Europe's Southern Gas Corridor 'almost ready,' says Azerbaijan's SOCAR

A 25-year supply contract has been signed with Italy, and the first Azeri gas is expected to start flowing before the end of 2020, said Vitaly Baylarbayov, deputy vice president of SOCAR, the State Oil Company of Azerbaijan.

The construction of the so-called "Southern Gas Corridor," a chain of pipelines linking Azerbaijan to Italy, has cost $40 billion, and the project is "almost ready," Baylarbayov told EURACTIV in an interview.

During the last eleven years, Vitaly Baylarbayov has been one of the leaders of the Southern Gas Corridor (SGC), an EU-supported project aimed at bringing gas to Europe from the Caspian Sea.

Speaking on the 37th floor of the SOCAR tower in Baku, Baylarbayov said that problems which had arisen in the past have been overcome and that the entire project was now close to completion.

The Southern Gas Corridor's main source of supply is the Shah Deniz field, located in the economic zone of Azerbaijan in the Caspian Sea. The project consists of three pipelines with a total length of almost 4,000 km: The South Caucasus Pipeline (SCP) linking Azerbaijan with Georgia, the Trans-Anatolian Pipeline (TANAP) across Turkey, and the Trans-Adriatic Pipeline (TAP) linking Greece, Albania, and Italy with an offshore section.

The total value of works for the entire Southern gas corridor is close to $40 billion, the SOCAR executive said, adding that "substantial savings" were made during the works in Azerbaijan and Turkey. Previous estimations had put a price tag of $45 billion for the entire project.

Baylarbayov said that onshore work is 100% complete in Azerbaijan, in Georgia, TANAP on the territory of Turkey is also 100% complete, and on 30 November the completion and readiness for supplies to Europe was inaugurated in Turkey in the presence of Presidents of Azerbaijan and Turkey.

Sixteen wells have been drilled in the Shah Deniz gas field and are now fully ready for operations, he said, explaining that gas will start flowing at full capacity once works on the final stretch of the Italian pipeline is completed. Eight of the wells are producing already, and their gas is flowing to Azerbaijan, Georgia, and Turkey. The rest will be gradually put onstream with full capacity once works on the final stretch in Italy are fully completed.

"The only remaining part of the corridor is TAP, the readiness of which is 91%," the SOCAR executive said.

Most sensitive 8 kilometers

But this last 8 km stretch on Italian territory is also the most sensitive politically. The local population has resisted the pipeline, fearing for their pristine beaches and tourism industry.

According to Baylarbayov, a micro-tunnel allowing the pipeline to avoid the beach of San Foca, the landing point in southern Italy, has now been completed. The conservative timing to make TAP operational was the end of 2020 – possibly earlier than that, he said.

"Whatever we do on the territory of Italy is done with the absolute highest level of environmental precaution, which is not less strict on the territory of Azerbaijan, Georgia, Turkey, and Greece," the executive insisted.

What could still delay construction were, for example, new archaeological discoveries, he explained. Multiple sites were discovered during the construction phase of the pipeline in Turkey and Greece. Whenever this happened, work was stopped, and the authorities were invited to step in, Baylarbayov explained.

Regarding the volumes of gas expected in each section of the pipeline, Baylarbayov said Turkey is already receiving gas from 1 July 2018. It received about 2bcm in 2018, about 4bcm in 2019, and in 2020 the supplies should be about 6 bcm. This is in addition to the 6 bcma, which Shah Deniz supplies from Stage 1 of its development.

Furthermore, 2 bcm has been earmarked for Greece and Bulgaria. The volumes will be delivered once TAP enters operation, and when the Greece-Bulgaria interconnector is completed, by the end of 2020.

The SOCAR executive explained that the entire TAP system would be made operational in one go. For Italy, supplies are earmarked at 8+bcm/y, he said.

"All the buyers are lined up, waiting for the supplies. Hopefully, there will be no further obstacles," he said.

Is TurkStream a competitor?

Asked if Southern gas corridor was in competition with the Turkish stream, he said this was a question asked by many journalists, and the answer was always NO.

"Our volumes contracted to Greece, Bulgaria, and Italy for 25 years, will start arriving in Italy as soon as TAP is ready. This cannot be changed. Whether there will be Russian, Libyan, Algerian, or any other gas, it doesn't matter because we secured our place".

Asked if Italy needs more, he replied: "We understand that Italy will need more gas in the next 10 years, much more than they have now. From that point of view, the capacity of the Southern gas corridor and its TAP leg is sufficient to cover most of this potential deficit".

Asked if the 16 wells in Shah Deniz he referred to are enough to supply the 8 bcm/y for Italy plus the 2 bcm/y for Greece and Bulgaria, and also 6 bcma to Turkey, he said that the answer was affirmative, but as their production decline over time, others will be drilled. He also mentioned that he firmly believes in the huge potential of Shah Deniz, which will justify its 3d and even 4th Stages of further development. He also said the huge potential of other Azerbaijani fields, which are already under exploration and development.

Asked about the effect of cheap US LNG gas on European markets, he said that while of course, this effect exists, nobody could nowadays predict price trends, which are affected by earlier not envisaged factors, giving as example the coronavirus which put down prices as a result of the slowdown of Chinese consumption but this trend will change as soon as peak of the disease is over.

"US administration recently threatened that Russian companies might become subject to sanctions because of their involvement in the Venezuelan oil industry. If they do that, prices will jump up", he said, illustrating his argument.

Speaking about the long-term, he admitted that most of the fossil fuels would be less and less welcome, but for gas, he said the picture would be different, and that the resource would still be needed for at least another 50 years.

He added that gas would become cleaner, less methane would be evaporated or allowed into the atmosphere, proudly stating that SOCAR is the first national company in the region to quit completely gas flaring and implementing zero waste discharge policy on all oil and gas operations in Azerbaijan and abroad

More gas from Central Asia?

Baylarbayov also seemed relaxed, answering a question about the possibility that gas-rich Turkmenistan starts building an offshore pipeline to deliver gas to Europe. In that case, Azerbaijan would become a transit country for Central Asian gas, be it from Turkmenistan, Kazakhstan or Uzbekistan, he said.

"The capacity of the SGC system allows that. The capacity of SCP and TANAP is technically expandable at least until 31 bcm, and this is commercially and legally expandable without additional negotiations with host countries. The capacity of TAP can be doubled, increase by another 10 bcma. In principle, SGC capacity could be increased even further, but that would require negotiations with the host countries."

Can Russian gas flow via SGC?

But what if Russia's Gazprom asks to use TAP's capacity to transport its own gas? After all, EU rules require any pipeline to reserve capacities for other suppliers, EURACTIV asked.

Baylarbayov said that such scenarios if implemented in compliance with the EU and TAP rules, will not upset the plans of TAP, of which SOCAR is a 20% shareholder.

"We, as TAP shareholders, will, of course, act in strict compliance with the European regulation, which is currently based on the Third Energy Package. Whatever is envisaged for the third parties should be granted to the third parties without any discrimination".

He added that TAP launched in the summer of 2019 the market test which is ongoing at the moment, and which is expected to provide the exact answer to the question asked: how much of the capacity various gas producers want, and when. After this market test collects this information, TAP will state what its scenarios for future development are.

"Only at that future stage, we will know who wants to use the capacity of TAP, with 50%, or more, or fewer percentages of its expandable capacity, which is 10 bcm. Then, under the strict guidance of the European rules, TAP will decide what and how it will be implemented," the SOCAR executive said.