On November 24 the European Commission released a list of 173 priority projects aiming at the completion of a truly internal energy market. The key infrastructure projects, usually defined as Projects of Common Interest (PCI)[1] in the EU langage, were made publicly available together with the annual Energy Union assessment report, both stressing the importance of a clean energy transition and improved interconnectivity, in order for countries to bear up under future gas cutoffs.
As was the case with the previous two lists of 2013 and 2015, the whole Southern Gas Corridor system of mega-pipelines (SCPX, TANAP, TAP), meant to initially bring 10BCM of Shah Deniz gas to Europe, are once again designated as PCIs. In light of the unpredictable oil prices and Azerbaijan’s poor economic performance, it is understood that external financial assistance needs to be attracted for the timely commissioning of the SGC, since the Azeri State Oil Fund (SOFAZ) will cover no more than 51% of the over $40bn-worth project.
After prompting by the Commission’s Vice President for Energy Union, Maros Sefcovic, towards the international financial institutions to back the strategically crucial for the EU energy security SGC segments, the European Investment Bank now reportedly mulls loans of $1bn and $2bn loans for TANAP and TAP, respectively. The Commission itself has already allocated a modest amount of $16.6M to the Trans Adriatic Pipeline.
However, what makes the EU approach regarding the SGC stand out is that the Bloc still considers the long-stuck Trans Caspian Pipeline (TCP) as an integral part of the supply route, having not removed it from this latest PCI list. Europe’s commitment to find a technical and legal basis for the implementation of a subsea line connecting gas from Turkmenistan, and possibly Kazakhstan, with Azerbaijani resources remains firm, despite opposition from Russia and Iran, who insist that the legal status of the Caspian should be settled prior to the start of construction works, and a series of questions related to the pipeline’s commercial viability, that have impeded progress on the TCP to this day. Presently, W-Stream Caspian Pipeline Company Ltd., the TCP promoter, plans to apply for CEF financing between 2017 and 2020.
As for the floating storage and regasification unit (FSRU) in Alexandroupolis, northern Greece, projected to serve as an entry point for US LNG into the Balkans and further on to Ukraine, inciting competition amongst traditional low-cost providers, like Gazprom, it has regained its position in the third PCI list. Although included in the 2013 list, the project had been removed from the one of 2015. It is deemed that progress on yet another PCI, the 182km-long Interconnector Greece-Bulgaria (IGB), whose construction is expected to begin within 2018, as soon as decisions on its exemption from the tariff, ownership and third-party access rules are taken by both countries’ regulatory authorities and the EU, has won the Alexandroupolis FSRU a place into the 2017 list. The two projects are closely interrelated, because the utilization of IGB’s full capacity will not only depend on supplies from TAP, but also from the LNG stored and re-gasified in the Northern Greece terminal. Besides, as noted in the Energy Union factsheet for Greece, once supply and distribution become fully unbundled in the soon to be liberalized Greek gas market, end-consumers will benefit from increased gas-to-gas competition stemming from both LNG and TAP gas volumes.
Even though the Greek gas grid DESFA sees the Alexandroupolis FSRU as a rival project to the already existing, and currently under upgrade, Revithoussa LNG terminal, the US-supported project is not intended for the sole satisfaction of Greece’s energy demand but for exports towards Greece’s northern neighbors. This is why the rehabilitation, modernization and expansion of the Bulgarian transmission system, now almost fully supplied with Russian piped gas, is equally numbered among the published PCIs.
It should be reminded that the front-end engineering and design (FEED) study for the subsea aspects of the unit, awarded to the UK contractor Wood Group, will be partially EU funded. At the moment, the Greek Public Gas Corporation (DEPA) is carrying out due diligence in respect of the project, as well as a fair value evaluation process in order to acquire a 20% shareholding in Gastrade, the company licensed to develop the FSRU. Along with the Monaco-based LNG shipowner Gaslog, DEPA will make the third participant to the project, whose FID is expected by early 2018.
Finally, the 150km-long reverse flow pipeline from Sofia to Dimitrovgrad, or else the Interconnector Bulgaria-Serbia (IBS), is also listed among the European PCIs, proving the EU’s interest in the acceleration of the gasification procedure in the Balkans. Progress on IBS has been slow due to a lack of financing for the Serbian portion, in spite of EBRD loans, however both countries have vowed to render the pipeline operational by 2020. The onshore/offshore East-Med pipeline project, planned to transfer Israeli, Cypriot, Egyptian and possibly Lebanese gas to Europe via Greece, is as well on the list, although today’s price environment might not favor the implementation of such a large-scale project.
Following the third PCI list publication it can be deduced that the EU has sought to grant enhanced regulatory treatment under the Trans-European Energy Networks (TEN-E) Regulation and right to CEF financing to projects promoting its core strategy regarding security of supply with the help of diversified energy sources, mostly provided by the Caspian Sea and the US shale reserves. Southern Gas Corridor inclusion and Northern Greece LNG terminal reentry into the list clearly signify the Bloc will do its utmost to build an interconnected regional gas market in Central, Southeastern Europe and the Eastern Mediterranean that will serve as an example and a stimulus to move the common energy policy forward.
[1]PCI status does not imply immediate financial support, but allows for the selected projects, except for the oil-related ones, to apply for funding under the Connecting Europe Facility (CEF) framework at a subsequent stage.
Available online at: http://www.caspianpolicy.org/energy/caspian-energy-insight-november-30-2017/#3
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