Benefits of Azerbaijan from the Southern Gas Corridor: Not only image...

  • 18:03 24 February 2019

Benefits of Azerbaijan from the Southern Gas Corridor: Not only image...

The 5th Ministerial Meeting of the Southern Gas Corridor (SGC) Advisory Council has been held at the Heydar Aliyev Center, in Baku. President of the Republic of Azerbaijan Ilham Aliyev, Azerbaijan’s Energy Minister Parviz Shahbazov and European Commissioner for Budget and Human Resources, acting co-chair of SGC Advisory Council Gunther Oettinger and guests, representing the countries which the Southern Gas Stream pipeline network passes through attended the meeting.

President Ilham Aliyev in his opening speech touched upon the history of the development of the oil and gas industry in our country, the construction of individual sections of the gas corridor and spoke about the investment component of the project. “Southern Gas Corridor is a project of energy diversification”, - said the Head of State. “Diversification of energy resources is very important for producers, for consumers, for transitors, and I think we found a very good balance between producers or producer Azerbaijan, transitors and consumers”.

Recall that the Southern Gas Corridor is an extensive network of gas pipelines consisting of an expanded South Caucasus gas pipeline (Baku-Tbilisi-Erzurum), a Turkish pipeline - the Trans-Anatolian gas pipeline project (TANAP) and the European Trans-Adriatic Pipeline (TAP). The total length of all parts of the corridor will be 3,500 km from Baku to the south of Italy through Georgia, Turkey, Greece, and Albania.

Speaking about this, the President of Azerbaijan said: “If we look at the chronology of our energy development, we see that step by step we were coming towards the main goal, to diversify our energy supplies and to build modern energy transportation infrastructure. Therefore, of course commissioning of the pipeline connecting Caspian Sea and the Black Sea in the end of 1990s, Baku-Supsa was important element of energy supply and diversification. Then came Baku-Tbilisi-Ceyhan that was a historical event. In 2006, this huge energy project was inaugurated that allowed companies to invest more, to extract more, and allowed us to export as much as we can. And today Baku-Tbilisi-Ceyhan also is transporting oil from other countries”. 

And in 2007, Baku-Tbilisi-Erzurum gas pipeline was inaugurated, and for the first time Azerbaijan became gas exporter to international markets. Then, in 2012, Azerbaijan and Turkey signed an agreement on TANAP, which actually was a starting point for the Southern Gas Corridor, a year later, in 2013, the companies made an investment decision to develop Shah Deniz-2, second phase of Shah Deniz and in 2013, Trans-Adriatic pipeline also was selected as the continuation of TANAP. As a result, in May 2018 the official opening of the Southern Gas Corridor took place, then in June the TANAP.

The pipeline will join the TANAP in Cyprus, located on the border with Greece. From there the pipeline will run through the territories of Greece and Albania, from east to west to the shores of the Adriatic Sea and to the coast of Italy in the Puglia region. There, TAP will join the Italian gas network operated by Snam Rete Gas. TAP's shareholders are BP (20 percent), SOCAR (20 percent), Snam S.p.A (20 percent), Fluxys (19 percent), Enagás (16 percent) and Axpo (5 percent).

Delivering speech at the meeting Gunther Oettinger, Commissioner of the European Commission for Budget and Human Resources said that the European Union would do everything possible to complete the Southern Gas Corridor project as soon as possible.

“This corridor has strategic importance, as it will allow diversifying not only routes, but also sources of supply. “Supply sources” means “Nord Stream 2” or “Turkish Stream”, and “new sources” means the South Gas Corridor”, - he said.

The European Commissioner also expressed hope for Consultative Council will continue to organize forums that are important in a rapidly changing energy world even after the Southern Gas Corridor project is fully operational.

According European experts, Europe’s growing gas demand will increase by 70% by 2020 and will amount to 515 billion cubic meters per year. According to a study by consulting company A.T. Kearney, only from 2000 to 2007 the use of gas in the energy sector of the EU countries increased by 32% – from 141.1 to 182.7 billion cubic meters per year. Only in Germany this number has increased by 58% over the seven-year period mentioned. According to the Russian RBC, 28 EU countries consumed 472 billion cubic meters in 2013 – 14% less than in 2008, and 1.4% less than in 2012. At the end of 2014, the reduction in consumption was another 4–6% and the share of gas in the pan-European energy balance reached 23%. At the same time, the EU imported about 310 billion cubic meters of gas (66% of gas demand), including almost half (44%, or 27% of total demand) from Russia. Norway provided 21% of the demand, the third and fourth largest suppliers, Algeria and Qatar - 8 and 5%. According to German analysts, in 2030 the need of the EU countries for gas will amount to 400 billion cubic meters.

Of course, Azerbaijan will not be able to cover all European gas needs. The route of the Southern Gas Corridor to Europe will be supplied with gas from the Shah Deniz offshore field. The project cost is estimated at more than $ 40 billion. It is assumed that at the first stage, the volume of Azerbaijani gas supplies through the new route will be 16 billion cubic meters per year, of which 10 billion cubic meters will be in Europe, and later will grow to 31 billion cubic meters. At the same time, in fact, no one before our country sets the task of covering the entire European gas demand. Even though in January 2019, in an interview with Bloomberg, BP’s regional president for Azerbaijan, Georgia and Turkey, Gary Jones, said that the British oil company intends to drill six new exploration wells in Azerbaijan by 2020, and if expectations are met, the company may open a new gas field of approximately the same size as Shah Deniz.

Recall that the confirmed gas reserves at Shah Deniz are estimated at 1.2 trd cubic meters. According to Bloomberg, companies, including BP, are investing a lot of money in the Eurasian region, where there are huge unexplored gas fields located almost next door to European buyers in need of fuel. In June, BP and partners, including Lukoil and Petronas, began sending gas produced in the second phase of the Shah Deniz field development through a new pipeline between the Caspian Sea and Turkey. From 2020, when the last stage of pipeline construction is completed, the fuel will also flow to Greece, Bulgaria and Italy. If BP finds more gas in new exploration wells, it can use the same pipelines to transport it to Europe.

Today the fact of diversification of sources of supply is important for Europe, which reduces the dependence of the entire region on such major suppliers of natural raw materials as Russia. However, Azerbaijan, having launched the full potential of the Southern Gas Corridor, will not only gain in strengthening its image as a reliable gas supplier. The issue based on the possibility of future cooperation in the exchange of new technologies of alternative energy and to strengthen cooperation in trade. The Commissioner for Budget and Human Resources of the European Commission also spoke about this during his speech.

According to Gunther Oettinger, progress in the energy sector should allow Azerbaijan and the European Union to complete negotiations in all other areas as well. We are talking about the scenario of de-carbonization of the European economy until 2050, which follows from the need to transition to clean energy. It is worth considering that gas consumed in the EU is 22% used in electricity generation, 30% in large industry and 43% for heating houses and apartments.

“We see the conversion of more traditional energy sources into hydrogen, green gas, new energy sources, and this can create an opportunity for us to continue to build on the existing energy infrastructure,” said Gunther Oettinger. “We are not only changing our laws in order to fulfill our commitments under the Paris Climate Agreement.”

Indeed, by investing in the processing of agricultural products, smart cities, water management, road, sea and railway corridors, as well as digital infrastructure, Azerbaijan has great opportunities for future diversification of its economy. As the European Union is committed to cooperation in energy issues, it will also support other initiatives of Azerbaijan to diversify its economy. And the strategic importance of the Southern Gas Corridor is really indisputable.

Faig Mahmudov