Having earned a place into the Commission’s third list of Projects of Common Interest (PCI), published in November 2017, the proposed 300km-long Trans Caspian Gas Pipeline (TCP) now gains access to financing from the Connecting Europe Facility (CEF) €30bn ($37.2bn) fund. Out of the €873M ($1.1bn) that the Commission, with the consent of its member-states, announced it will allocate to 17 key energy infrastructure projects, the Turkmenbashi-Baku line is entitled to €1.872M ($2.32M). The amount, decided to be distributed following an application by W-Stream Ltd, the promoter of both TCP and White Stream pipeline projects, will cover front-end engineering design (FEED), detailed route surveys, the Energy Saving Initiative in the building sector (ESIB) scope of activities, since both Azerbaijan and Turkmenistan are INOGATE partner countries, trans-national permitting and long lead items. According to the Georgian Energy Ministry, two study proposals, including sea-bed survey and FEED, had been submitted on 11 October 2017, in order for the project to qualify for EU financing. The pipeline, that will be able to carry as much as 30BCM/a in westward direction, is expected to cost around $5bn. PCIs are eligible for a total of €5.35bn ($6.6bn) in funding, which is being invested in energy, transport and digital infrastructure under the CEF framework between 2014 and 2020.
Long ruminated upon, the idea of a subsea natural gas pipeline that would link the gas fields of southeastern Turkmenistan to paying markets, has been one of the most salient in the quiver of the EU/US projects in the region. In an earlier overland version promoted by Shell, the pipeline would be routed across northern Iran towards Turkey, but due to the vexation of both Washington and Tel Aviv, the variation designed to traverse the seabed of the Caspian Sea was the one finally advanced. Within that time, there have been plans to include Kazakhstan’s Tengiz field into the TCP, prior to its ending point at the Sangachal Terminal. In 1999, Turkmenistan’s Competent Authority for Oil and Gas made public the conclusions of a preliminary feasibility study on TCP, conducted by Enron under a US government grant. However, the project was soon after abandoned as a result of the failure of Azeri and Turkmen negotiators to demarcate their Caspian Sea border, after discovery of what ended up to be defined as a series of ‘’disputed offshore oilfields’’. Furthermore, the discovery of the Shah Deniz gas field in the Azerbaijani sector of the Caspian, in that same year, enabled Western energy companies to send on the desirable quantities of natural gas to the European markets via a southern supply corridor on the docket, without having to become embroiled in the legal challenges of the Caspian delimitation.
In February 2015, Maros Sefcovic, the European Commission’s vice president in charge of the Energy Union, declared that the Bloc wishes to work out a technical and legal basis for the Turkmen gas supply via Azerbaijan. Nevertheless, objections from Russia and Iran, who insist that the legal status of the Caspian should be settled prior to the start of construction works, in combination with a series of questions concerning the pipeline’s commercial viability, have impeded progress on TCP to this day. In the aftermath of a two-day visit by the Turkmen President Gurbanguly Berdimukhamedov to Baku, in August, the realization of the Trans Caspian pipeline project has once again returned to the forefront. Even though the yet unresolved status of one hydrocarbon deposit, called Kyapaz in Azerbaijan and Serdar in Turkmenistan, and lying literally in the middle of the TCP route, was left unmentioned in the post-meeting statements, the two neighboring countries appeared willing to overlook their differences in the name of a mutually beneficial partnership. Amid the latest geopolitical shifts, with the US imposing fresh sanctions on Russia and Iran, and against the backdrop of Turkmenistan’s energy impasse, by cause of Gazprom’s halt on Turkmen gas imports and the country’s few eastward export options, apart from China and the slowly progressing Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, Azerbaijan and Turkmenistan might at this time sense an opportunity to evolve into alternative suppliers to Moscow. This is why the scenario of a joint development of the Kyapaz/Serdar now sounds more plausible than ever before.
In addition to the potential settlement of an over-20-year-long bilateral row, there are also good prospects regarding an agreement on the Caspian Sea legal status, another yet stumbling rock to the TCP implementation. Technical work on the draft convention is to be completed in a February summit, in Kazakhstan. In December 2017, Russian Foreign Minister Sergei Lavrov had revealed that the text of the convention was ‘’practically ready’’, whilst his Azerbaijani counterpart Khalaf Khalafov specified that rights for laying pipelines were foreseen in the draft under appraisal by the littoral states, and that only those countries, across the sectors of which the pipelines will be laid, will have the right to either accord on or oppose to such actions.
In the background of the aforementioned positive developments, the optimistic timetable presented by the Georgian Energy Ministry to the Energy Community bringing the TCP online by 2020, the year when the Trans Adriatic Pipeline (TAP) is also scheduled to be commissioned, might actually sound even doable. In March 2017, the Georgian Oil and Gas Corporation acquired a 10% share in W-Stream Ltd. The inclusion of TCP amongst the CEF-funded projects, along with other vital investments, like the €101M ($124M) in support of the Cypriot gas network and the €3.7M ($4.6M) awarded to the Malta-Italy Gas Interconnection, both aiming to hook the isolated islands to the EU gas network, and the €578M ($716M) granted to a submarine electricity interconnection between Spain and France, the largest CEF contribution ever made to the electricity sector, can be read as an economically and politically momentous choice.
First of all, it shows the EU’s authentic resoluteness to open up the Southern Gas Corridor to new supplier countries beyond Azerbaijan, as well as to get involved into further political deliberation with the Caspian littoral states in this context. Such an approchement does not only intend to ensure the Bloc’s energy diversification and security of supply in a more competitive price environment. It could also serve as a suitable occasion in order for the wider EU-Central Asia set of bilateral and multilateral initiatives to be strengthened in virtually all other cooperation domains. Secondly, the approval of the Commission’s proposal by the member-states sends a positive signal to investors and interested parties as for the well-timed completion of TCP, although the 2020 horizon seems to many rather unattainable. Back in the late nineties, the main questions arising in relation to the project mostly had to do with its economic viability. According to an analysis by the Energy Institute of the University of Houston, published in 1999, cash returns for producer Turkmenistan come out sensitive to changes in certain variables, however transit countries (Azerbaijan, Georgia, Turkey) and pipeline operators could be left with decent profit margins. On the contrary, the high transportation cost for the gas compared to its market value when delivered, plus the size of the Turkish market that rendered it unable to absorb these large gas volumes alone, were two arguments expressed by those skeptical of the project’s overall commercial attractiveness. In today’s terms, the global low gas prices would be a primary factor clogging major pipeline projects, such as TCP and White Stream, the second cross-Black Sea line of Turkmen gas, which is planned to feed new infrastructure directly in Central and Eastern Europe, including the Bulgaria-Romania-Hungary-Austria (BRUA) pipeline.
Except for the legal and economic parameters surrounding the project, TCP implementation could well be put under strain by reason of the EU-imposed targets for an increase in the share of renewable energy to at least 20% of consumption by 2020, together with the adoption of relevant rules for encouraging renewables and improving energy efficiency in an effort to tackle climate change. Despite the fact that fuel switching from coal to gas is generally considered an instrument which buys time to further develop renewables and energy savings, this view does certainly not form part of the growing intra-European fossil fuel divestment campaign. Following the Commission’s statement on the CEF project list, there have been widespread remonstrations over the amount (€193M/$239.2M) earmarked for the ‘’unclean’’ gas sector. Recently, the European Parliament endorsed committee proposals for binding EU-level targets of a 35% improvement in energy efficiency by 2030, while the member states and Commission both back a 27% goal. MEPs have subsequently banded together in order for the natural gas-related projects of the PCI list, with TAP as a notable example, to lose their preferential status. As activists in Italy’s Puglia region have repeatedly attempted to block TAP, concern has risen over the emissions-intensiveness of the whole SGC pipe network.
Under these circumstances within the European political landscape and organized civil society, funding of the SGC segments, with the addition of the TCP, might soon be called into question. Neither of the remaining SGC pipelines (South Caucasus Pipeline Expansion, Trans Anatolian Pipeline, Trans Adriatic Pipeline) have qualified for CEF funding for their construction works stage. On January 25, the day when the 17 energy projects were disclosed by the Commission, Maros Sefcovic talked through the SGC financing issue with the Azerbaijani President Ilham Aliyev in Davos.
SOCAR’s stakes in the Shah Deniz II, SCPX, TANAP and TAP will be by 51% covered by Azerbaijan’s State Oil Fund (SOFAZ), while the rest 49% will be raised by the Azeri state energy firm with the help of international financial institutions. After contributions by the World Bank ($800M for TANAP), the Asian Development Bank ($1bn for Shah Deniz II), the Asian Infrastructure and Investment Bank ($600M for TANAP), as well as the sale of $1bn in a ten-year euro-bond by Azerbaijan, in October 2017 the board of the European Bank for Reconstruction and Development (EBRD) approved a $500M loan for TANAP. On February 6, European Investment Bank (EIB), the EU’s lending arm, is expected to support TAP with a €1.5bn ($1.9M) loan, amidst acute accusations suggesting that the bank is acting in breach of the European climate commitments.
Connecting Europe Facility is likewise thought of as an important supplementary source of funding for the rest of the SGC. Thus far, €14M ($17.5M) have been secured via CEF for the purposes of archaeological investigations and rescue excavation activities for TAP, while funds have also been approved for engineering studies on SCPX and TANAP and environmental monitoring of TANAP. Finally, the Greek gas grid operator DESFA has benefitted from a €243,250 ($304,000) contribution to the FEED study for the construction of a metering and regulating station at Nea Messivria, northern Greece, in order for the Greek gas transmission system to be connected with TAP. Still, EU’s choice to this time pump a significant sum into the TCP’s study process clearly denotes that the long-debatable project has once again gained momentum, favored by the auspicious geopolitical conditions that have prompted the Bloc to mobilize expertise and resources in pursue of a genuine diversification of its suppliers and energy mix.
Partially available online at: http://www.caspianpolicy.org/news/caspian-energy-insight-january-31-2018/#3
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