After years of debate, political jockeying and acrimony, a major pipeline project to bring natural gas to Southern Europe has broken ground.
The Trans-Adriatic Pipeline (TAP) will connect the Caspian Sea to European markets, providing Europe with another large source of natural gas that will help the continent diversify away from Russia. The route begins at the Caspian Sea in Azerbaijan, where the South Caucuses Pipeline will carry Caspian gas from the large Shah Deniz-2 gas field, delivering it to the border with Turkey. From Turkey the gas will tie into the Trans Anatolian Pipeline (TANAP), which will take the gas across Turkey to the border with Greece where it will meet up with the aforementioned Trans-Adriatic Pipeline. The Caspian gas will then travel through TAP across Greece, beneath the Adriatic Sea and onto Italy.
(Click to enlarge)
South Caucuses Pipeline to TANAP to TAP
(Click to enlarge)
The TAP route
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The pipeline projects are part of what is often referred to as the “Southern Corridor” for European gas. For years Europe has pressed for a gas pipeline through the southern corridor that would offer it an alternative to Russian gas. But TAP was not always an inevitability – before the consortium of companies took up the project, the European Union favored the Nabucco Pipeline, which instead of sending Caspian gas to Italy, would have resulted in a pipeline snaking its way through the Balkans to Central Europe.
And back when Nabucco was in vogue, Russia pushed hard for its own route through Southern Europe. The so-called South Stream Pipeline would have sent Russian gas beneath the Black Sea to Bulgaria. European regulators worked hard to derail that pipeline on anti-competition grounds. Shortly after the death of South Stream, and following in the wake of Russia’s standoff with Europe over its incursion into Ukraine, Russia pushed the “Turkish Stream” project, which would have sent Russian gas to Turkey and then onto Southern Europe. But the project was more of an idea than a reality, and due to a set of differences between Russia and Turkey, not the least of which was the cost of the pipeline and how it would be paid for, the project never really went anywhere. Related: Why Jim Chanos is Shorting the Oil Majors
The complexity of pipeline politics and the web of pipeline routes can be confusing, but suffice it to say the Turkish-Greece-Italy route has won out, through the TANAP and TAP pipelines. On May 17, TAP broke ground in Thessaloniki, Greece. Construction will take several years, but when the $45 billion project is completed in 2020, it will deliver 10 billion cubic meters per year of natural gas from the Caspian Sea to Europe.
Greek Prime Minister Alexis Tsipras was in attendance for the groundbreaking event, as were top officials from Georgia, Azerbaijan, Albania, the EU and even the U.S. State Department. Each have their own reasons for supporting the project. The project developers – BP, the Azerbaijan state-owned oil company SOCAR, and others – obviously have direct profit motives in mind. The national governments see economic opportunities through construction and transit fees. For Greece, in particular, the EU sees TAP as providing an economic stimulus to the indebted nation at a time when debt negotiations continue to torment both sides. Related: Who Will Benefit From The Electrification Of Transport?
From the perspective of the U.S. government, TAP will reduce Europe’s dependence on and vulnerability to Russia; in essence, it is a major geopolitical victory. U.S. Secretary of State John Kerry, in a congratulatory letter to Greece’s Prime Minister, said that TAP is a “prime example of infrastructure that enhances European energy security.”
Diversity of supply has become one of Europe’s key energy security objectives, along with building an “energy union” between EU member states.
“A single European energy market will allow us to increase our security of supply by allowing energy to flow freely across our borders,” European Commission Vice President for Energy Union Maroš Šef?ovi? said at the ceremony. “It will allow us to better negotiate with our external partners, given that the EU is the largest energy importer in the world.”
By Nick Cunningham of Oilprice.com
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A decision of the resource-rich Azerbaijan to double its gas purchases from Russia raised a question whether the deal is economic or political.
State oil company SOCAR made a proposal for the purchase of additional 3-5 billion cubic meters of natural gas from the Russian gas giant Gazprom.
Analysts view the move as Azerbaijan's intention to test how its two gas storage facilities - Kalmaz and Garadagh function.
Michael Krutikhin, an analyst in the energy industry and partner of Rusenergy said in his interview to Moscow-Baku that Azerbaijan has enough gas.
"Most likely, Azerbaijan's main purpose in this procurement deal is to test the new installed volumes of the gas storage facilities. It is a beneficial deal for Azerbaijan as the gas prices are cheap in the market now, and a lower price can be negotiated," said Krutikhin.
Azerbaijan has almost doubled the capacity of its two gas storage facilities. Earlier, their volume amounted to 2.5 billion cubic meters, then expanded to 3.5 billion cubic meters, and now stands at 5.5 billion cubic meters.
Krutikhin noted that it is practically impossible for Azerbaijan to test how its gas storage facilities function in new volumes as the country does not have such free volume of natural gas. Thus, the country needs to buy additional volumes of gas.
In this regard, Azerbaijan also made a proposal to Iran. Nevertheless, Iranian side needs to expand the infrastructure firstly, and Russian side has no objections to it either.
Aleksey Miller, head of Russian Gazprom previously related Azerbaijan's gas purchases from Russia with the country's economy growth and increasing domestic demand.
Alexei Grivach, deputy director of the Russian National Energy Security Fund also evaluated this deal as an ordinary business deal.
On the contrary, Azer Mehtiyev, expert based in Baku, believes this deal is a political rather than an economic step.
The gas deal is intended to bring Russia and Azerbaijan politically closer, he noted.
Gazprom supplies 2 billion cubic meters of natural gas per year to Azerbaijan since September 2015 in accordance with the five-year contract which offers possibility of extension.
The average daily volume of gas deliveries amounted to around 6 million cubic meters.
This pipe is a hobbit's one simply because Azerbaidjan has no gas. The Americans try to sell this project as an achievment, it's ridiculous (the Russians offer 63 billion cubic meters for the same price)