Southern Corridor Pipelines Confirmed Despite Divestments
Trans Adriatic Pipeline’s shareholders confirmed they would proceed with the corridor bringing Azeri gas to Europe. They announced their intentions after the BP-operated Shah Deniz Consortium announced it has taken the Final Investment Decision on the second phase of the project. The total cost of the expansion will be around $35 billion.
“Very few projects have the ability to change the energy map of an entire region. Shah Deniz II and the Southern Corridor pipelines will not only change the energy map, but will give customers in Europe direct access to the gas resources of Azerbaijan for the first time,” Bob Dudley, Group Chief Executive of BP, commented in a note released on Tuesday.
Also on Tuesday, the gas sales agreements concluded with European buyers in September came into force. The deals are valued at some $100 billion. The nine buyers, mainly from Italy, committed to a 25-year gas supply.
“This decision to open the Southern Gas Corridor is a real breakthrough. Through its further enlargement, the corridor will have the potential to meet up to 20% of the EU’s gas needs in the long term,” EU Energy Commissioner Günther Oettinger commented in a press release.
Despite all the ceremony and the enthusiasm, not everything was rosy. Two parts of the expansion showed some difficulties.
The new corridor will indeed be based on three main pipelines: the TAP across Greece, Albania and Italy; the South Caucasus Pipeline (SCP) through Azerbaijan and Georgia; the Trans Anatolian Gas Pipeline (TANAP) from Georgia to Europe through Turkey.
Of the three, the TAP project was the only one that did not register any shareholders’ disinvestment.
TAP: STRONG CONFIDENCE
The TAP pipeline seems the most straightforward. SOCAR, Statoil, BP, Fluxys, Total, E.ON and Axpo backed the project, making clear their commitment to proceed with the plans. First deliveries to Europe are expected for late 2019.
“Today’s announcement by our shareholders is a very important milestone for TAP and further demonstration of their strong confidence in the commercial and technical viability of the project. Our focus now is to make sure that we construct the pipeline on time and on budget,” Kjetil Tungland, Managing Director at TAP, said in a note released on Tuesday.
Next steps of the project will come soon. As announced last week, the project plans to send invitations to tender for engineering and pipeline contract packages in the first six months of 2014.
In this sense, there is little concern about this part of the Southern Corridor. TAP’s routing implicitly create a vast market for the Azeri gas, as it can facilitate supply to several South Eastern European countries. It also diversify the gas supply of bigger economies.
‘TAP’s landfall in Italy provides multiple opportunities for further transport of Caspian natural gas to some of the largest European markets such as Germany, France, the UK, Switzerland and Austria,’ TAP’s shareholders said on Tuesday.
At the same time, some of the strength of the project comes from European backing. In October, Brussels listed the pipeline among the “projects of common interests,” which will benefit from accelerated licensing procedures. The 250 key energy infrastructure projects can also apply to get a part of the €5,85 billion budget allocated for the 2014-2020 period .
TAP’s shareholding is comprised of BP (20%), SOCAR (20%), Statoil (20%), Fluxys (16%), Total (10%), E.ON (9%) and Axpo (5%). The TAP was selected over a competing proposal from the Nabucco West consortium in June 2013.
TANAP: TOTAL AND STATOIL RETREAT
While the 870 km long pipeline to Italy clearly excited investors’ appetite, the TANAP and the SCP registered minor setbacks. The TANAP seems the weakest project in terms of companies’ support. Statoil and Total confirmed they would not exercise their option to acquire stakes in the project.
"We have considered our potential positions throughout the project's value chain, balancing economics and risks to identify the optimal participation," Helge Lund, president and CEO of Statoil, said on Tuesday, explaining that Statoil will not participate as an investor in TANAP.
At the moment, SOCAR has an 80% interest. The company offered stakes to members of the Shah Deniz II Consortium. BP and Statoil were each offered 12% interest in the project, while Total had an option to acquire 5%. According to the Financial Times, the two oil majors are concerned about the soaring costs of the project.
Despite the setback, analysts do not think that the pull-out would gravely affect the project, as the stakes will now be distributed among the existing shareholders.
“It is a minor problem. The only consequence could be some minor delays in the pipeline,” an analyst who asked not to be named told Natural Gas Europe.
The expert explained that the TANAP is not in question, as it strongly supported by Turkish Prime Minister Recep Tayyip Erdogan. Erdogan said that the pipeline, whose preliminary cost was estimated at $20 billion, would enhance Turkey’s position as a leader of energy security in Europe.
STATOIL ALSO DIVESTS FROM SOUTH CAUCASUS PIPELINE
In a note released on Tuesday, Statoil explained that it also signed an agreement to divest a 10% of its 25.5% holdings in the Shah Deniz and the South Caucasus Pipeline. The Norway-based company sold its stakes to SOCAR (6.7%) and BP (3.3%).
"The divestment corresponds with our strategy of portfolio optimisation based on rigid prioritisation of future investment, and capturing value created from a significant gas position," Statoil’s CEO commented on Tuesday.
According to BP, both the transactions are subject to conditions that are expected to be satisfied in 2014.
The 692-kilimeter pipeline, also know as Baku-Tbilisi-Erzurum Pipeline, has been designed to transport gas from the Shah Deniz fiel to the Georgia-Turkey border. First deliveries of gas to Turkey commenced in September 2006.
The expansion of the SCP is part of the Shah Deniz Full Field Development project. It will triple its capacity to over 20 billion cubic metres per year.
Sergio Matalucci