On February 15, the fourth Ministerial Meeting of the Southern Gas Corridor (SGC) Advisory Council took place at the Heydar Aliyev Center in Baku. The event was graced by the presence of eminent participators, such as European Commission’s Vice President in charge of the Energy Union Maros Sefcovic, Acting Special Envoy and Coordinator for International Energy Affairs for the US Department of State’s Bureau of Energy Resources Sue Saarnio, Energy Ministers and high-ranking representatives of those countries geographically and/or economically involved in the SGC pipe network. Turkmenistan and Romania, two states of prime significance regarding implementation of the SGC, given that the first one will serve as the starting point of the proposed Trans Caspian Gas Pipeline (TCGP), a critical eastward extension of the SGC, while the second is numbered among initial supporters of a Vertical Gas Corridor from Greece up to Hungary and Ukraine, that will ensure non-stop and bi-directional gas supply for the Balkans and the CEE region, once SGC capacity of 16BCM/a rises, were first-time attendees in the Council. The idea of the establishment of an Advisory Council on the SGC was conceived by Azerbaijan back in 2015, as more countries and companies outside of the Azerbaijan-Georgia-Turkey axis became engaged in this strategically important for the European security of supply energy infrastructure project.
Ministers and political dignitaries convened in the aftermath of a €1.5bn ($1.86bn) loan disbursement to the Trans Adriatic Pipeline (TAP) by the European Investment Bank (EIB), as well as of the allotment of nearly €1.9M ($2.36M) to the TCGP under Connecting Europe Facility (CEF), hinting at the European institutions’ earnestness to bring the SGC online by 2020. To that end, the Council gave the national delegates the opportunity to be briefed on the progress of all four, disparate links in the SGC supply chain directly from their operators and consortia and to look into ways of alleviating leftover barriers to the project’s unhindered realization and possible future extension within a fully integrated and efficiently diversified European energy market. According to the Azerbaijani President Ilham Aliyev, work on the Shah Deniz Stage 2 has been completed by 99%, South Caucasus Pipeline Expansion (SCPx) and Trans Anatolian Pipeline (TANAP) activities are nearing 95% (per pipeline) and progress on TAP is estimated at around 70%.
After an agreement with BP on the development, exploration and production sharing for the Shah Deniz prospective area entered into force in 1996, it took Azerbaijan a little over a decade to add natural gas to its commodity export portfolio, along with the previously preponderant oil trade. Therefore, it is no wonder that extensions of production sharing agreements (PSA) for the development of Shah Deniz gas and condensate field and of the Azeri-Chirag-Gunashli (ACG) oilfield cluster up to 2048 and 2050, respectively, are welcomed in the draft joint declaration of the SGC Advisory Council, since they both signify the long-term presence of international energy majors, including the likes of BP, Chevron and Exxon, in Azerbaijan’s share of the Caspian Sea. As is roughly stated in the text, disciplined observance of the contracts’ sanctity from the part of Azerbaijan underpins this lasting flux of foreign investment and collaboration in the energy sector. However, in his opening speech at the event, Mr. Aliyev also highlighted the importance particularly of the SGC towards job creation and diversification of the national economy in additional areas, other than oil and gas.
Apart from Baku’s arduous efforts to keep the SGC unthreatened from the oil price plunge, which puts its ability to uphold financial commitments towards the project at risk, and competing energy initiatives mainly stemming from Russia, the Ministerial Declaration moreover emphasizes the critical contribution of Georgia and Turkey to the effectual operation of this energy transport corridor from the Caspian to Europe. Indeed, Georgia’s transit momentousness was consolidated with the construction of the Baku-Tbilisi-Erzurum/South Caucasus Gas Pipeline, the first segment of the SGC, in view of the fact that the frozen Nagorno-Karabakh conflict would not allow for a different routing of the pipeline through Armenia. It is now made plain that tighter energy partnership between Georgia and Azerbaijan, together with progress on its first underground gas storage (UGS) project, will help the country, who joined the Energy Community in 2016, foster security of supply and mitigate the acknowledged winter-to-summer demand imbalance in its social and industrial/commercial sectors. As for Turkey, the SGC satisfies its long-awaited objective to turn into a regional energy hub, even though Gazprom eyeing Turkish Stream gas deliveries via TAP would enfeeble such a scenario.
Conversely, praise for regional cooperation among Azerbaijan, Georgia and Turkey, instigated by the substantial diplomatic capital expended by the US on this purpose and perceived as a driving force for the SGC finalization, doesn’t overshadow recognition of laborious undertakings in the Western Balkans and Central and Eastern Europe in the same direction. In the context of the Ministerial Meeting, letters of intent were signed by SOCAR Balkans and Albgaz, the Albanian gas transmission operator company. Another letter of intent was signed by the Croatian natural gas grid operator Plinacro, Albgaz, the Sarajevo-based natural gas importer, transporter and supplier BH Gas and Montenegro’s petroleum and petroleum products wholesaler Bonus. Besides, Western Balkan states’ zealousness to put the bidirectional Ionian Adriatic Pipeline (IAP) into effect, a pipeline practically extending TAP to Bosnia, Croatia and Montenegro, as well as the launch of the Vertical Gas Corridor project construction works with the initiation of the process for the establishment of the Interconnector Greece-Bulgaria (IGB), indicate the region’s intentness to reaffirm its European perspective by aligning with the energy security acquis.
Finally, as stressed in the Joint Declaration of the Advisory Council, interest remains vigorous to open up the SGC to new gas suppliers from the Caspian Basin, Central Asia, the Middle East, the Eastern Mediterranean Basin and the Black Sea. Extra gas volumes from Azerbaijan, beyond the Shah Deniz 2 field, could be made available in the second half of 2020, when the second stages of the Absheron and Umid/Babek fields come online. Turkmenistan (with volumes from Galkynysh onshore field via the East-West pipeline and from southeastern offshore wells) and Kazakhstan (with volumes from Tengiz field) could join the SGC, providing the TCGP turns into reality. And as for gas deliveries from the Eastern Mediterranean and the Black Sea, these will require time for the conduct of exploration and production phases in the relevant locations of the blocks (Israel, Lebanon, and Cyprus/Bulgaria and Romania) and for the commissioning of supplementary infrastructure. During the Ministerial Meeting, Commissioner Sefcovic also revealed that the EU is actively trying to attract Iran’s attention to the SGC. Nevertheless, it is yet unclear how Iran is going to react to this suggestion, because its post-sanctions strategy is mainly oriented to the increase of oil export quantities, Mr. Sefcovic noted. In 2015, the National Iranian Gas Company (NIGC) argued that transportation of gas from Azerbaijan and Turkmenistan via Iranian territory would be the most economical and cost-effective way of linking Europe to Caspian energy resources. In lack of a discussed pipeline connecting Iran’s northeastern (Turkmenistan) and northwestern (Turkey) border, it was quickly understood that NIGC’s recommendation originated from Iran’s overall opposition to the TCGP getting underway prior to the Caspian legal status settlement. Since then, Tehran appears mostly concerned to unlock and send into TANAP domestic gas reserves from the Persian Gulf, especially in the background of the escalation of its year-long gas debt row with Ashgabat, but a pipeline leading from the giant South Pars to Europe is yet to be built, thus delaying the country’ SGC ambitions.
Available online at: http://www.caspianpolicy.org/energy/caspian-energy-insight-february-21-2018/#4
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