Schieppati says budget of TAP expansion's first level to exceed 130 million euros

The pipeline company TAP AG has begun expanding the gas pipeline for delivering Azerbaijani gas to European countries, which will allow increasing annual delivery to consumers by 1.2 billion cubic meters of gas from 2026.

In an interview with Report, TAP AG Managing Director Luca Schieppati elaborated on the work to be carried out as part of this expansion, the expenses will be required for these purposes, and in general on the prospects for further increasing the pipeline's capacity.

- How do you assess the operation of the Trans-Adriatic Pipeline (TAP) since its launch? What is being done to double its capacity?

- The strategic importance of the SGC and TAP has been recognised in the REPowerEU plan which calls for the intensification of cooperation with Azerbaijan and the scaling up of TAP’s capacity to increase the gas supply to the EU.

The current nominal transportation capacity of the pipeline is 10 billion cubic meters per year (bcm/a) with the potential to be doubled to in excess of 20 bcm/a. TAP’s expansion capacity is offered to the market through regular Market Tests in an open, transparent, and non-discriminatory way. Market Tests are held at least every odd year and are structured in two phases, the Νon-Binding and the Binding phases.

In addition, TAP has an obligation to offer short term capacity to the market. TAP is maximizing the offer of the short-term capacity at operating conditions on a day ahead basis.

Since the start of our operations, we have transported over 37.53 billion cubic meters (bcm) of natural gas, with 2.29 bcm delivered to Bulgaria, 3.63 bcm to Greece, and 31.33 bcm to Italy.

Since the beginning of this year (2024), we have transported over 6.53 bcm, including 0.46 bcm to Bulgaria, 0.60 bcm to Greece, and 5.42 bcm to Italy.

- Can TAP's activities be considered profitable, and are there figures available on SAP AG's revenues for the entire period since the start of operations?

- TAP’s financial situation is robust. The Company is supported by our shareholders, five international companies that are fully committed to TAP’s objectives. Furthermore, TAP is strengthened by its long-term gas transportation agreements with the shippers of Shah Deniz gas, signed in 2013 for 25 years, which were necessary to underpin the investment.

In addition to the already booked long-term capacity, TAP offers capacity for short-term bookings to the market through the PRISMA capacity booking platform, in line with the ENTSOG Auction Calendar. Since mid-February 2022, TAP has been operating near full utilization, with significant short-term bookings complementing its long-term commitments.

- How does the process intended to increase the capacity of the Trans-Adriatic gas pipeline by an additional 1.2 billion cubic meters proceed? What specific tasks are involved in this expansion effort and how much investment is required to expand the capacity of TAP by 1.2 billion cubic meters? Are the sources of financing known?

- The 2021 Market Test was completed earlier in 2024 and it resulted in binding commitments, which will add another 1.2 bcm/a to the pipeline capacity by 1 January 2026.

TAP is proceeding with the relevant works required for making the incremental capacity available to the market, in line with the commitments received.

TAP will add one compressor unit (ca 15MW) to the existing compressor station in Kipoi (Alexandroupolis area), at the Greek border with Türkiye and upgrade the facilities there. The completion of these works will mark significant progress towards our goal of making the additional long-term capacity available at the start of 2026.

This is the first level of the expansion project, and it is financed by TAP’s own funds. The budget for the project is approximately 132 million euros.

- What are the results of the mandatory market testing announced in 2023? What are the next steps expected in this direction?

- The first level of expansion (1.2 bcm/a) could pave the way for further expansions, which can be achieved in steps through participation in the next Market Tests, provided there is interest from the market. TAP’s 2023 Market Test is still ongoing.

In June, we published the draft Project Proposal for the 2023 Market Test for public consultation. The public consultation closes on 15 August. The next steps will be the approval of the Project Proposal by the National Regulatory Authorities of the three host countries and then the opening of the binding phase.

The binding bidding phase of the 2023 Market Test is expected in mid-2025.

- Are there deadlines for expanding TAP's capacity to 20 billion cubic meters? It is known that the year 2027 was announced in this context. Is there a scenario under consideration in which there may be delays with this extension?

- The potential for further expansion and the level of such expansion will be determined by Market Test results. To date, TAP has progressed and continues to develop work to prepare to meet the anticipated market demands.

For instance, we are working on the conceptual design of compressors stations for various expansion scenarios. We are also working on the development of concepts for future expansion cases to be based on electrically driven compressors.

- When discussing the phased expansion of TAP, are there any specific volumes in mind?

- The three capacity offer level scenarios (limited expansion, partial expansion, or full expansion) are presented in detail in the draft Project Proposal of the 2023 Market Test, which is currently under public consultation.

- What are TAP AG's plans to decarbonize its operations?

- We set ourselves on a decarbonization pathway within the energy transition. TAP has developed a Long-Term Energy Transition Strategy for achieving climate neutrality by 2050.
The Carbon Management Plan (CMP) 2022-2025 is part of this broader Energy Transition Strategy, identifying main emission sources, setting greenhouse gas emissions reduction targets and describing the initiatives per year to achieve these targets.

According to this Plan, in 2025, TAP aims to reduce its greenhouse gas emissions by 5%, its global methane emissions by 8% and its fugitive emissions by 54% compared to the 2022 forecast.

In 2023 we achieved an approximately 30% reduction in our greenhouse gas emissions and about 70% in methane emissions compared to the 2023 annual forecast.

Based on studies conducted, 90% of TAP’s CO₂ emissions emanate from the operation of our gas-powered compressors. In this context, we are considering the installation of new electro-compressors in both our existing and new stations in the event of future expansion. This includes defining the connection points to electrical grid networks, grid reliability and the availability of green electrical power to meet the power requirements of the new compressors.

In early 2023, TAP joined the Oil and Gas Methane Partnership (OGMP 2.0), the flagship oil and gas reporting and mitigation programme of the United Nations Environment Programme (UNEP). This voluntary initiative seeks to support Oil & Gas companies in reducing methane emissions. TAP is aimed at obtaining OGMP 2.0’s “Gold Standard” status by 2025, which will acknowledge its plans to measure and reduce methane emissions.

- Are new studies planned this year on possibly transporting a hydrogen mixture via TAP?

- As Europe moves to a climate neutrality, TAP is focused on facilitating that the transition happens in a sustainable manner.

Particularly in South-East Europe and the Western Balkans, where the energy sector is overly reliant on heavy fossil fuels, TAP can eventually become an important contributor to the objectives of the European Green Deal and the Paris Agreement by supplying the EU with carbon neutral energy sources, such as hydrogen and bio-methane, when the market evolves commercially, and requests TAP for relevant capacity.

TAP’s ambition is to develop the asset to allow transportation of hydrogen, initially in the form of a blend with natural gas and we are currently in the process of assessing the degree to which we can technically accommodate transporting a blend of natural gas and hydrogen.In 2021, an initial study on hydrogen readiness verified TAP’s capability to transport hydrogen blend in the future.

We are currently conducting tests on the pipeline materials in an internationally recognised laboratory in the Netherlands. We expect to receive the initial results for the offshore pipeline towards Q3 2024.

We are working closely with our shareholders, key vendors, and the industry, as the investment in facility upgrades and the percentage of hydrogen to be transported will likely be developed incrementally over time to align with hydrogen market demands and comply with related market regulations.