Southern Corridor Project: “Getting Energy to People that Need It”

In the same way that Azerbaijan had been involved in providing alternative sources of oil, Robert Cekuta, U.S. Ambassador to the Republic of Azerbaijan, says that natural gas has also become a strategic commodity. In a session dedicated to the Southern Gas Corridor at the Atlantic Council Energy & Economics Summit in Istanbul, Turkey, he observed: “Countries are concerned about their supply. We've seen instances of their supply being cut off, and so they need to be able to know that they will have what they need to generate power, to generate heat to take care of their people, as well as to be able to be able to use it as industrial feedstock.”

That's why, he recalled, the U.S. has been working with Azerbaijan and others on such pipeline projects as the Southern Corridor, which he called “practical.”

“Today, pipe is being welded–it's something that's actually taking place,” remarked the Ambassador, who said this is in contrast to many of the other pipeline projects.

He added, “It's also something that gets gas to a part of Europe that needs it, moving through Georgia to Turkey, Greece to Albania, and then to Italy.”

Ambassador Cekuta recalled that Italy had had to “scramble” to get gas following the downfall of the government in Libya, an incident which underlined the need for multiple sources.

South-east Europe, he pointed out, is not particularly well-connected in terms of gas supplies, considering countries like Albania and Macedonia, for example, and numerous other examples.

“The takeaway is, the reason the we in the U.S. government have been working on these pipelines for all this time remains valid today: getting energy to people that need it, so that there are multiple sources, multiple routes and, thereby, give people the assurance of security and, frankly, of well-being,” he explained.

Offering that via the Southern Gas Corridor, Azerbaijan would deliver 6 billion cubic metres (bcm) of gas to Turkey by 2019, and 10 bcm to Europe (Italy) by 2020, Jim Hogan, Managing Partner and Member, Energy Practice Steering Group, Dentons, noted that the Trans-Adriatic Pipeline (TAP) will have certain reverse flow capabilities, and the ability to store in an Albanian gas storage facility would achieve the objectives of the Southern Gas Corridor, “which isn't to replace the importation of Russian gas by the importation of Caspian gas, but rather to provide more flexibility to all of Europe in order to make sure that shortages of gas in one area for whatever reason, through interconnectors and internal pipelines, could be compensated for in other areas.”

Secondly, he reported, the project has an internally designed capacity that will allow the doubling of capacity by 2026, which he admitted would not make a dent in supplies from Russia. “What this does do is open up capacity of the Southern Gas Corridor to potential resource countries other than Azerbaijan,” explained Mr. Hogan, who conceded that at present Azerbaijan is in the “driver's seat.”

Turkmenistan, he noted, is one jurisdiction with “immense potential.” He mentioned, too, the Trans-Caspian Pipeline, a project that would transport Turkmen gas westward but which is still being discussed. “It is still essential, but for many reasons will not likely see the light of day at least any time soon,” he said, citing opposition from the Russian Federation and Iran regarding demarcation disputes.

Iranian gas, said Mr. Hogan, could flow through the Southern Gas Corridor when sanctions are lifted there, allowing for the potential of avoiding a pipeline on the floor of the Caspian.

“Turkmenistan has the fourth largest reserves of gas in the world,” he explained, “and guess who has the third largest? It's Iran.”

He pointed out that Iran is not likely to want to compete with Turkmen gas. LNG, said Mr. Hogan, is likely the future option for gas from Iran's South Pars field. Meanwhile, gas from the Eastern Mediterranean–Cyprus and Israel, he said, and northern Iraq–could eventually be sources of gas to fill the Southern Corridor.

Azerbaijan is “blessed by God” with hydrocarbons, said SOCAR's Vitaliy Baylarbayov, Deputy Vice President for Investments and Marketing, who admitted that while his country's economy was diversified, hydrocarbons do play a major role but not 90% of exports due to the low price of oil.

He explained the country's involvement in the development of the Southern Gas Corridor: “We do not have any access to the open seas, so the Southern Gas Corridor is for us another artery which connects us to the rest of the world, and commits to those with whom we've been doing business for many years–we call them special relationships–and we would like to develop them further. I'm talking about Georgia, Turkey and beyond these countries.”

That's not the end of the story, he said. “We see that if we are in Italy, we would like to go further using different opportunities which may arise–there will be swaps, direct deliveries. We are considering the ability of the Italian network system to deliver our gas to Central Europe.”

Azerbaijan, he added, is also considering building various interconnections to reach other isolated countries, explaining that countries like Bulgaria are “energy islands” but which are aiming for another source. He said, “That's why we signed with Bulgaria a contract to supply 1 bcm, but implementation of this contract requires construction of the interconnection between the Southern Gas Corridor and their system, which will connect with the pipelines in Greece.”

Another possibility, he said, is a continuation of the Trans-Adriatic Pipeline.

Mr. Baylarbayov emphasized the cleanliness of an energy resource that will be available to all depending on countries' gas distribution systems.

“Energy is power,” he stated, explaining that where there's a lot of energy, there's a lot of power; he explained, however, that more power is not Azerbaijan's expectation despite its 2.5 trillion cubic metres (tcm) of recoverable gas reserves along with a forecasted 6 tcm of reserves.

With that in mind, he reaffirmed Azerbaijan's commitment to building pipelines to deliver that gas. He said Azerbaijan will develop 3,500 km of pipelines from the Caspian region plus 500 km in the Caspian Sea–4,000 km of various pipelines from Azerbaijan to the markets in order to remain in the business of delivering the country's gas until 2025 and beyond.

However, Mr. Baylarbayov said, “We are open for other sources into this huge gas transportation system."

-Drew Leifheit