Rival Russian scheme could complicate future Caspian gas exports

A ceremony took place in Kars in eastern Turkey on Tuesday to mark the ground breaking for the Trans-Anatolian Pipeline (TANAP) project.

Offshore staff

EDINBURGH, UK – A ceremony took place in Kars in eastern Turkey on Tuesday to mark the ground breaking for the Trans-Anatolian Pipeline (TANAP) project.

According to analyst Wood Mackenzie, this is an important step in the 15-year process to export gas from the Azeri sector of theCaspian Sea to central and western Europe, providing an alternative to a reliance on Russia gas supplies.

TANAP will transport 16 bcm/yr (565 bcf/yr) ofShah Deniz Phase 2 gas from 2019. Of this volume, 6 bcm (212 bcf) is destined for Turkey while the remaining 10 bcm (353 bcf) will head farther west via the new Trans-Adriatic Pipeline (TAP), comprising 8 bcm to Italy and the remainder to Greece and Bulgaria.

BP and Turkish utility BOTAS formalized their entry into the project last week. Azeri state oil company SOCAR now holds a 58% operating stake, with BP and BOTAS owning 12% and 30%, respectively.

SOCAR plans to increase the pipeline’s capacity from 16 bcm to 31 bcm annually by 2026. However, numerous factors could impact future expansion plans, Wood Mackenzie cautions.

Samuel Lussac, Caspian Upstream research manager, said: “Today’s ceremony confirms the Southern Gas Corridor is on schedule. The TANAP pipeline provides Europe with a new supply option from 2019. It also opens new markets, beyond Turkey, for Azerbaijan and operators in the Caspian Sea.

“However, future supply beyond Shah Deniz will take time to develop and the project will have to face up to Gazprom’s clear intent to retain its market share in Europe through theTurkish Stream project.”

The analyst points out that Azerbaijan’s offshore gas fields are complex and expensive to develop, and exploration and appraisal in the landlocked Caspian Sea is also hampered by limited rig availability.

Gazprom’s Turkish Stream project poses further risks to TANAP expansion because both pipelines will terminate at Ipsala, also the starting point for the TAP taking gas to Europe from the Shah Deniz field.

TAP’s initial capacity is exempt from third-party access (TPA) for the next 25 years, but the European Commission has ruled out TPA exemption for future TAP expansion. This means any future upstream project designed to capitalize on TANAP expansion will have to compete with Russian gas to access infrastructure west of Turkey.

Wood Mackenzie estimates the cost of TANAP’s construction at around $12 billion, so the project’s commercial attraction also depends on future expansion.

03/19/2015

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