The Southern Gas Corridor: Competition is the Best for Everyone
Natural Gas Europe had the opportunity to speak with Gulmira Rzayeva at the recently held 3rd Mediterranean Oil & Gas Conference. Ms. Rzayeva is a research fellow at the Center for Strategic Studies (CSS) under the President of the Republic of Azerbaijan.
How do you view the present-day developments relating to the Southern Corridor?
Developments are rapid, and the Shah Deniz consortium is satisfied because it is moving forward with the three proposals being reviewed currently. The decision is going to come regarding southeastern Europe in a few weeks, regarding to the Italian and SEE market is going to be chosen in June 2013 and there is not going to be a delay because the final decision must be finalized by the planned Final Investment Decision for Shah Deniz in October 2013. We believe that there is not any delay and we are glad by progress made so far.
What constitutes - if any - the greatest challenge regarding the completion of the Southern Corridor project?
It’s market economy in the EU and the competition is the best for everyone. Azerbaijan as the owner of gas and the consortium of Shah Deniz operate under these terms. Now there can be potential competitors, for instance the aggressive nature under which Russia is pushing forward its South Stream project, another challenge is the shale gas developments in some Europeans countries, also LNG coming from international markets. Those are all additional factors and of course the discoveries off the Black Sea coast of Romania which can bring additional gas volumes. Shale gas could make an impact in Europe, but we need to see what happens when they start to produce some of the resources found so far. In US it took at least 5 years to get the production & drilling techniques right. Of course, that experience is now available for re-use in Europe but - even if everything goes well - it will be 5+years before anyone makes money out of producing shale gas in the EU.
Regarding pipeline transportation such as South Stream vs. the Southern Corridor, for the consortiums the important thing for them is to be first in signing sale and purchase agreements and securing buyers.
Anyways, Azerbaijan has a primal pillar to penetrate the lucrative European markets. The country’s aim is to become one of the main players in the European gas market after 2017 when Shah Deniz 2 will come on stream. Azerbaijan as all the other gas producer and gas exporter countries is keen to have an access to such a lucrative and stable market become an important gas supplier in the EU for the long-term perspective.
Do you believe that the flow of gas from Shah Deniz 2 can be sufficient to cover the needs of an expanding EU gas consumption for the future?
Southern Corridor first of all meets all criteria for diversification of supply sources policy of the EU and all of the requirements to reduce monopolists’ market share especially in the SEE market and the Balkans. On the volume level, it will begin with 10 bcm, although not a great quantity, but the beginning of an alternative and reliable route. With 10 bcm we can cover a great deal of the needs of the Balkans and SEE and accessing Baumgarten the gas hub in Austria we can expand into Germany, Czech, Hungary with bigger volume of gas coming from Shah Deniz 2 as well as newly discovered gas fields in Azerbaijan in the mid- and long-run. This is a real input by Azerbaijan in making sure EU’s energy security is being upheld and for the long-term.
How do you assess the cooperation so far in energy between Baku and other Southeastern European countries and in particular Turkey, Greece and Bulgaria?
Cooperation has been always on a high level. We never experienced any problem. Just recently Bulgaria agreed to be supplied by Azeri gas from SOCAR’s reserves from 2014 onwards. BOTAS network in Turkey will be used in that case. Azerbaijan will get into Romania hopefully as well. With Turkey we signed a break through agreement in October 2011, and in June we are looking into the TANAP agreement. We will link all these countries together politically and economically and interdependence will surely assist in all levels in a positive manner.
In your opinion, which proposal is most likely to win?
I don’t know which proposal will win. All the projects are advantageous and disadvantageous to the Shah Deniz 2 consortium. For example, SEEP is less advanced and Nabucco doesn’t represent gas producer companies’ interest. I think, these two projects (and better, from the point of view of commercial risk & capital outlay) Shah Deniz 2 could take over the whole Nabucco consortium drop most of the pipeline construction scheme but re-use all of the intergovernmental agreement framework. That would allow RWE & OMV to save face while also advancing the Shah Deniz 2 market position. But it's really excellent (for Azerbaijan and Shah Deniz 2) that there is a real competition. It is only through competition that the advantages of a market system can be realized; whether it is Eurovision or gas pipelines, Azerbaijan can already see the benefits of open, transparent competition.
Do you believe that a potential "Third corridor" from the East Mediterranean will hinder the future prospects of the Southern Corridor? DEPA has made several statements regarding this lately.
DEPA is a Greek company and is free to deliver gas from anywhere it can get it. That’s one way to go, but it’s early to talk about Cyprus gas, since most figures are not known yet and it will take years before a sound investment decision could be made. There is consortium with well-established credentials and regarding Greek interests the best is to support the Trans Adriatic Pipeline (TAP) and be in the game and get the necessary investments and transit revenues contributing to the country’s economic progress this pipeline is offering, actually the only one for the country right now.
TAP project’s support will benefit Greece, because it directly links the country with Southern Corridor which is a financially viable project. Therefore I assess that for the moment it is in Greece’s and DEPA’s interest to move forward to Southern Corridor via TAP and keep an eye on the Cyprus gas developments for a long-term decision by its side, once all data are known and once it will be commercially suitable to make an investment there.