TAP Comes Out on Top

When the announcement was made on 20 February that the Trans Adriatic Pipeline (TAP) had won out over the competing natural gas route Interconnector Turkey-Greece-Italy (ITGI), it was no surprise to Gulmira Rzayeva.

A research fellow at the Economics and Global Affairs Department at Azerbaijan’s Center for Strategic Studies under the President, Ms. Rzayeva deals with energy security issues and Azerbaijani energy policy.

Both projects having submitted their project proposals last October, she explained that that ITGI had a lot of problems with the financing of the project. 

“A 100% government owned company is not able to finance part of that pipeline. The offshore portion was 50/50% financed with Italy’s Edison S.p.A., so while that part is set, the onshore portion was still problematic; it’s a question they were not able to answer.”

ITGI, she said, also had problems with scalability, especially regarding the offshore section, because its capacity could not be increased more than 14 bcm, not fulfilling the requirements of the Shah Deniz Consortium.

“In comparison with ITGI, TAP had stronger commercial viability. TAP is the best option for the Consortium and for Azerbaijan to deliver its gas to the Italian market,” she opined.

“The price of natural gas on the Italian market is something like two dollars higher than anywhere else in Europe, and because Eni S.p.A. has a monopoly on gas distribution in Italy, making the gas price higher. If Azerbaijan penetrates the market with 10 bcm of gas, it’s very good for the Italian market, for consumers and for buyers, because that can make for cheaper natural gas.”

Rzayeva explained that while Azerbaijan was a country that was eager to penetrate the European market from 2017 on, and would like to strengthen its position on that market as a new gas producer country, the best interests of the country were also a top priority.

“The interests must not only be those of the Consortium, but for Azerbaijan as the owners of this gas,” she said.

Azerbaijan’s second main target market, according to her, was the Southeast European market.

She said, “The energy security of the Balkan countries needs to be raised. Almost all of them rely on one supplier, mainly Gazprom, and that makes the gas price on those markets higher than in other parts of Europe. Being reliant on one supplier means that this allows the supplier to set the terms of long-term contracts.”

That was why, she said, Azerbaijan wanted to penetrate those markets.

“We have two projects that go to southeast European markets: South East European Pipeline (SEEP) and Nabucco ‘West’, a modified version of the pipeline,” she explained. “There is not much information about SEEP, but despite not having submitted its bid to the Consortium as the other three projects have, it is being seriously considered by the Shah Deniz Consortium and Azerbaijan, which is quite happy with the progress being made in technical studies and commercial discussions that are moving forward successfully.”

There were two options for SEEP, she explained.

“SEEP could be a project to use existing infrastructure and interconnectors in Europe and would need minimum new build, delivering 10 bcm. That makes the project very cheap in comparison with other projects.

“The second option for SEEP – something new – would be constructing a completely new route along the same route and to the same market (similar to the ‘Nabucco West’ route), constructing the whole thing, but the existing pipeline would be quite scalable and if there were access to new capacity there would be no reason to build a new pipeline.”

Rzayeva said that the decision on whether to construct a new pipeline instead of using existing infrastructure would depend on how much it was in the interest of Azerbaijan as the producer of the gas and the Shah Deniz consortium, as well as for consumer countries, as this was a key consideration.

“If you look at the history of Nabucco, which was negotiated in 2002, then you can see that the shareholders who were involved mostly presented the buyers’ and consumers’ interests; they are all buyer companies and there is nothing about the interests of the producer countries.

“So we don’t see how our interests are represented in Nabucco,” she continued, “compared to, for example, SEEP. For that reason, Nabucco should be reconfigured to reflect the interests of the Consortium.”

“But only one single pipeline will be selected toward Central Europe and Nabucco’s new proposal has just been made so it will take some time to take a decision,” she added, referring to Nabucco’s submission of “Nabucco West” which would start at the Turkish-Bulgarian border.

According to her, perhaps a decision could be taken by summer 2012.

She added: “The final decision on selection of the route will be no later than the planned final investment decision for Shah Deniz in mid 2013.”

But let’s not forget about the Trans Anatolian Pipeline (TANAP), which Ms. Rzayeva said was initiated by the governments of Azerbaijan and Turkey to cover what they felt was lacking in Nabucco. 

She explained, “It’s mostly an answer to the criteria of producer countries over those of consumer countries, on which Nabucco appears to be focused. With the help of TANAP we’ll have access for the first time to those Southeast European markets and the Italian market. Azerbaijan would own no less than 50% of this pipeline.

“It’s extremely important if you own the gas and the infrastructure that you will maximize the revenue on the deliveries of your gas and minimize any risks,” she concluded.