The Southern Gas Corridor - A Gamechanger In European Gas Markets

Farid Hajili Analysis 24 November 2018
The Southern Gas Corridor - A Gamechanger In European Gas Markets

The Southern Gas Corridor on which the European Union is pinning most of its hopes for natural gas supply diversification away from Russia is coming along nicely and will not just be on schedule, but it will come with a price tag that is US$5-billion lower than the original budget, BP’s vice president in charge of the project told S&P Global Platts this week.

"Often these kinds of mega-projects fall behind schedule. But the way the projects have maintained the schedule has meant that your traditional overspend, or utilization of contingency, has not occurred," Joseph Murphy said, adding that savings had been the top priority for the supermajor.

The Southern Gas Corridor will carry natural gas from the Azeri Shah Deniz 2 field in the Caspian Sea to Europe via a network of three pipelines: the Georgia South Caucasus Pipeline, which was recently expanded and can carry 23 billion cubic meters of gas; the TANAP pipeline via Turkey, with a peak capacity of 31 billion cubic meters annually; and the Trans-Adriatic Pipeline, or TAP, which will link with TANAP at the Turkish-Greek border and carry 10 billion cubic meters of gas annually to Italy.

TANAP was commissioned in July this year and the first phase of TAP is expected to be completed in two years, so Europe will hopefully have more non-Russian gas at the start of the new decade. But not that much, at least initially: TANAP will operate at an initial capacity of 16 billion cubic meters annually, of which 6 billion cubic meters will be supplied to Turkey and the remainder will go to Europe. In the context of total natural gas demand of 564 billion cubic meters in 2020, according to a forecast from the Oxford Institute for Energy Studies released earlier this year, this is not a lot.

The 1,850 kilometers-long Trans Anatolian Natural Gas Pipeline Project (TANAP) and the 878 kilometers-long Trans Adriatic Pipeline project (TAP) were interlinked at the Maritsa River located on the Turkey-Greece border, a statement from the TANAP company said Wednesday.

TANAP, the biggest section of the Southern Gas Corridor delivering Shah Deniz 2 gas from Azerbaijan to Turkey and onto Europe through TAP, brought its first gas to Turkey on July 1, 2018.

The 16 billion cubic meter capacity pipeline will deliver 6 billion cubic meters of gas to Turkey per year while the remaining 10 billion cubic meters is destined for European markets via the TAP.

Both pipelines were welded on the Turkey-Greece border under the supervision of the project's management. The TAP will transverse Greece, Albania, and the Adriatic Sea to reach Italy. The pipeline is expected to be ready to deliver its first gas to the European markets by mid-2020.

Yet at some point the TANAP will reach its full capacity and hopefully by that time, TAP will be completed. Surprisingly, it was the branch to Italy that proved the most challenging, and BP’s Murphy acknowledged that. While Turkey built TANAP on time to the surprise of the project operator, TAP has been struggling because of legal issues and uncertainty after the new Italian government entered office earlier this year.

At the time, the government of Giuseppe Conte said the pipeline was pointless but, said Murphy, since then he has accepted the benefits the infrastructure would offer, such as transit fees. And yet local opposition in southern Italy remains strong but BP still sees first deliveries of gas through Italy in 2020.

The BP executive admitted that at first the Southern Gas Corridor wouldn’t make a splash. "The 10 Bcm/year into Europe is not a game-changer from a volume point of view, but it is a game-changer from a new source of product into mainland Europe perspective and it can be expanded."

Meanwhile, however, Russia and Turkey are building another pipeline, Turkish Stream, that will supply gas to Turkey and Eastern Europe, as well as possibly Hungary. The two recently marked the completion of its subsea section. Turkish Stream will have two lines, each able to carry up to 15.75 billion cubic meters.

Gazprom has completed the construction of the offshore section of the Turkish Stream gas pipeline. The Presidents of Russia and Turkey, Vladimir Putin and Recep Tayyip Erdogan took part in the completion ceremony in a video conference mode, a TASS correspondent reported.

Putin gave the command to complete the construction of the Turkish Stream. After that CEO of Gazprom, Alexey Miller, ordered the Pioneering Spirit vessel to lower the gas pipeline pipe with a closing joint into the water.
Gazprom began construction of the offshore section of the Turkish Stream gas pipeline in May 2017.

The pipeline with a length of 930 km runs along the bottom of the Black Sea to the coast of Turkey. Further, a land section will stretch for 180 km to the border of Turkey with neighboring countries.
Turkey is Gazprom’s second largest export market after Germany. Currently, Russian gas supplies to Turkey are carried out through the Blue Stream gas pipeline and the Trans-Balkan corridor.

In 2017, Gazprom exported a record volume of gas to the Turkish market - 29 bln cubic meters, which is 17.3% more than in 2016.

The first line is intended for the Turkish market, the second - for gas supply to the countries of South and South-Eastern Europe. The capacity of each line reaches 15.75 bln cubic meters of gas per year.

The first gas supplies are planned for the end of 2019. Construction of a sea section of the gas pipeline is carried out by South Stream Transport B.V. (100% subsidiary of Gazprom).

In May 2018, Gazprom and the Turkish government signed a protocol on the land section of the Turkish Stream. In addition, Gazprom and Turkey’s Botas signed an agreement setting the main conditions and parameters for the construction. Turkakim Gaz Tasima A.S., a joint venture the two companies are to set up on a parity basis will be in charge for the construction.

Gazprom considers Greece, Italy, Bulgaria, Serbia and Hungary as potential markets. The Russian company estimates the total construction costs of the Turkish Stream gas pipeline at 7 bln euros.

One will supply the Turkish market and the other European countries. In this context, the Southern Gas Corridor seems to have more of a political rather than practical significance for the time being, giving Europe the confidence that it could at some future point import a lot more Caspian gas because the infrastructure is there.