by Costis Stambolis*
As global attention is turned to USA´s phenomenal oil and gas boom where production has peaked beyond all predictions giving rise to expectations for sizeable gas exports in few years,European policy makers are grappling to figure out an effective policy to secure long term energy supplies for the EU. The choices appear limited in the sense that Europe being committed to restrictive targets for a sharp reduction of greenhouse gas emissions-currently under revision following a lot of pressure by Industry - coupled by a clear hostility against nuclear energy - it does not have that many real options.With thermal coal and lignite being gradually phased out and oil used primarily for transportation and industrial applications, natural gas appears as the only viable and environmentally acceptable alternative.
On the other hand, the EU appears to be highly dependent on gas imports as in 2012 out of 513 BCM´s (billion cubic meters) it consumed 66% were imported in the form of piped gas and Liquefied Natural Gas (LNG), with half the imports coming from Russia,approx.130 BCM's. Hence USA's and European strategists strong preoccupation against increasing further gas import dependence from Russia, especially following the two gas crises of 2006 and 2009 when in both cases gas deliveries to the west were blocked because of apparent price disputes with Ukraine,which in reality as we have been experiencing today, is due entirely to Moscow´s primordial struggle to keep Kiev,it's ancestor, tightly pinned down to its camp.Hence the pressure to diversify European gas imports has acquired a new urgency.With this strategy in mind the European Commission in Brussels has been promoting over the last ten years the development of the Southern Corridor with the clear objective of enabling substantial gas quantities from the Caspian region and elsewhere to be transported to Europe.In this respect Brussels has over the years supported the development of the necessary gas infrastructure by promoting several competing schemes.In June 2013 the consortium of companies,which will be developing the huge Shah Deniz II gas field in offshore Caspian Sea within Azerbaijan´s sector,reached an historic decision whereby the Trans Adriatic Pipeline system (TAP) was selected against competition from other schemes,to move gas from Baku through Turkey,Greece and Albania to South Italy and from there to the main European market.
Although the original European plan was to use the preferred south corridor pipeline to take in gas from other sources,in addition to gas from Azerbaijan, mainly from Iraq and Iran, the prevailing political situation has precluded the entertainment of such options.In the case of Iran which indeed represents a very promising long term option in view of its huge gas potential,whose reserves are estimated at 33.6 trillion cub. metres and are the largest in the world, corresponding to 18 per cent of global reserves,the rift with USA and Europe over its nuclear programme has prevented any such thoughts.In the case of Iraq which also has sizeable gas reserves the current political instability is also proving a negative factor.That leaves Azerbaijan as far as pipeline gas transmission is concerned. And although its gas reserves which currently stand at 0.9 trillion cub.metres may sound trivial in comparison to other energy suppliers,it has managed thanks to a consistent pro business and investment friendly policy to develop a very credible export infrastructure with pipelines running through Turkey. Azeri oil is reaching the global markets through the BTC pipeline and some 8.0 BCM's of gas is delivered to Turkey via the the South Caucasus pipeline.Most of this gas is used by Turkey to cover its own growing consumption but some 0.75 BCM's are finding their way to Greece,delivered through the Greek-Turkey interconnector which has been in operation since 2007. Thus Greece is in effect the first and only,right now, EU country to use Azeri gas which augments some 3.3 BCM's it imports from Russia and via LNG from Algeria and other sources.
There is no doubt that Turkey´s role is key in Azerbaijan's gas exports to Europe scheme, since a brand new gas pipeline known as TANAP will be built through its territory, to be largely financed by Socar, Azerbaijan's state hydrocarbons company. But Greece is the first EU country through which the TAP pipeline will go through. The role of Greece, which itself will obtain some 1.0 BCM'S of Azeri gas from TAP in addition to the 0.75 it is already receiving via the existing Greek-Turkish interconnector,is significant because through its gas pipeline system and most importantly via the Greek-Bulgarian interconnector (IGB), which will be operational by 2016, i.e. two years before TAP Azeri gas will reach the Balkan region. This 280 kms interconnector, will help route Caspian gas to the north Balkan region which has been traditionally relying on Gazprom deliveries. The 10.0 BCM´s of Azeri gas which will be delivered via the TAP system may look really small given EU28 gas needs but the prospects are that this amount will be doubled as Shah Deniz production will keep expanding beyond 2018 and other Azeri fields soon to be developed, including Umid andAbsheron,will provide extra quantities. According to some estimates we could see some 25.0 BCM's of Azeri gas flowing into European destinations by 2025. Again not a big input for European gas demand which many expect to have increased further and is likely to exceed 600 BCM by the above date.
However, Azerbaijan's real contribution to the differentiation of European gas supply is not necessarily restricted to utilising its own gas resources. As Baku has amply demonstrated over the last 20 years it has the political versatility and the business acumen to forge its own energy policy both in terms of exploiting its considerable hydrocarbon reserves but also developing an effective export policy. In that sense it is not inconceivable for Baku to emerge tomorrow as an important energy hub channelling both Iranian and Turkmenistan gas to Europe by expanding the TANAP-TAP gas pipeline system but also through the construction of liquefaction facilities in the East Mediterranean. The purchase by Socar last summer of a controlling interest in Greece´s Gas Transmission Operator (DESFA),with the deal to be finalized later this year pending European Commission approval,shows Baku's determination to enter decisively the European gas market since this strategic move will place it at the centre of regional developments in SE Europe. From this vantage point Azerbaijan will no doubt seek an expanded role in determining future developments through investment and participation in decision making.An example being the development of the East Med gas pipeline which is promoted by Greek state gas company DEPA which when developed it could be capable of delivering some 10.0 BCM'S of gas to Greece and through South Italy to Europe proper.Through its new base in Greece Socar can begin to play a far more influential role than so far appreciated, which will make it part of the European energy scene and further enhance its prospects as a global player.
