Energy July 2013 THE SOUTHERN GAS CORRIDOR The recent decision of The State Oil Company of The EU Energy Security and Solidarity Action Plan the Azerbaijan Republic (SOCAR) and its consortium identified the development of a Southern Gas partners to transport the Shah Deniz gas through Corridor to supply Europe with gas from Caspian Southern Europe via the Trans Adriatic Pipeline (TAP) and Middle Eastern sources as one of the EU’s is a key milestone in the creation of the Southern “highest energy securities priorities”. Azerbaijan, Gas Corridor. Turkmenistan, Iraq and Mashreq countries (as well as in the longer term, when political conditions This Briefing examines the origins, aims and permit, Uzbekistan and Iran) were identified development of the Southern Gas Corridor, including as partners which the EU would work with to the competing proposals to deliver gas through it. secure commitments for the supply of gas and the construction of the pipelines necessary for its Background development. It was clear from the Action Plan that the EU wanted increased independence from In 2007, driven by political incidents in gas supplier Russia. The EU Commission President José Manuel and transit countries, and the dependence by some Barroso stated that the EU needs “a collective EU Member States on a single gas supplier, the approach to key infrastructure to diversify our European Council agreed a new EU energy and energy supply – pipelines in particular. Today eight environment policy. The policy established a political Member States are reliant on just one supplier for agenda to achieve the Community’s core energy 100% of their gas needs – this is a problem we must objectives of sustainability, competitiveness and address”. security of supply. There have been a number of proposals and legislative packages to achieve these objectives, including the EU Energy Security and Solidarity Action Plan that was outlined in the Second Strategic Energy Review published by the European Commission in November 2008. In 2009 representatives of key Central Shah Deniz Stage 1 was developed increased later to as much as 60bcma Asian and Caspian countries, Turkey, and over a period of seven years and so as to transport additional gas supplies Egypt signed a declaration of support for included drilling the wells, building from Azerbaijan and, if the Trans-Caspian the Southern Gas Corridor at the Prague a platform, constructing an onshore Gas Pipeline (TCP) is developed, from Summit. The Prague Summit’s official terminal (Sangachal) and laying the Türkmenbasy in Turkmenistan. (TCP will declaration considered the Southern 700km South Caucasus Pipeline (SCP) connect with SCP in Baku.) Corridor concept as a modern Silk Road, through Azerbaijan and Georgia to the interconnecting countries and people Georgia–Turkey border. Since the start TANAP’s route does not extend beyond from different regions and establishing of operations in 2006, Shah Deniz I has Turkey’s Western borders, so the key the adequate framework necessary exported over 40 billion cubic meters of question was which of the various for encouraging trade, multidirectional gas and 85 billion barrels of condensate. competing pipelines in Europe would exchange of know-how, technologies transport the Caspian gas into Europe. and experience. Shah Deniz Stage 2, or Full Field Development (FFD), includes two Pipeline race additional offshore gas platforms, sub Shah Deniz sea wells and expansion of the gas plant A number of pipelines were proposed The primary source of gas for the at Sangachal, and will add a further 16 for the European part of the Southern Southern Gas Corridor will be the Shah billion cubic meters per annum (bcma) Gas Corridor, including Nabucco, the Deniz field, which was discovered in of gas production. According to BP Interconnector Turkey-Greece-Italy 1999 and is one of the world’s largest over US$25 billion capital investment pipeline (ITGI), the South East Europe gas-condensate fields, with 40 trillion will be required to produce the gas and Pipeline (SEEP) and TAP. cubic feet (over 1 trillion cubic metres) transport it to the Georgia-Turkey border. The Nabucco pipeline project was of gas in place. It is located on the deep From the Georgia–Turkey border, Shah one of the first to be proposed. It is water shelf of the Caspian Sea, 70km Deniz gas will be transported through the a consortium consisting of Austria’s south-east of Baku, in water depths new Trans Anatolian Pipeline (TANAP), OMV, Hungary’s MOL Group, Bulgaria’s ranging from 50 to 500m. Shah Deniz is which was agreed by intergovernmental Bulgargaz, Romania’s Transgaz, Turkey’s an unincorporated joint venture between treaty between the governments of BOTAS and Germany’s RWE, with the UK’s BP, Azerbaijan’s SOCAR, Turkey and Azerbaijan, and in which each consortium member having an Norway’s Statoil, Russia’s Lukoil, SOCAR has taken a controlling stake equal share. The pipeline was to have a France’s Total, Iran’s NICO and Turkey’s (presumably to avoid, as far as possible, capacity of 31bcma (substantially more TPAO. BP operates Shah Deniz on the situation that Russia and Ukraine than the gas proposed to be transported behalf of its consortium partners under found themselves in 2006 and 2009). The from Shah Deniz). a production sharing agreement entered planned capacity of TANAP is 16bcma into in June 1996. of gas at initial stage, but this can be Source: BP 02 Energy The original 3,893km route would route through Greece and Albania. n The crossing of the Adriatic will not have carried gas from the Georgian– As currently proposed, TAP will start be deeper than 810 metres below Turkish border through Turkey, near Kipoi on the border of Turkey and sea level, so TAP can also use large Bulgaria, Romania, and Hungary to Greece. It will then continue onshore diameter pipes for the subsea section. Baumgarten an der March, an existing crossing the entire territory of Greece n Through the use of such large gas hub in Austria. The Nabucco route and Albania from east to west all the diameter pipes the pipeline’s transport was subsequently reduced and the way to the Adriatic Sea coast. The capacity can be expanded to 20bcma modified Nabucco West pipeline, as offshore part of the pipeline will begin or more by adding more compression. it was renamed, was to start from the near the Albanian city of Fier and cross Source: TAP Turkey–Bulgaria border and then follow the Adriatic Sea to tie into Italy’s gas the original route, with a total length of transportation grid operated by SNAM around 1,300km. Rete Gas. Transit country Greece ITGI would be connected to the Turkey– Nabucco West and TAP were the The decision to build a major cross- Greece pipeline outside Komotini two favourites to be selected by the border pipeline can be of great Greece and would run to Igoumenitsa Shah Deniz consortium partners. The significance for a transit country and in northwestern Greece. ITGI is made shareholders of both consortia signed explains, at least in part, the intense up of the existing Interconnector agreements with BP, SOCAR and Total competition for the selection of the Shah Turkey-Greece (ITG), which has a (three of the Shah Deniz consortium Deniz gas transport route. For Greece, capacity of about 11.5bcma, and a new partners) to provide short-term funding the TAP decision comes at a crucial Interconnector Greece-Italy (IGI) pipeline for project development activities until time, as it seeks to emerge from the with a capacity of about 9bcma. IGI itself the final pipeline selection decision and, midst of a long recession. Estimates for would be 800km long and include IGI more importantly, to provide BP, SOCAR the cost of the Greek section, which Onshore, a 600km onshore pipeline in and Total with an option to acquire a will be the longest part of TAP, are at the Greek territory (to be developed by 50% stake in Nabucco West or TAP in approximately EUR 1.5 billion, making Hellenic Transmission System Operator the event that either was the successful it one of the largest sources of foreign S.A. (DESFA)) and IGI Poseidon, a 200 pipeline. direct investment in Greece. A study km offshore pipeline across the Ionian by the Foundation for Economic and Sea (under development by IGI Poseidon The final bids by Nabucco West and Industrial Research expects the benefit S.A., a joint venture between Edison and TAP were submitted to the Shah Deniz of TAP to the Greek economy in the next Greece’s Public Gas Corporation S.A. consortium in April 2013 and on 28 June 50 years to come to EUR 17-18 billion. (DEPA)). 2013 the consortium announced its The construction work, which will start decision to select TAP. TAP expects that next spring, will create 8,000-10,000 jobs SEEP was proposed by BP in September BP, SOCAR and Total will now exercise while the operation of the pipeline will 2012 and was a pipeline whose route their option to acquire 50% of TAP. mean 4,300 jobs for the next 50 years. would start in eastern Turkey and end in In particular, given its role as Greece’s Baumgarten an der March in Austria, like TAP features Nabucco West. In contrast with other natural gas transmission operator and proposals however, SEEP was to use n In total, TAP will be approximately SOCAR’s proposed investment, it was existing pipelines (although it still needed 870km in length (550km in Greece, to be expected that DESFA would have 800–1,000km of new pipeline to be laid 210km in Albania, 105km offshore in an important role in the Greek portion of in different countries).