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Southern gas corridor as an attempt to bypass Russia

11 2018 June
Tags:Gas, Middle East, Economy, Azerbaijan, Russia, Turkey, Analytics, Europe

The plans of the SGC are grandiose and majestic, but in practice they can not abolish the dominance of Russian gas in Europe.

In the abundance of gas pipeline projects in Central Asia and Transcaucasia, one can get confused today. There is a certain TAP - the Trans-Caspian gas pipeline, which runs from the gas fields of Turkmenistan along the bottom of the Caspian Sea to the Sangachal terminal of Azerbaijan. There is a South Caucasus gas pipeline from Baku, through Georgia, to Turkey.

Then there is the TANAP - Transanatolian gas pipeline, stretching across Turkey to its border with Europe, where it becomes the start of two other gas pipes - NABUCCO through Bulgaria and again TAP (Trans Adriatic gas pipeline) through Greece, Albania and the Adriatic Sea to the Italian city of Brindisi. Everywhere different figures of volumes, different periods of starts and even different degrees of readiness flash.

For a long time, all of the above resembled an attempt to divide the skin of an unfortunate bear. At the base of all was the Azerbaijani Shah Deniz field, from which Baku wanted to sell gas directly to Europe, without Russian mediation. The interest of other countries was read transparently. First, Georgia saw in the project the possibility of obtaining energy "not from Gazprom" (which promised the acquisition of "energy independence").

Secondly, the transit pipe to Turkey meant transit payments, to put it mildly, not superfluous for the economy. However, the Turks considered the question in a similar way. Part of the gas - to itself, part - is further for sale to the European Union. And not only they. Similarly, the "Azerbaijani pipe" was viewed by Greeks and Albanians. And all together it was called the Southern Gas Corridor.

The other day it even solemnly launched. 29 May in Baku, the President of Azerbaijan attended the ceremony of launching gas injection into the South Caucasus pipe (still known as Baku-Tbilisi-Erzurum, BTE). As it was announced, roughly by June 12, the process of technological preparation will be completed and the first Azerbaijani gas will be supplied to TANAP.

Thus, the South gas corridor, bypassing Russia, will finally work, and so, the efforts of the pool of "small countries" to overcome the Russian gas monopoly and gain its geopolitical subjectivity were successful. Export of energy carriers on a route beyond Moscow's control promises opportunities to expand independence in foreign policy. In theory. Reality, as always, is much more complicated.

Declared at the end of 2017 year, the volume of pumping through the BTE in 25 billion cubic meters per year, Azerbaijan still does not. Yes, and the site itself allows you to pass only 18,6 billion cubic meters. To maximum, it will only be delivered in 2020. And then, it is unlikely.

For the entire 2017 year, with all investments in the development of the Shah Deniz field, Azerbaijan managed to extract only 10,2 billion cubic meters of gas, of which it is capable of exporting no more than 9 billion. While for downloading TANAP in combination with the desire to supply more at least 10 billion cubic meters to Europe, Baku needs to have an export capacity of at least 27-32 billion cubic meters. At best, it will be possible to reach the level of 18 billion not earlier than 2020-2022.

It follows that the next five years of Azerbaijani gas will be enough only to meet the demand of Turkey. Someone and this result may seem successful. In the sense that not so much for Baku, as for Ankara, weakening dependence on Gazprom. But the numbers speak about something else. From 50 billion cubic meters of its consumption 24-25 billion is supplied by Russia. Another 10 billion is provided by Iran. The rest of the Turks buy, where it will turn out. It was the presence of a serious gas deficit that served as the basis for agreeing to the implementation of the first thread of the Turkish Stream, after the completion of construction of which from Russia will come an additional 15,75 billion cubic meters of blue fuel per year.

But the Turks do not like that their dependence on gas from Russia will reach 80%, rather than put under Moscow's control all the further development of Turkish industry, which is based, first of all, on energy. And here from this place begins interesting.

According to the Turkish side, until at least the end of 2022-2023, they do not expect to receive more than 6 billion cubic meters from Azerbaijan. Given that they would like no less than 10, and better than 11 billion. But they are not, and therefore through Greece, Albania and the Adriatic there is absolutely nothing to pump out, and all the Italians' statements about the environmental threat are simply political PR. However, the TAP gas is still theoretically possible to find, but on NABUCCO it will not appear at all ever. Unless, of course, we consider the second branch of the "Turkish Stream" as a source, Turkey also gave permission to lay it. But these additional 15,75 billion cubic meters of "Russian gas" completely abolish the basis of the concept of the Southern Gas Corridor as an important alternative line for energy imports into the EU bypassing the Russian Federation.

Realizing that, with all aversion to reality, there is no alternative, a number of oil and gas TNCs are trying to "find" the missing gas on the other side of the Caspian Sea - in Turkmenistan. Formally, any project there is impossible before the final demarcation of the water area, the process is underway, but the completion is far from over. In practice, Western lawyers think that they have found a "gap" that allows them to start designing a joint Azerbaijani-Turkmen project on laying the Trans-Caspian gas pipeline. Georgia enlisted the support of the European Commission and expressed its readiness to finance the beginning of the design work.

The interest of Turkmenistan in the "accession" to the South Caucasus is simple. In 2016, the purchase of Turkmen gas was stopped by Russia, and at the beginning of 2017, Turkmenistan quarreled with Iran, as a result of having lost exports there. As a result, the country is able to produce 75-80 billion cubic meters of gas a year, and sells only 29,6 billion to a single buyer - China, which enjoys the hopeless position of Ashgabat and pays little - just 185 dollars per thousand cubic meters. The drop in export earnings hit the country's revenues hard and forced the Turkmen government to significantly cut social guarantees. The incoming money is enough only for servicing loans received from China.

The implementation of TAP will allow us to send "available surpluses" through the Southern Corridor to the West. The first branch is preparing to go 12-15 billion, then another 15-16 billion for the second. The project is actively supported by EU banks and that part of the European elite, which actively does not like the forced rapprochement of the European Union with Russia.

Theoretically, Turkmen gas can provide both the TANAP loading and the needs of the Trans-Adriatic part of the South Caucasus. In the long term, even to press Gazprom. And if you look very far and take into account the very, very long-term plans (today they are rather just dreams, though not without reasonable grounds) of Turkmenistan to double its production with Western aid, Europe can really get through the Southern Corridor (taking into account its expansion) to about 90 billion cubic meters of gas, which is approximately 70-75% of the volume of Gazprom's current supplies to the EU. In theory.

Because in practice, for the next five years, 6 billion cubic meters is all that is able to pass through South Ossetia from Turkmenistan. Consequently, they will not reach the European border of Turkey at all. At the same time, in the next three to four years, Nord Stream-2 and South Stream-2 will be commissioned, which will increase Russian gas exports to Europe from 155,9 (data for 2017 year) to 226-227 billion cubic meters in year.

Against this background, even if Azerbaijan succeeds in increasing production to at least 18 billion, and Turkmenistan will miraculously stretch the first branch along the bottom of the Caspian Sea, even then Europe will reach 22-24 billion cubic meters, 10% of Russian volumes. They will certainly bring additional money to suppliers, but they will not be able to seriously affect the overall balance of supply and demand in the European gas market, especially given the fall in European production. Dominance of Russian gas in Europe has no alternative.

Alexander Zapolskis
IA REX
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