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Azerbaijan’s gas reaches Europe

Author : Rauf Mammadov

Source : Jamestown

Today, Europe’s natural gas imports and mainly southeast Europe’s gas infrastructure is far more diversified than a decade ago
18:13, 21 January 2021

gas pipeline
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On December 31, 2020, the Trans-Adriatic Pipeline (TAP) delivered its first volumes of natural gas from the Shah Deniz field off the Caspian coast of Azerbaijan to Greece and Bulgaria. The 2,175-miles-long pipeline is the European leg of the Southern Gas Corridor (SGC) that connects the Caspian Sea with Europe. Although the SGC commissioning comes in difficult time for the global economy, it represents a significant milestone aimed at diversifying Europe’s gas imports and, by doing so, decreasing its dependence on Russian natural gas. Gazprom’s TurkStream, meanwhile, still faces significant obstacles to becoming fully operational.

A lot has changed since Shah Deniz partners announced their decision to build TAP from Turkey through Greece and Albania to Italy in 2013. The Shah Deniz consortium made the decision merely four years after the Russia-Ukraine gas crisis in 2009. That crisis and the preceding dispute in 2006 prompted the EU and its Trans-Atlantic ally, the US, to seek viable alternative gas supply options.

Today Europe’s natural gas imports and mainly southeast Europe’s gas infrastructure is far more diversified than a decade ago. Europe is more resilient, mostly thanks to LNG’s increased role in the global gas market and efforts taken by the EU to develop its regional infrastructure. Although the substantial reduction in gas demand caused by the COVID-19 pandemic has disrupted the unprecedented growth in LNG trade, an increase in LNG import capacity in the continent has provided European buyers, who previously relied on Russian supplies, with more options.

Turkey, for instance, which used to depend largely on Gazprom gas, has significantly diversified its import portfolio by adding two LNG floating storage and regasification units (FSRU) (EDM, July 2020). Another example is Croatia’s newly commenced FSRU terminal in Krk island, which has received its first LNG cargo on January 1 (112 UA, January 4).

Europe now also has more options to receive natural gas through the SGC. Although there has not been tangible progress in bringing natural gas from Turkmenistan to the SGC via the Trans-Caspian pipeline, the discovery of vast gas fields in the Eastern Mediterranean has offered valuable alternatives.

Despite the new US sanction package against the TurkStream pipeline, which carries Russian natural gas to western Turkey, the construction of its extension to the Balkans has advanced. A day after the SGC announced the delivery of its first gas to Europe, the Serbian prime minister Ana Brnabić attended a ceremony marking the completion of the Serbian section of the Balkan Stream, TurkStream’s extension to Europe. Gazprom still faces a formidable challenge to make the TurkStream pipeline fully operational, deal with strict EU energy regulations specified in its Third Energy Package, and likely facing US sanctions included in the latest US defense spending bill (TASS, January 1).

Related: Ukrainian govt cuts gas price for population down to USD 0.25 per cubic meter

For Azerbaijan, the completion of the pipeline came during challenging times. Plummeting commodity prices have made 2020 a difficult year for the country’s oil-reliant economy. As the TAP pipeline was readying for completion, Azerbaijan also went through a full-scale war with neighboring Armenia over Nagorno-Karabakh. However, neither the fighting in July close to the Azerbaijani section of the SGC, nor the full-scale war later prevented the launch of the project.

This is not the first time natural gas from Azerbaijan arrives in Europe. In the past decade, Azerbaijan’s national oil and gas company SOCAR has had swap deals with BOTAS to supply gas to Greece. The volumes, however, were minor and delivered via BOTAS’s infrastructure (Apa.az, February 2011). Now for the first time the SGC consortium has gained access to the European market via its own infrastructure. By commissioning the SGC, Azerbaijan has achieved access to the global natural gas markets while establishing an outlet to develop other gas fields in its sector of the Caspian basin.

The Southern Gas Corridor does not provide sufficient gas volumes to compete with Gazprom’s supplies in its current state. However, it provides a much-needed infrastructure for Southeast Europe. The pipeline has a reverse flow capability, and its throughput capacity could be scaled up easily by adding necessary facilities. These factors, along with the current 10 bcm of annual gas supply create opportunities for enhancing the region’s interconnecting infrastructure and linking it to other incoming pipelines in the future. Although TAP does not provide a silver bullet to the region’s dependence on Russian gas, it is undoubtedly an indispensable component in achieving European energy security.

Related: Protests against raising gas tariffs: People blocked several roads in Chernivtsi region

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