Guenther Oettinger: Europe Has to Take the Russians Seriously

There still is a lot to do for him: According to Guenther Oettinger, the Commissioner for Energy at the European Commission, the transport of gas to and via Europe still is on the status of the Cold War. Compared to the transport of other goods by land, sea and air, there are no pipelines up to now that meet the demands of all the EU member states. In addition, Europe is not a single gas market yet, but to some extent a community of 27 countries with different interests.

However, gas will remain relevant for Europe´s energy for decades, even though there are renewable energies on the rise. Due to the changing availability of these resources, Europe needs to remain flexible. Most of all, there will be less gas within the Union in the future, while at the same time the demand for it is growing. At present, Europe´s annual need of gas is about 500 billion cubic meters (bcm/a). On short notice, this will increase to at least 600 bcm/a.

Currently, Europe gets 35 percent of its gas from Russia. So the intention of Oettinger is, both to meet the increasing demand in Europe and to become more independent of Russia. This is why the Commissioner is looking forward to the so called Southern Gas Corridor, providing Caspian gas via Azerbaijan, Georgia and Turkey. Oettinger assumes that it will be the Trans Anatolian Pipeline (TANAP) to bring the Caspian gas to the western border of Turkey.

Although the concept of the Southern Gas Corridor is completely different to former projects, it will be Azerbaijan to decide which route from Turkey to Europe will be chosen. Even though the customer instead of the producer will take care of the transport, it´s not Europe but the Shah Deniz consortium which will decide on the future pipeline in June next year. It will either be the Nabucco Pipeline, going from Turkey via Bulgaria, Romania and Hungary to Austria, or it will be the Trans Adriatic Pipeline (TAP), leading from Turkey via Greece and Albania to Italy.

Nevertheless, as Oettinger stated at the 2012 Frankfurt Gas Forum two weeks ago, he prefers that there will not be a decision on either Nabucco or TAP. Due to the increasing demand of gas, the Commissioner would like to have both of these pipelines leading to Europe. He argues that the initial amount of ten bcm/a promised by Shah Deniz will not be sufficient in the long run. And, for Oettinger, just ten bcm/a are not worth the effort. Or in his own words, the Commissioner does not want to have a discussion with Putin just because of “peanuts”.

According to Oettinger, Shah Deniz should provide at least 30 bcm/a in the near future instead. The Commissioner knows that the volume of gas production in Azerbaijan will increase to 20 bcm/a by 2015 and up to 40-50 bcm/a by 2025, and that there are 862 bcm available in total. And, Oettinger knows that the demand in Turkey will be growing from 44 bcm/a today up to 96 bcm/a in 2030. So Ankara will not allow the gas to just cross Turkey without getting a significant share or even all of it. And, that there will be almost nothing left to meet Europe´s growing demand and its intention to get more independent of Russia.

This, however, is not the whole story: While Europe is waiting for the Southern Gas Corridor to provide gas as of October 2018, the Russians started building the South Stream Pipeline already. They intend to transmit gas from West Siberia via Bulgaria, Serbia, Bosnia-Herzegovina, Macedonia, Hungary and Slovenia to Italy. Even though there are several doubts on the success of the project, Oettinger strongly recommends to take the Russians seriously.

He is right: Gazprom, holding 50 percent of the shares of South Stream, together with Eni from Italy (20%), Wintershall from Germany (15%) and EDF from France (15%), expects the first gas to flow in late 2015 or early 2016 already. If so, it is for sure that Azerbaijan wants to sell additional gas to Russia. At present, there is just one bcm/a that goes from Azerbaijan to Russia, but as soon as South Stream will be available, they might sell more. A lot more. And a lot earlier than via the Southern Gas Corridor.

This means that the first Caspian gas going to Europe might come via South Stream instead of the Southern Gas Corridor. This is why, for the time being, Azerbaijan will stick to its commitment to provide just ten bcm/a to the Southern Gas Corridor. If there will be no South Stream Pipeline, they sell their gas to Europe via the Southern Gas Corridor, and agree to provide more than just ten bcm/a. In case that there will be no Southern Gas Corridor, they sell their gas to Europe via Russia and the South Stream Pipeline.

It is for sure that Caspian gas will reach Europe. Time will tell if it will be via South Stream or via the Southern Gas Corridor. Or, if there are both of them, which share of Caspian gas each pipeline will get. If there will be just one pipeline, there might be long-term contracts. If there will be both pipelines, there might be short-term contracts to keep Azerbaijan flexible. Anyhow, Oettinger still has a lot to do. But the crucial negotiations might start even after his term in office.

Hubert K.