Southern Corridor: In the Wake of Blue Stream

Giorgi Vashakmadze, Director, Corporate Strategy at the White Stream Consortium, contended that none of the speakers in attendance at the European Gas Conference in Vienna, Austria would be on stage talking about their huge natural gas pipeline projects, if it hadn’t been for the groundbreaking Blue Stream, a pipeline which had already made the groundbreaking traversing of the Black Sea.

He said, “Hats off to the godfather of all the ‘streams’, Blue Stream, which made a breakthrough in technology making possible all future pipelines. It created a new approach of why it is better in many cases to use a sea crossing rather than go onshore. This gave birth to lots of different developments and we’ll see very serious progress in this field, because of it.”

According to the Consortium’s website, White Stream’s objective is to develop the Southern Energy Corridor to transport gas from Azerbaijan and other countries in the Caspian Region via Georgia directly to countries on the Western side of the Black Sea, like Romania and Ukraine, and further on to markets in Central and Eastern Europe.

Mr. Vashakmadze briefly spoke about one obstacle to such projects. He explained: “It’s a problem in the financing objectives that the market is seen as a function of economy. In reality there are more important factors that can make an impact.”

Saying it was important to understand the European gas market, the speaker then showed a quote from EU Commissioner Gunther Oettinger. 

“For Russia, it is better to have a market share in Europe of 30% out of a volume of 600 billion cubic meters than 40% of 400 bcm.”

Mr. Vashakmadze said, “It really creates an excellent illustration how very significant parameters can be defined by a simple difference – and this simple difference is the Southern Corridor, where the gas market is supplied with additional significant source, or it kind of remains with the same parameters.

“What the market is thinking about realistically is the pipeline gas which can create a future basis for changes for the change of energy mix. LNG, of course, will play a role but maybe less in defining the market,” he asserted.

He went on to conjecture on a future of 400 bcm versus 600 bcm.

“Market growth may depend on numerous factors and security of supply really can affect the share of gas in the future energy mix. All producers everywhere are interested in one of the greatest markets for gas growth. The energy mix should address the pricing aspect, reliability of supply and the environmental CO2 aspects. Using it for the next 30 years or so, gas, as a basic hydrocarbon, can dramatically help without significant cost increase, while addressing environmental problems.”

Explaining that there were four scenarios involving Europe’s increased or decreased demand, and whether or not the Southern Corridor would be built, he said:

“If the European market will grow it will definitely need the Southern Corridor, and if it will be strategic it definitely needs diversification, which means the current development of pipelines via Turkey and across the Black Sea, which is the project I’m working for, White Stream,” explained Mr. Vashakmadze.

He said that gas supplies from Russia and the Caspian would supplement each other.

“Obviously this requires consideration of Turkmen gas. Azerbaijan gas will be coming,” he said, “and it will not be limited to Shah Deniz, but then in combination with Turkmen gas. Other sources nearby can make the precondition for change of the energy mix in Europe.”

Mr. Vashakmadze showed a map of natural gas supplier countries, depicting parallel infrastructure coming from those suppliers. He said the reserves and resources to supply the EU’s Southern Corridor were huge.

“As Russia has pointed out, if the problem of transit through Ukraine is something of a serious consideration, then it’s logical that we come to the conclusion that, in certain circumstances, Turkey could also hinder development.”

But, he insisted that in terms of risk, Turkey had proven itself a strong reliable transit country.

He said that two projects in parallel also required a breakthrough for a project via Turkey. “The status which it has plants a lot of confidence that it can go very fast towards implementation. This in turn creates a very good basis for the acceleration of White Stream.”

The White Stream Consortium, he reported, had the support of the European Commission, politically and financial, and had done all the necessary studies to define the feasibility. 

Vashakmadze’s presentation showed “White Stream is already economical with one 8 bcm/year string, but with using 16 bcm/year string transportation costs can be further reduced. The volume of gas will be built up gradually to 32 bcm/year.”

He commented: “Commercially, the economics of White Stream is very much comparable with the terrestrial pipelines when it comes to the legal issues, we’ve had a very good example was at the end of last year when Turkey gave additional support for the Southern Corridor Stream after reviewing the environmental documents to be submitted for this purpose. And obviously we have supply and market aspects which are very positive for White Stream development.”

He added that the EC said White Stream was a reflection of the needs of European consumers with a single unified legal regime from supplier to the consumer, and also sufficiently addressed scalability.

The first string of White Stream would go from Georgia to Constanta in Romania.

He said the economics of White Stream was very much like that of terrestrial pipelines: “White Stream is feasible,” he insisted, saying there had been positive market developments for its development. “There are no legal barriers to White Stream,” he said whose supplies would likely go to Romania but could also be delivered to Bulgaria and/or Ukraine.