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FSUOGM COMMENTARY FSUOGM
consumption shrink over the coming decades, according to the International Energy Agency (IEA). Based on current national energy policies and targets, demand will shrink from 617 bcm in 2018 to 593 bcm in 2030 and then 557 bcm in 2040, the agency forecast in November.
If low gas prices persist over a longer period this could lead to the fuel’s increased use in power generation, while also incentivising its deployment in other areas such as transport. But the EU has taken a tougher stance against gas in recent years, scaling back financing for fossil fuels and advocating a more rapid expansion in renewables instead.
The $40bn SGC was completed in large part thanks to financial and regulatory support from the EU. And it seems increasingly unlikely that the project’s proponents could count on the same level of support to expand the pipeline network further.
Meanwhile, Russia has just launched its 31.5 bcm per year TurkStream pipeline, which is targeting the same market as SGC in Southeast Europe. It expects to bring its 55 bcm per year Nord Stream 2 pipeline to Germany into oper- ation by early 2021. Europe has also developed a number of new LNG import projects in recent years, with more on the way.
TAP’s operating consortium, which includes BP and Azerbaijan’s national oil company (NOC) SOCAR, held market tests for an extra 10 bcm per year of flow capacity last year. These market tests involved potential gas buyers sub- mitting non-binding bids for the capacity, help- ing TAP gauge the demand for extra Azeri gas in Europe.
The company did not reveal details on the bids, but has told NewsBase it was satisfied with the result. It has yet to say, though, when an auction will be held for binding bids, let alone
announce when it aims to take a final decision on whether to proceed with the expansion or not.
A source at SOCAR told Reuters last week that the company was weighing up two options for TAP’s expansion.
“The final decision has not been made yet ... It will be clear in 2021, the source said.
Supply concerns
There are also concerns about whether Azer- baijan can provide the necessary gas to support extra European sales. The offshore Absheron field, operated by France’s Total, has also been cited as a source of supply. But the 1.5 bcm per year of gas that will be produced from the field’s first phase starting in 2021 has been ringfenced for Azerbaijan’s domestic market. Output could reach as high as 5 bcm per year under a second phase, but Total is yet to sanction this project.
Azerbaijan has said additional gas could come from the Umid and Babek fields, but SOCAR has struggled to find an international partner to realise their full potential. BP and others are also exploring new offshore areas for gas. In January, the UK major spudded an explo- ration well at the Shafag-Asiman block – the first in a series it plans to drill in the Caspian. These projects show promise, but could easily disap- point given operators’ hit-and-miss record in exploring the area.
If Azerbaijan is unable to produce enough gas to support SGC’s expansion, it may fall on rival suppliers to fill the void instead. Russia has expressed interest in using the pipeline system to send more of its own gas to Europe. Such an outcome would be ironic, considering that the EU originally backed SGC’s develop- ment as a means of reducing Europe’s reliance on Russian gas.™
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