1 Acknowledgments We feel more than obliged to express our sincere gratitude towards all those who contributed for making this book a reality. We are grateful to all the authors who shared their deep knowledge and valuable inputs on the various markets related to the Southern Gas Corridor. Namely, we feel thankful to Mr. Plamen Dimitrov, Dr. Leo Drollas, Mr. Hans- Georg Heinrich, Mr. John Roberts, Dr. Nicolò Sartori, Dr. Simeone Tagliapietra, Dr. Theodoros Tsakiris and Mr. Mehmet Öğütçü. Finally, we are thankful to Mr. Konstantinos Ioannidis, Mr. Christos Zisakis and PhD candidate Mr. Filippos Ioannidis for their valuable assistance and collaboration towards the completion of this book. 2 Contents Contents .......................................................................................................... 3 List of Figures ................................................................................................. 7 List of Tables ................................................................................................ 11 Executive Summary ...................................................................................... 12 1 An overview of the SE European Gas Markets and LNG Prospects ... 16 1.1 Introduction to Natural Gas ......................................................... 16 1.2 LNG Markets and Global Trends ................................................ 19 1.3 European Gas and LNG Markets ................................................ 23 2 The Role of Natural Gas in the EU Decarbonisation Path ................... 32 2.1 The EU's quest for decarbonisation: from Kyoto to the 20-20-20 targets 32 2.2 Pursuing the 2030 targets: what role for natural gas? ................. 35 2.3 The EU decarbonisation path and the (unwelcome) renaissance of coal 37 2.4 Exploring the future role of natural gas in the EU decarbonisation path 39 2.5 Conclusions: Towards a balanced and secure EU decarbonisation path 41 3 South East Gas Market and Prices: A Country-level Analysis ............ 43 3.1 Greece ......................................................................................... 43 3.2 Bulgaria ....................................................................................... 48 3.3 Romania ...................................................................................... 52 3.4 Croatia ......................................................................................... 55 3.5 Hungary ....................................................................................... 59 3.6 Ukraine ........................................................................................ 62 3.7 Turkey ......................................................................................... 66 3.8 Serbia .......................................................................................... 70 3.9 Albania ........................................................................................ 74 3.10 North Macedonia ......................................................................... 75 3.11 Market Comparisons among the countries in the region ............. 77 3 3.12 Comparison of price evolution in SE Europe .............................. 80 3.13 Geopolitical implications in the region ....................................... 84 4 Outlook for Gas Production in Azerbaijan and future supplies: prospects to 2040 .......................................................................................................... 88 4.1 Introduction ................................................................................. 88 4.2 Outlook for Azerbaijan gas production: Producing fields under PSA 91 4.3 Probable reserves: Absheron phase 2, Babek, SD phase 3, ACG NAG, Shafag/Asiman and Garabagh ....................................................... 96 4.4 SOCAR/Azneft gas production ................................................... 99 4.5 Technical Resources: Nakhchivan, Zafar-Mashal, Inam, Araz- Alov-Sharg, Kapaz/Sardar ..................................................................... 102 4.6 Summary ................................................................................... 103 4.7 Conclusion. Gas production import and export balance projection 107 5 The Contribution of Greece in the EU’s Gas Security Policy: The case of Trans Adriatic Pipeline (TAP) and the Southern Gas Corridor (SGC) Strategy after Shah Deniz 2 ........................................................................ 109 5.1 Introduction ............................................................................... 109 5.2 The status quo of EU Gas Security: In continuous dire need of supply diversification ............................................................................. 111 5.3 The regional impact of the SGC for Southeastern Europe: The case of Greece ................................................................................................ 118 5.4 Conclusions ............................................................................... 122 6 Italy: A Gas Pioneer ........................................................................... 125 6.1 Introduction ............................................................................... 125 6.2 Strategic dependence ................................................................. 127 6.3 Increasing diversification .......................................................... 130 6.4 Conclusions and the way forward ............................................. 133 7 Bulgaria: Small Gas Market, Big Gas Transit Perspectives ............... 136 7.1 Introduction ............................................................................... 136 7.2 Bulgaria’s gas consumption ...................................................... 137 7.3 Who will supply Bulgaria’s gas market? .................................. 141 4 7.4 Bulgaria’s potential as a gas transit country .............................. 144 8 Turkey as the New Major Transit Country for European Natural Gas: The Next Steps Towards becoming a Genuine Regional Hub? .................. 151 8.1 Introduction ............................................................................... 151 8.2 National security and natural gas .............................................. 153 8.3 Global context for natural gas and transit ................................. 155 8.4 Turkish gas market development .............................................. 160 8.5 Becoming a regional energy hub? ............................................. 162 8.6 Policy messages for governments and businesses ..................... 166 9 The potential of Iraqi gas exports to Turkey and Europe ................... 171 9.1 Introduction ............................................................................... 171 9.2 The First Phase .......................................................................... 172 9.3 The Second Phase ..................................................................... 172 9.4 The Third Phase ........................................................................ 176 9.5 Conclusion ................................................................................ 182 10 Nord Stream 2 – a Pipeline Project Dividing the EU ......................... 185 10.1 Introduction ............................................................................... 185 10.2 European Gas Relations with Russia......................................... 185 10.3 Russian Gas Relations since 1998 ............................................. 186 10.4 Legal Dimensions of North Stream 2 ........................................ 189 10.5 Conclusion ................................................................................ 199 11 The Gas/Oil Price Inter-connection ................................................... 202 11.1 Introduction ............................................................................... 202 11.2 The Context ............................................................................... 203 11.3 Gas and oil prices ...................................................................... 205 11.4 Oil price formation .................................................................... 211 11.5 Short-term oil price determination ............................................ 214 11.6 Oil prices in the longer run ........................................................ 217 11.7 Conclusions ............................................................................... 222 Conclusion .................................................................................................. 224 5 References .................................................................................................. 225 6 List of Figures Figure 1. The Gas Industry Value Chain ...................................................... 17 Figure 2. Various processes for the production of renewable gases ............. 19 Figure 3. Major gas trade movements in bcm............................................... 21 Figure 4. Number of existing large-scale terminals and planned projects per country .......................................................................................................... 27 Figure 5. Regasification capacity per country in bcma (large scale import terminals) ...................................................................................................... 27 Figure 6. LNG Terminal Regasification Capacity Utilisation Rate per Country .....................................................................................................................