TAP Keen to Ensure Safe, Cost-effective Transport of Shah Deniz Gas to Europe
“Greece needs to secure its place on the European energy map by throwing its support behind the Greek pipeline route”
Michael Hoffmann is Director of External Affairs and Communications at the Trans Adriatic Pipeline project, which is being developed by three major energy companies: Swiss EGL, Norwegian Statoil and German E.ON Ruhrgas. From TAP’s corporate headquarters in Baar, Switzerland, he travels frequently to various major European capitals as well as Baku and Ankara to gather support for the project.
We caught up with Michael during his travels to discuss TAP’s prospects in the midst of the so-called “pipeline race” for the Southern Gas Corridor. There is fierce competition among various projects vying to be chosen as the transportation solution for 10 billion cubic metres of natural gas a year from Azerbaijan’s Shah Deniz (SD) field in the Caspian Sea.
What do you think about the recent developments relating to the Southern Gas Corridor, such as the announcement by BP introducing a new SEEP pipeline project?
BP’s South East Europe Pipeline (SEEP) initiative is an interesting one, yet, it is not a totally new development. As a concept, SEEP has been around for a few years. Therefore, it did not come as a huge surprise to us that BP announced this project, and it does not affect us on a corporate or operational level.
However, the timing of the public announcement was a little surprising as it coincided with the submission of bids by TAP, Nabucco and ITGI to the Shah Deniz Consortium. This could be a result of the growing uncertainty about Nabucco in combination with the wider financial worries within the Eurozone at the moment
BP - which holds 25.5% of the SD consortium - like the rest of the SD shareholders and the Azeri government, wants to ensure that their gas will be successfully delivered to the market in the most reliable and cost-effective way with the least risk. In this context, one needs to realise that the centre of gravity for both the Southern Gas Corridor, and the country’s standing as a potential energy transportation hub, is moving away from a routing through Greece and is leaning towards a route through South Eastern Europe that potentially avoids Greece. Investment priorities are shifting away and this is worrying.
TAP’s main aim here is to ensure that Greece is firmly placed on the European energy map, and this can only be achieved if the will to see through the creation of the “Greek route” is clearly demonstrated. This means that the SD shareholders need to be certain that Greece is willing to lend its support to any pipeline project passing through Greece that can deliver SD gas to Europe in a cost-effective and technically sound manner. There is no question that TAP offers a strategic option to upstream companies like BP, SOCAR and Total S.A.
The Shah Deniz consortium has indicated well-deserved trust in TAP because our project’s shareholders have top-level experience at an international level in both onshore and offshore pipeline construction. They have built literally tens of thousands of kilometres of pipelines – onshore and offshore. Our shareholders have A rated credit ratings and a substantial capital base. In addition, TAP is an expandable pipeline, able to adjust to future gas volumes – to over 20bcma. Finally, and possibly the most important element for Greece and its desire to be an energy hub in the region is the fact that TAP provides the only connection to the Western Balkans including major physical reverse flow capabilities and gas storage opportunities: all of which also fulfil the EU’s main energy policy requirements.
Our commitment to Greece is further demonstrated by the recent extension of the pipeline length in Greece by 300km, from Thessaloniki to Komotini, to Iink-up directly to the Interconnector Turkey-Greece. In addition to the above, TAP brings €1.5 billion foreign direct investment and thousands of jobs to the country.
These are all elements comprising a solid and realistic project, tailor-made to meet the EU’s supply diversification objectives and designed to accommodate the initial Shah Deniz II 10bcma gas volumes. It is also important to understand that the Shah Deniz producers are looking for the greatest amount of certainty when weighing up each of the transportation options on the table. Their priority is to ensure first and foremost that the commercial and technical fundamentals are right. And if the fundamentals are there, then it is logical to assume that these are also matched by political support.
It is important to realise this because the overall aim of the Greek energy policy is to ensure Greece is anchored firmly on the European energy map. In many people’s, Greece has an excellent opportunity to maximise its chances by supporting all its options, since the aim is none other than realising the Greek route. To put it more simply: we need to ensure that the successful pipeline passing through the Southern Gas Corridor actually goes through Greece, as in this case there is no second prize.
Is TAP going to transport Caspian gas only, or are there plans for a diversification by connecting to energy sources in other countries soon?
First of all, let’s clarify the basics. The second stage of the Shah Deniz natural gas field will produce first gas at the end of 2017, and full production volumes (10 bcma) will arrive at the Greek / Turkish border around one to two years later (2018/19), depending on the ramp-up period. There is no gas to transport at the moment. It is therefore logical that we develop our pipeline in line with the Shah Deniz schedule, to be ready when they are ready, so we are fully confident of meeting this schedule without any constraints.
As things stand now, there is only 10 bcma from SD II available for Europe. We also can look at other fields like Absheron, for example, which could yield another 5 bcma. But it will take at least three years to prove those reserves, let alone have them come on-stream, which would probably be in the early to mid 2020s. There are more encouraging prospects from non-associated gas in ACG which may come on stream earlier with the same leading shareholders: SOCAR, BP, Statoil and Total present in both fields. Other sources such as Turkmenistan or Iraq will be accessible one day, but this is a long-term prospect. What is clear, is that there will be additional volumes, so one needs a pipeline that can be easily scalable to provide much larger throughput (20bcma plus), indeed this is now a condition for selection according to DG Energy and Azerbaijani sources and is also included as one of the eight selection criteria proposed by SD. TAP is the only pipeline which can meet this specific requirement.
Do you think ITGI faces serious obstacles in its current shape?
In my view, TAP has many advantages over the current competition (Nabucco, SEEP and ITGI). One of the most critical criteria for the Azerbaijan Government and the SD Consortium is the scalability of the pipeline as discussed previously. The lack of large scale expandability for ITGI is a problem in this respect. There are other limitations, but we should not now be focusing on the comparisons between the two pipelines, as this does not achieve our common desired goal. We must ensure instead, that the Greek Government has pipeline options that meet the main selection criteria proposed by Azerbaijan, SD and the EU so ensure that the Greek Route is successful. What is important is that Greece wins. TAP is committed to delivering on this outcome and I strongly believe that we have the best project to ensure success and win-win for TAP and Greece.
Is it possible that mergers will take place between current pipeline projects?
As far as TAP is concerned, we have always been open to cooperation. We would welcome a Greek and/ or Italian partner to help create synergies and move the project forward. However, I do not think any mergers between projects will take place before a final decision is made by the Shah Deniz Consortium. You might see cooperation afterwards. What is certain is that whichever project is selected, it will most likely see a change in its shareholder structure.
Are there any current technical or operational difficulties that need to be addressed?
Generally, building large pipelines is a complex matter, especially if you consider physical challenges such as mountains and offshore crossings. However, at TAP we boast world renowned experts who have unrivalled experience in constructing all kinds of pipelines. We are also the only project passing through Greece that adheres to the European Bank for Reconstruction and Development (EBRD) requirements - the highest international standards currently in use for stakeholder engagement, environmental and social impact assessment, land acquisition, etc. This is also important when it comes to securing financing as International financing institutions (such as EBRD, EIB) and commercial lenders will not approve financing unless there is proof that these standards have been met and are implemented.
In short, we are developing this project to the highest possible standards.
What will happen now, after the formal bids were submitted to the Shah Deniz?
The timetable from the Shah Deniz Consortium is as follows:
The bid submission deadline was 1st of October 2011. SD then began the process of carefully reviewing each bid. Clarification meetings with all projects and any follow-up questions will then take place with an initial decision due towards the end of the year.
In my view, given the complexity of the assessment and the parallel buyers process, we may see the actual decision being made during the first quarter of 2012.
Has the Greek debt crisis impacted TAP’s chances and what steps have been taken to pursue financing?
TAP’s shareholders are based outside Greece and have not been affected by the Greek crisis as companies. They all have excellent credit ratings. In addition, we do not rely on subsidies or guarantees from Greece or from the EU, meaning that the cost of our project will not have to be shouldered by European or Greek taxpayers at all, an aspect which we consider particularly important given the tough economic period that both Europe as a whole and Greece are experiencing.
That said, we are of course monitoring the situation in Greece and elsewhere very closely. In the meantime, we continue to move ahead with the many different aspects of TAP, including its financing arrangements. We believe passionately in the merits of our project and remain optimistic about the future. TAP has all the credentials allowing it to uphold and fulfil its commitment - which has been very consistent from the beginning of this project.
Finally, TAP is keen to ensure the safe and cost-effective transport of Shah Deniz gas to Europe and support Greece to assume its role as a key European energy player.
Ioannis Michaletos