Caspian Overview: Azerbaijan Readies Financing for Pipeline
Turkmenistan and Azerbaijan are moving ahead with plans to export their gas, although while Azerbaijan’s will flow west, Turkmenistan is forging closer ties with its Asian neighbours.
The two strategies are the result of the geography, tantalising though it might be for Turkmenistan to lie on the eastern side of the Caspian. While it may be technically possible to use offshore platforms in its sector of the Caspian Sea as staging posts for onshore production that is otherwise cut off from the western shore of the Caspian, the impression remains that Turkmenistan is satisfied with the present arrangements it has with Chinese companies who lend it money on favourable terms in return for developing its reservoirs and buying its gas. Demand for gas may be weak in China now but it is also weak in Europe, even if the desire to cut down on Russian gas is a perennial itch for the European Commission.
Azerbaijan has no such problems though regarding geography or exports: it has the capacity and it has the investors upstream. But it suffers, in common with others, from low prices. Last year its exports rose to 8.41bn m³, up by 2% on the year before. The state customs committee said however that the bigger volume was paid for with less money. The average price in 2015 for Azerbaijan’s exports was $157.33/’000m³, according to the customs committee, while the year before it had been $166.89/’000m³.
The country’s gas is now exported both by the state oil company Socar to Iran and Georgia as a swap, as well as by the Shah Deniz consortium through the Baku-Tbilisi-Erzerum pipeline to Georgia and Turkey, which needs to grow to allow exports to rise.
Azerbaijan is preparing to place $2bn bonds in the international markets for implementation of the Southern Gas Corridor, aimed to transit Azerbaijan's Shah Deniz field's gas to Turkey (6bn m³/yr) and Europe (10bn m³/yr) early next decade.
The Southern Gas Corridor pipeline system has been designed to be scalable to twice its initial capacity to accommodate potential additional gas supplies in the future.
Finance minister Samir Sharifov said during a press conference on January 28 that Azerbaijan's Southern Gas Corridor company would place bonds in the international financial markets in the first half of February.
"Citibank, JP Morgan, Unicredit bank have been chosen for the bond issue and the volume will be $2bn and a state guarantee for these bonds may be delivered,” he said.
The Southern Gas Corridor is one of the most complex gas value chains ever developed in the world. Stretching over 3,500km, crossing seven countries and involving more than a dozen major energy companies, it is comprised of several separate energy projects representing a total investment of about $45bn, with a very uncertain economic outcome for its shippers who can have little idea now what price their gas will fetch after its long and winding journey.
For the Turkish section, branded the Trans-Anatolian pipeline (Tanap), the consortium running the project this week awarded a tender to build a 459-km section of the pipeline in the west of the country to a joint venture between Turkish and Indian companies.
The initial capacity of Tanap is expected to reach 16 bn m³/yr. Around 6bn m³/yr will be delivered to Turkey and the remaining volume will be supplied to Europe. The capacity of the pipeline could potentially be increased to 31 bn m3/yr in the future.
William Powell