Analysis: TAP's Victory Attributed to Wider Geo-economic Considerations

The recent developments that showed TAP's clear victory in the Southern Corridor pipeline race demonstrate a behind the scenes culmination of wider geoeconomic importance that will certainly affect the strategies of all stakeholders involved.

First of all, ITGI's defeat was not taken lightly both in Athens and in Rome.  As Charis Sachinis, President of DEPA, Greece's state-controlled natural gas supplier commented: "We understand that Shah Deniz's decision is of a temporary nature. We remain confident that ITGI is the best solution for the Southern Corridor and the route for Azeri gas to Europe".

The TAP consortium on the other hand stated vigorously that "We believe TAP was chosen by the Shah Deniz Consortium on the basis of meeting the selection criteria issued last year to all the projects. The selection criteria included financial, technical, scalability, operability and commercial viability. TAP offers Shah Deniz the most commercial, technically viable gas evacuation route to the most attractive energy market in Europe (Italy)."

It is not a coincidence that Shah Deniz's decision was made in conjunction with the second bail out agreement in the Eurogroup in Brussels concerning Greece's massive debt issue.  The Greek "country risk" outlook is at an all time high and the credit worthiness of its banking system at an all time low. Therefore a preliminary analysis of the decision made in Baku points out that DEPA was seen as a "weak link" to implement such a grand project, due to the risk involved by the country's public and banking system debt. The TAP consortium on the other hand is composed by companies such as Statoil with comparatively sound finances and excellent an long-term credit evaluation with a great capital base under which a long-term investment could be made.

ITGI partner Edison SpA noted that its project has achieved interstate bilateral agreements, something that TAP still strives for; nevertheless, it seems that economic preoccupation played a far more significant role in this case.  Italy's credit standing is hardly stellar, a factor that a long-term Southern Corridor strategy had to take into account. On the other hand, the TAP consortium companies originating from Norway, Switzerland and Germany are by far the most secured in terms of public debt risk and with sound macroeconomic prospects in comparison to the rest of the EU.

It is also of importance to note that TAP has already announced its intention to self-finance this project, and not request EU or country loans and subsidies, thus eliminating country or institutional risk involved.

TAP does not have an Italian partner in its consortium, thus the confidence expressed by DEPA and the objections made by Edison may have their explanation that a merger between these two pipelines is possible due to purely geoeconomic reasons.  The fact is the that the main consumer of the Southern Corridor natural gas which is Italy, is not represented in the TAP team. However, that optimistic view may purely be posturing, as reports from Greece indicate that DEPA is considering taking a stake of as much as 15 percent in TAP.

A third factor of importance is BP itself, having made a pledge of investing up to $20 billion USD into Shah Deniz, will certainly have to combine forces with the best alternatives not only at an economic level but also at a technical level. Statoil and EON are forces in offshore and onshore pipeline construction of a massive scale with tens of thousands kilometers of pipelines already constructed and managed. Thus it is natural that BP would bet on a consortium that has long attained and demonstrated the necessary know-how in the vital sector of infrastructure.

A fourth very important factor, one of geoeconomic importance also related to wider EU policies, is the pledge by TAP to secure gas flow to Albania and in a second phase to Montenegro, Croatia and Bosnia, with the Ionian Adriatic Pipeline (IAP), thus securing the energy diversification and economic progress of Western Balkans, a region still not an EU member, which faces important obstacles in terms of economic development and social cohesion. Nevertheless, TAP's strategy to interconnect these states, played a vital role from the point of view of the EU, something that both BP and SOCAR took into serious consideration.

TAP's commented also to Natural Gas Europe that "We remain confident that our bid is the strongest, and the Shah Deniz’s selection of TAP for the Southern Route confirms our strength. We will work hard together with our Greek and Italian partners to ensure we emerge as winners. TAP’s project is progressing on schedule in order to be ready for the first gas from Shah Deniz II in 2018."

Overall, the combination of the country risk considerations for Greece and Italy, the infrastructure know-how superiority of TAP, the ability to include Western Balkans in its plans and the ability to self-finance, played a leading role into likely placing the Trans-Adriatic Pipeline project into forerunner status as the main transit route for Azeri gas into the EU over the next few decades.