Interview: Michael Hoffmann External Affairs Director, Trans Adriatic Pipeline
“TAP remains the most competitive of the remaining pipeline options and will ensure that the $24 billion Shah Deniz upstream development can be effectively underwritten”.
With ever shiftting scenerios in the Southern Gas Corridor, Natural Gas Europe spoke with Michael Hoffmann, External Affairs Director of the Trans Adriatic Pipeline (TAP).
-Will TAP play an important role in diversifying EU gas imports compared to other (northern) routes? TAP intends to bring gas to Italy, which according to some commentators is already “oversupplied” with gas?
The developers of TAP have carefully considered various routing options and came to the conclusion that the pipeline route with a landfall in Italy would be the most beneficial from a commercial, technical and strategic point of view.
Italy is one of the most attractive markets in Europe, which is highly dependent on energy imports – with more than 90% of its energy coming from abroad.
Recent events have demonstrated how dependence on just a few energy providers gives little comfort in terms of energy security. For example, the uprisings in Northern Africa (especially in Libya) in 2011 unexpectedly threatened stability of gas supply to Italy. Another example is from recent winter, when the severe weather in Europe provoked gas supply interruptions from a number of sources. The extreme cold temperatures boosted gas demand domestically in Russia, putting energy supplies to Europe under strain. As a result, gas flows to Italy were reduced by around 20% compared with normal levels.
The Italian market is currently not a very liquid market and as such, any additional supplies coming to the country will support increasing competition in terms of prices, and reducing the cost of energy to Italian consumers. This will also boost Italy’s ability to act as an effective energy hub to supply other countries in Western and Central Europe through the physical reverse flow.
Considering all these factors, it is clear why the new pipeline link to the Caspian is necessary to ensure energy security and diversification of gas supply to Italy and wider Europe.
-By bringing gas to Italy will TAP not be “taking away” the strategic energy supply from the Balkans, which is against the EU energy security strategy?
The EU’s strategy is to realise the Southern Gas Corridor. There are different ways of creating this corridor and accessing various markets. TAP remains the most competitive of the remaining pipeline options and will ensure that the $24 billion Shah Deniz upstream development can be effectively underwritten. TAP has made large advances in seeking to facilitate the gas supply to many Balkan countries.
All markets in the South Eastern Europe (SEE) region are important but some offer greater potential for large volume sales – notably Italy. However, TAP recognises the need for other SEE countries to receive gas and has consequently works to include development of the gas market in South Eastern Europe by interconnecting with the Ionian Adriatic Pipeline. This would allow Croatia, Albania, Montenegro, Bosnia & Herzegovina, and Slovenia to benefit directly from new and abundant gas supplies from the Caspian.
The important point here is to ensure that there is a policy of implementing interconnection within the region with existing and planned pipeline systems. TAP provides the only commercially and strategically realistic option of enabling gas to reach the SEE markets .
It is important that the SEE region is well prepared in the event of a disruption in gas supply. TAP can support energy security in two ways. The first is through the significant physical reverse flow capability of the pipeline (around 8 bcma). In addition, TAP is exploring the possibility of developing underground gas storage in Albania. This will effectively enhance the reliability and security of gas supply to the region.
-What about the volume of gas that will flow through TAP? Is 10 bcm enough for Europe compared to 30 bcm which Nabucco intends to bring?
At the moment there is only 10 bcma on offer by Shah Deniz for sale to Europe. Given that there are no other significant volumes available in the near future, it only makes financial and commercial sense to build a pipeline that can cater for these initial supplies. This makes it by far the most cost effective pipeline solution currently competing to bring gas to Europe.
The main strength of TAP, is that the pipeline has been designed in a way that allows it to easily increase the capacity to 20 bcma plus. All we need to do is to simply add two new compressors. So, when more gas comes on stream, the TAP system can easily accommodate the new volumes from other fields in Azerbaijan.
-The EU Commission seems to have toned downed its rhetoric in support of Nabucco. Does TAP receive more support from the EU now than its competitor?
We have seen very real shift in EU energy policy regarding the Southern Gas Corridor. The EU has made it clear that its primary interest is to ensure that Caspian gas flows to Europe in the most economical and reliable way, no matter via which pipeline. EU Energy Commissioner Oettinger has recently emphasized that someone needs to “open the door” to the Caspian, even if it’s a10 bcm pipeline which can be expanded in the future. The Commission remains supportive of all realistic option bringing gas to Europe from diversified sources - including TAP.
-ITGI is out of the race after it has been excluded by Shah Deniz consortium. Have the Italian and Greek governments been able to accept this and adopt TAP as their “own child” so to say?
Clearly, this is not an easy decision for these governments to shift their support to TAP overnight. We respect the fact that this takes some time to adjust. However, we need to ensure that we now do not lose the option of the ‘Southern’ or ‘Italian’ route. There is still a competition to ship SD gas to European markets. There are two other projects: Nabucco West and SEEP that would bypass Greece, Albania and Italy. This would not be a positive outcome for any of these governments, and so we are working to ensure that TAP wins the final competition to be selected.
We should also remember that all the relevant EU governments have made commitments to support the commercial decisions making process undertaken by Shah Deniz. TAP also remains fully open to bringing Italian and Greek shareholders on board.
Finally, it should be noted that recently Greece signed an MoU with Switzerland on energy cooperation and their full support for developing the Southern Gas Corridor.
-And lastly, is TANAP a competitor of TAP?
TANAP is a complimentary pipeline project, which reinforces the concept of TAP. The TAP pipeline needs to supplied with gas from Azerbaijan and TANAP provides and excellent transportation solution for Caspian gas reaching our system.
Furthermore, TANAP solves the so-called ’Turkish transit’ problem in the Southern Gas Corridor by providing a very sound solution for the transportation of Caspian gas from the Turkish-Georgian border to the western borders of Turkey, where it would be picked up by TAP.
TAP will be happy to work with the developers of TANAP for any required coordination between the two pipelines, thus providing a fully integrated solution for the delivery of Caspian gas to Europe.