Caspian Gas for Europe: Trans Adriatic Pipeline and Shah Deniz on Delivering Different Parts of the Southern Gas Corridor

In February the Shah Deniz consortium, including lead partner BP, announced the Trans Adriatic Pipeline (TAP) as its choice for the so-called southern route of the Southern Gas Corridor. The consortium is now deciding between Nabucco West and SEEP for its preferred northern option, before making a final choice on which project it will select in June.

Here Kjetil Tungland, Managing Director of TAP, and Al Cook, BP’s Vice President for Shah Deniz Development, talk about why the Southern Gas Corridor is important and the contrasting challenges they face in delivering different parts of the multi-billion dollar project.

So to start off with, why is Shah Deniz important?

Al Cook (AC): It’s important for several reasons. Firstly, because it will bring gas from the Caspian Sea to Europe for the very first time, opening up the so-called Southern Corridor and providing Europe with a new source of gas. Second, because the chain of platforms, processing facilities and pipelines will benefit all the countries that they pass through. The Shah Deniz project is expected to bring over $25billion investment to Azerbaijan and Georgia alone and will create thousands of jobs during the construction phase. And finally, by putting in place the infrastructure to allow gas to flow, Shah Deniz will open up the European market for other gas supplies from the Caspian and Middle East, connecting one of the largest supplies of gas in the world to one of the largest markets in the world. So, it’s very much a pathfinder project. 

Kjetil Tungland (KT): I’d echo Al on that. While the first 10bcm per year initially coming from Shah Deniz to Europe is not massive in terms of the EU’s total gas consumption, it’s far more significant in terms of future potential. The Caspian could ultimately become a major source of gas for Europe. It’s also important that an additional 6 bcm of Shah Deniz gas per year will be delivered to Turkey.

The other point that’s really crucial to stress is that Shah Deniz could have a disproportionately beneficial impact on South Eastern Europe. At present the region is not linked up to the rest of Europe’s gas network, but projects like TAP can remedy that, providing a secure and reliable source of energy.

Excellent, thank you. You’re looking at two quite different parts of the same project. How are they developing, what have been the milestones of the last year?

AC: For us the project has made huge progress in the last twelve months. We have just approved the decision to start the Front End Engineering and Design phase of the Shah Deniz Stage 2 project. This is a major milestone and the start of a multi-billion dollar phase of the project. The decision reflects our achievements in all aspects of the project including engineering studies, drilling of appraisal wells and the conclusion of commercial negotiations and inter-governmental agreements. During this phase we will refine engineering work, agree contracts with key suppliers and complete gas transit and sales agreements. It’s exciting for us because we are beginning to move from sheets of paper to sheets of steel.

KT: Well for us, the main achievement so-far has definitely been in getting through the first stage of that process and being chosen as Shah Deniz’s southern route! While all of the negotiations around that have been ongoing, we’ve of course had to focus on the bread and butter of the job, actual project delivery. Progress is ongoing and we have for instance signed MoU’s to look at how to develop natural gas markets in South Eastern Europe. 

We’re also progressing well with our Governmental permits. In fact, we submitted our Italian Environmental and Social Impact Assessment (ESIA) report in March. We will be ready once Shah Deniz comes on-stream in 2017.

Which brings us nicely to February’s decision. Al, why was TAP chosen and is that decision final?

AC: Yes, the selection of TAP as our option for the southern route to Italy should be considered final. The Shah Deniz consortium reviewed all of the Southern Gas Corridor projects on a set of eight selection criteria which were agreed last year. TAP was chosen as the southern route because it met the technical, commercial and other requirements best. We have been especially pleased by the level of openness and cooperation we have seen from TAP. This helps build trust.

Ok, and what’s the next step for both of you?

AC: We will now start working on the Front End Engineering and Design of the project. In terms of export route selection, the next step is to make a selection for the Central European route by the end of June. For this route we are currently considering two options - SEEP and Nabucco West, a new proposal recently provided by Nabucco. We are pleased to see the continued progress of these options and are waiting for formal submissions from them by 16th May.

This will enable us to make a fully informed decision for Central European route in June. Once that has been done, we’ll then work with the winner of the Central European route and TAP to develop these projects further. We expect to make a final route selection ahead of mid-2013.

KT: For us, we’ll continue working on the delivery of the project. This means advancing all of the technical and engineering work that we have started, completing our ESIA applications, Third Party Access exemptions and getting the necessary legal agreements in place for us to be able to build and transit gas.

And what are the main challenges that you’re facing now?

KT: To be frank, our main challenge is to win the competition and convince Al and his Shah Deniz colleagues that TAP represents the best route! Not to give too much of a sales pitch, but I’m convinced that we do have the most compelling offer. Be it because TAP is scalable and can double its capacity at incremental cost, or has a physical reverse flow option to assist security of supply, or has support of some of the world’s leading pipeline experts onboard in Statoil and E.ON, I do think we have strengths that other projects struggle to match.

Looking at the more specific issues we’ve faced, it’s interesting because they have evolved. At the start when we were competing against ITGI, whose supporters included the Greek and Italian Governments, one of the main challenges we had to deal with was getting official backing. But crucially, that’s now changing and we’re finding that the governments there recognise that if they want to benefit from Shah Deniz gas, TAP is the only way they can do so. 

AC: We believe that Shah Deniz is the most complex gas project ever developed. In fact, it consists of six different projects: the wells project, the offshore facilities and platforms, Sangachal Terminal expansion, and then the three pipeline projects in Azerbaijan/Georgia, Turkey and Europe. Developing a mega-project of this magnitude is challenging and cooperation between the different countries and companies involved is absolutely fundamental. 

We are working closely with all stakeholders including the Italian and Greek governments whose support is crucial for moving the European pipeline project plans forward. We are confident that with the support of our partners, governments and pipeline companies Shah Deniz will deliver reliable and economic gas exports to Georgia, Turkey and the European Union. 

That’s an interesting point. How have you found the international community’s response to Shah Deniz?

AC: It’s been very good and we have received a great deal of support. This is vital because Shah Deniz needs to be able to rely on the backing of all governments to make the project a long-term success – and by long term, we are talking decades. As you know, thanks to the outstanding efforts of the Azerbaijani and Turkish Governments, we now have legally-binding agreements for Shah Deniz gas sales and transit across Turkey. We are now working closely with SOCAR and our other partners to develop the Trans Anatolia Pipeline. 

We believe that the TANAP project could be the best way to transport Shah Deniz and future sources of gas across Turkey and will bring strategic benefit to both producers and consumers. We will actively support development of robust legal agreements and engineering studies for TANAP so that pipelines like TAP can be confident in receiving gas at the western Turkish border. Beyond Turkey, we have also been grateful for the active support of national governments, the European Commission and the US Government.

Finally, any last words on the project?

KT: Well I think I have said most of it already, but I can just add that this is the most exciting project I have worked on in my career. It has everything, political, technical and commercial elements. Working on a project with such strong geopolitical considerations has been fascinating. Usually you just watch politics on the news. With the Southern Gas Corridor, the ramifications are very much felt on a firsthand level.

AC: Shah Deniz is the biggest gas discovery that BP has ever made, and, as I mentioned earlier, it is also the most complex project we’ve ever taken on. Now, we need to deliver on all that potential by providing Europe and Turkey with secure and reliable gas supplies for decades to come.

Source: Trans Adriatic Pipeline (TAP)