Page 4 - FSUOGM Week 44 2019

FSUOGM COMMENTARY FSUOGM
No Azeri gas in Europe till Oct 2020
Delays have reportedly been caused in the construction of final stretch of 3,400-km Southern Gas Corridor that is to make landfall in Italy
AZERBAIJAN
WHAT:
TAP’s delay will mean Azeri gas will not reach southern Europe until October 2020.
WHY:
There has been environmental opposition to the pipeline in Italy.
WHAT NEXT:
Delays will have a knock- on effect on unfinalised plans to expand SGC’s capacity further.
NO Azerbaijani gas will flow to the European Union market until at least October 2020. And a gas supply company in Azerbaijan may end up facing a big bill because of the delays. That much became clear on November 1 after the head of the Trans-Anatolian Natural Gas Pipe- line (TANAP) consortium gave an interview to Reuters.
Gas supplies from Azerbaijan’s giant Shah Deniz field in the Caspian Sea are to reach Europe via the $40bn Southern Gas Corridor (SGC), supported by the European Union as a major step in diversifying energy supplies away from over-dependence on existing sources such as Russia and Norway. The SGC links the 692- km South Caucasus Pipeline (SCP) running from Azerbaijan to Georgia, TANAP, which runs 1,850 km from the Georgian border through Turkey to the Greek border and the Trans-Adri- atic Pipeline (TAP), an 878 km pipeline which traverses Greece and Albania and an Adriatic seabed route to southern Italy.
“It is not TANAP, but the other parties that have not yet reached project completion,” TANAP chief Saltuk Duzyol said in his inter- view, cautioning: “Commercially, according to our gas transportation agreements, we are enti- tled to issue invoices starting from July 1 next year.”
Under the Shah Deniz II gas sales deal, Azer- baijan Gas Supply Company (AGSC)—formed by Azerbaijan’s national energy company Socar and its Shah Deniz project partners and which manages gas sales from the Shah Deniz field— has to pay fines to gas buyers if they do not get supplies by July 1, 2020.
Shah Deniz I has been pumping gas since 2006, selling it to Georgia and Turkey. Shah Deniz II is expected to attain 16bn cubic metres (bcm) of gas per year by 2021. Some 10 bcm of that is earmarked for Europe and 6 bcm for Turkey.
“Commercial deliveries of Azeri gas to Europe can begin no earlier than October 2020, since the construction work on the TAP pipeline can be completed by this date,” Duzyol added.
Environmental hitches
The TAP project, which includes Britain’s BP, Italy’s Snam and Spain’s Enagas, has faced construction delays caused by environmental hitches. Com- pletion was targeted for early 2020, but Duzyol was cited as saying that the TAP consortium faced “some technical difficulties as well as other non-technical issues that affected their success”. In May, TAP executives were only talking about launching operations at some point in 2020.
In October last year, Italy’s populist 5-Star Movement backed off from its electoral pledge to stop the construction of TAP. The U-turn sparked a row over broken environmental prom- ises in Italy, but no doubt came as a huge relief to Azerbaijan which would face a mighty head- ache if the $28bn development of Shah Deniz II was met by the blocking of the gas route to EU markets. 5-Star said it was forced to retreat from scrapping Italy’s commitment to TAP because the country would face contractual penalties of €20bn if it withdrew approval of the infrastruc- ture at this late stage.
Former party sympathisers set fire to the 5-Star flag in the southern Italian town of Melen- dugno—the planned terminus of TAP’s final leg—in a protest against the decision. 5-Star’s U-turn came after lobbying from figures includ- ing former UK prime minister Tony Blair, who has worked as a consultant on TAP since 2014.
Duzyol was also reported as saying TANAP shareholders expected to get $1.45bn in annual income over 15 years.
TANAP’s shareholders are Socar (51%), Turkish company Botas (30%), BP (12%) and Socar Turkey (7%).
What next?
Delays in TAP's completion will have a knock-on effect on plans to expand the SGC's capacity even further. Market tests have recently been conducted for the expansion, although its realisation is not anticipated until 2024 at the earliest. The longer it takes for Azerbaijan and its partners to greenlight the project, the higher the risk it will be squeezed out by other import projects such as new LNG capacity that has been proposed in the region.™
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w w w . N E W S B A S E . c o m Week 44 06•November•2019