The 'Southern Corridor' and pipeline politics in the South Caucasus

=Overview=

Europe has for many years relied on Russian natural gas imports to supply its energy needs, but particularly following the dispute over prices between Russian Gazprom and transit country Ukraine in 2009 there have been moves to diversify the supply routes to Western Europe.

Owing to its environmental benefits and the growing unpopularity of nuclear power, natural gas is becoming a preferred fuel in the European energy market. Germany in particular, a major consumer of Russian gas, is bound to rely more on natural gas as it plans to phase out nuclear power by 2022. EU officials noted in 2011 that Europe’s annual gas consumption was around 500 billion cubic metres (bcm) per year, of which 125 bcm/year was from Russia. The EU's efforts to establish a 'southern gas corridor' are part of a energy supply diversification project aimed at freeing Europe from its dependence on Russian gas.

Commenting on the geopolitical implications of the pipeline politics in Europe, industry commentator Pepe Escobar asserts that the new 'Great Game' of the twenty first century is over energy and that it is being played out on the 'immense chessboard called Eurasia'. In its most simplified form it has been Nabucco (a pipeline project supported by the US) versus South Stream (supported by Russia), and revolves around European countries trying to circumvent Russia in securing energy supplies. According to Escobar, Nabucco and the Baku-Tbilisi-Ceyhan pipeline have never been seen simply as infrastructure projects but as a 'creature of Washington'.

=Source of Supplies=

Gas volumes for Nabucco and other pipelines could come from a variety of producing countries, including Azerbaijan, Turkmenistan and Kazakhstan as well as Iran, Iraq and potentially other Persian Gulf producers. A report by the Oxford Institute for Energy Studies suggested that political instability in the Middle East has reduced the options to Central Asian suppliers. However Turkish Energy and Natural Resources Minister Taner Yildiz said in late 2012 that Turkey is ready to act as a gas supply corridor from northern Iraq to Europe along the "corridor".

Supplies from Turkmenistan and Kazakhstan would rely on the construction of the proposed Trans-Caspian Pipeline (TCP).

=European Pipeline Selection Process=

As of 2012 negotiations were ongoing over different gas pipeline options for transporting Caspian gas to Southern Europe. Following deals reached between Azerbaijan and Turkey on 25 October 2011, regarding purchasing of Azeri gas and transit through Turkey to Europe, the European pipeline selection process was able to proceed and gas sales agreements could be agreed with potential customers.

According to a 2012 report, a decision by the Shah Deniz Consortium (SDC) on which export route it preferred for Azerbaijan's gas was delayed to be due in mid-2013. Options initially included the EU-backed Nabucco, the Italy-Turkey-Greece Interconnector (ITGI), the Azerbaijan-Georgia-Romania Interconnector (AGRI), the Trans Adriatic Pipeline (TAP), the South East Europe Pipeline (SEEP), the Trans Anatolian Pipeline (TANAP) and White Stream. It was initially thought that the SEEP and TAP options were the most likely contenders, however the Nabucco option became more realistic following revisions made to the plans in March 2012.

Below are brief outlines of the two pipeline projects still on the table for transporting gas from Azerbaijan and Central Asia to Europe as of July 2012. The South-East Europe Pipeline (SEEP) project was the final option to be eliminated from the selection process, when in June 2012 the consortium operating the Shah Deniz field preferred the Nabucco West option. SEEP, a lower cost and lower capacity export option extending from Bulgaria to Central Europe, was dropped by its initial backers BP.

Nabucco (Nabucco West)
The Nabucco project was initiated in 2002 and was actively promoted by the EU under its Trans-European Energy Networks initiative. It was initially projected to carry 8-13 bcm of gas per year, the volumes rising to 31 bcm per annum by 2020. In May 2008 the construction cost of the Nabucco pipeline was estimated at €7.9 billion ($12.3 billion).

The initial project was conceived to run 3,893 kilometres (km) from the Georgian-Turkish boder to Baumgarten in Austria. Wherease 'Nabucco West' is a revised version of the original Nabucco pipeline, and was chosen by the BP-led consortium operating the Shah Deniz Gas Field as the 'northern-route' candidate for the pipeline, to compete head-to-head with the 'northern route' option, the Trans-Adriatic Pipeline.

According to the Petroleum Economist, the consortium's decision to opt for Nabucco West gave a boost to the project, which in its original form was unable to attract sufficient gas supplies and deemed too expensive. Over its lifetime the project faced such repeated delays that Gerhard Roiss, CEO of OMV commented that the pipeline “will be pronounced dead 100 times, but it will be alive again 101 times.”

The revised route would instead begin at the Bulgarian-Turkish border and run 1,312km to Baumgarten, carrying 10 bcm per year. The segment of the original Nabucco route crossing Turkey was made unnecessary when Azerbaijan and Turkey agreed in late 2011 to build the Trans-Anatolian Pipeline (TAGP/TANAP). Partners in the project include Turkish BOTAS, Bulgarian Energy Holding, Hungarian FGSZ, Austrian OMV, Germany RWE and Romanian Transgaz.

Trans Adriatic Pipeline (TAP)
The TAP proposed to take 10 billion cubic metres (bcm) per year of natural gas across Greece and Albania, continuing underneath the Adriatic sea to the heel of Italy's boot, its backers claiming that these volumes of gas could later be doubled. The TAP consortium comprises of German E.ON (15% stake), Swiss EGL (42.5%) and Norwegian Statoil (42.5%). In February 2012 the Shah Deniz consortium indicated a preference for the TAP over the rival Interconnector Greece-Turkey-Italy (ITGI) option as the 'western-route' candidate ahead of making a final decision.

According to the Financial Times Statoil and other bakers of the TAP route have urged that commercial decisions should govern the final decision, based on a neutral stance by the EU, despite historical EU support for Nabucco.

=North and South Stream=

Russia's answer to the Nabucco and the other EU-backed options is the South Stream pipeline, a US $15 billion project stretching for 1,200km under the Black Sea from Russia to Bulgaria. The pipeline is scheduled to be completed in 2015, and from Bulgaria one branch would run south through Greece to Southern Italy, while the other would run north through Siberia and Hungary towards northern Italy. Nord Stream will be capable of carrying 63 billion cubic metres (bcm) per year.

The $9.1 billion Nord Stream pipeline would take natural gas from Western Russia under the Baltic Sea to Germany. Russian energy firm Gazprom holds a controlling 51% interest in the project, with German and Dutch companies holding the remainder. The chairman of the board is former German Chancellor Gerhard Schroeder. Nord Stream has a capacity of 55 bcm per year.

=References=