and more on gas for its long-term needs both by promoting diversifying pipeline projects such as yours and by expanding its LNG infrastructure and interconnecting capabilities for its member states?

Well, I think this is the key point about TAP and the Southern Gas Corridor. Improving Europe’s energy security through diversification of supplies is a key objective of the EU, and that’s exactly what TAP will do.

I’ve already spoken about the impact we can have on supply in South East Europe. Added to that, we will help Italy and Greece (and eventually Albania), with their individual objectives of becoming regional energy hubs. Finally it’s important to remember that TAP can service a far wider market. Once we plug into the Italian Snam Rete gas network we can supply Switzerland, France, Austria, Germany, Belgium and even the UK.

So this really is a project for the whole of Europe, one which I believe will make a massive difference to our collective energy future.

Read our previous interview with Mr. Tungland published on February 5th, 2013 here.