A Storm Is Brewing In The Southern Gas Corridor

Authored by Venand Meliksetian via OilPrice.com,

No less than Turkish President Recep Tayyip Erdogan, Azerbaijani President Ilham Aliyev, Serbian President Aleksandar Vucic, Ukrainian President Petro Poroshenko and Turkish Cypriot President Mustafa Akinci attended a gathering in Central Turkey on 12 June. The amount and variety of attendees of this meeting reveal a common interest in one field of geopolitical developments: energy and more specifically natural gas.

The opening ceremony of the 1.850 kilometers long Trans Anatolian Pipeline, TANAP, starting at the Shah Deniz gas field in Azerbaijan and ending in Turkey, is the last step before connecting to the European grid in Greece and Italy. TANAP is part of the Southern Gas Corridor, which was the dream of many European leaders and officials to create an alternative to Russian gas.

The attendance of several high-level dignitaries shows the interest in the pipeline and the geopolitical developments of the region. More specifically, Russia’s dominant position in the natural gas market of southeast Europe has set leaders scrambling to find alternatives or at least competition of producers.

The fraught relations between Russia and Ukraine brought these countries on a collision course. However, due to historical reasons the energy industries of Moscow and Kiev have been closely intertwined. Russia has set itself an ambitious goal of circumventing Ukraine as its main transit country for gas exports. The Turk Stream and Nord Stream 2 pipelines, which are either planned or under construction, will carry much of the needed gas to Europe starting in 2019 when a new transit contract has to be signed with Kiev.

Ukraine intends to diversify away from and ultimately stop buying gas from Russia. The Southern Gas Corridor, therefore, is a highly anticipated alternative. The attending of Petro Poroshenko at the opening ceremony is a testament to this goal. Already Ukraine importing gas from neighbouring European countries with plans to increase domestic production of natural gas.  

The election of a new government in Italy has brought change to the strategic energy map, which for a decade seemed to be fixed. The €40 billion Southern Gas Corridor pipeline bringing Azeri gas to Europe was intended to be linked to Italy’s by a yet-to-be-built Trans Adriatic Pipeline, TAP. However, the coalition government of the Five Star Movement and the League has created much uncertainty.

Environment Minister Sergio Costa has dubbed TAP as “pointless” and has ordered the launch of a formal review. The coalition partners have made fighting corruption one of their election promises. Furthermore, decreasing gas consumption is used as another argument not to construct an additional pipeline. Although demand has risen over the years, it is nowhere near the peak of a decade ago. Italy imports 90 percent of its needs from Russia, Libya, Algeria, and Holland while there is spare capacity.

Environmental reasons are also being used as the 5-Star Movement has a green political program. The new government’s minister for southern Italy, Barbara Lezzi, has said that the government believes that the pipeline presented an unnecessary environmental danger given Italy's excess gas capacity. Although Puglia's governor does not object to the construction of TAP, he has proposed redirecting it away from a tourist area.

The TAP consortium, which includes British oil group BP, Italy's Snam and Spain’s Enagas, has said re-routing the pipeline away from Italy is not an option. Also, redirecting it inside Italy could delay the project by four to five years. However, analysts have predicted that there is an alternative: existing gas transit lines through the Balkans could be repurposed, and additional interconnectors could facilitate the transport of gas to Southeastern and Eastern Europe.

However, for now, this seems not as a reasonable alternative as it could take years of planning, securing new financing, and receiving political support in a fragmented region with diverging interests. What looked like a streamlined project (Southern Gas Corridor) with political and financial support both from Brussels and local players, has the potential of becoming a crisis. The European strategic energy map has been plunged into uncertainty due to recent developments as several major pipelines are planned, under construction or face uncertain futures.

Comments

Zen Xenu Mon, 06/25/2018 - 03:42 Permalink

Competition is good.

And I support increasing the gas pipeline infrastructure to the EU.

Which means I also support Russia's Nord Stream 2 gas pipeline.

JohninMK Fireman Mon, 06/25/2018 - 06:59 Permalink

An awful lot at the end of next year when the Ukrainian transit contract ends end 2019. If the EU and its gas users in southern Europe are not yet in a panic then they should be.

Even if NordStream2 is fully operational by then there is not enough north/south pipeline capacity to pump it south to give the southerners enough to keep them warm in early 2020.

The only real option is Russian or Azi gas up through the Balkans or the EU is over a Russian barrel with continued transit through Ukraine.

The EU has got one eye on Brexit and the other on immigration and has lost sight of this potentional disaster heading their way.

In reply to by Fireman

gregga777 Zen Xenu Mon, 06/25/2018 - 04:30 Permalink

The Russian Federation and the United States should develop a joint stock pipeline from the Persian Gulf to Southern Europe. Let producers compete on natural gas with pricing instead of armaments and commit to carrying gas from any producer. That'd surely help put an end to this refugee shitstorm and a lot of terrorism. 

 

And then I awaken from my hallucination. Oh well, what the fuck. 

In reply to by Zen Xenu

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In reply to by aleena.ange

Yen Cross Mon, 06/25/2018 - 03:48 Permalink

 How are the Ukrainians going to pay for the nat gas? They can barely pay the Russians, for the gas they currently receive.

 Why aren't the Greeks pissed off? Supposedly there's massive gas fields off the Greek coast that run right through that proposed pipeline area.

philipat Yen Cross Mon, 06/25/2018 - 04:03 Permalink

Ukraine only pays Russia at all after Russia cut-off supplies and even then always late. And although Russia increased the price to Ukraine, it is still below market. And Ukraine is still prone to transit gas to Europe somehow "going missing". You're right, if Ukraine has to pay full market price for gas it will be in trouble. Again. Russia always had to subsidize Ukraine which explains why it is not interested in taking Ukraine back again after the US coup. Still, with its new friend, I'm sure Washington will be happy to take over the subsidies to its new "client"?

In reply to by Yen Cross

JohninMK gregga777 Mon, 06/25/2018 - 06:31 Permalink

Ukraine gets much of its Russian gas from the countries a bit west of it that it has just trans-shipped it to. Then it can say it doesn't use 'Russian' gas. What a farce.

The big gun that the EU is looking down the barrel of is December 31st 2019 when the Ukraine transit contract ends. At the moment there is serious doubt over whether the Russians will extend it and if so by how long and under what conditions. The end to this contract, due primarily being down to the Ukrainians being a proven bunch of untrustworthy lying thieves, is a major reason for the Russians hedging their bets and building NorthStream as the US effectively stopped SouthStream via Bulgaria.

It is not currently Washington that is supporting the Ukrainian gas purchases, it is loans, right!, from Brussels. Of course this is helped by it not being Russian gas. Ha ha.

 

 

 

In reply to by gregga777

JIMSJOE2 Yen Cross Mon, 06/25/2018 - 06:50 Permalink

I agree. Ukraine importing from other European means they are still receiving gas from Russia. How does that help them if they cannot pay.

    Oilprice.com is the site that reposted the fake article from the Nikkei Review claiming that China was going to back the new crude futures contract with gold and allow the yuan to be fully convertible to the metal. All bullshit! Turkstream is almost complete and Turkey needs Russia. Erdogan has not forgotten who warned him of the coup.

    Now both Italy and Greece desperately need the capital that the transit fees bring. The environmental concerns are also bullshit. When Nordstream is complete there is no need for Russia to move gas thru Ukraine and the country knows and is in deep shit. Broke European countries sending gas to there will not last if they do not pay and cannot. Them at this meeting is the country begging for help.

In reply to by Yen Cross

JohninMK quasi_verbatim Mon, 06/25/2018 - 06:47 Permalink

Yes, there is one there already, TurkStream from Russia, and it has been pumping away quite happily for years. They are even building another one due for completion next year, that strangely isn't mentioned in the article.

This new Turkstream lands west of the Bosphorus up fairly close to the border with Bulgaria ready to get linked up with existing pipelines (plus a few new bits) up to Serbia. But the EU doesn't want that as it is real Russian gas.

Whereas the main pipeline in the article is potentially a pipe to nowhere unless, as mentioned, TAP and a whole new infrastructure is built (watch out for the bribes, sorry consultancy payments, on that one) sometime in the next decade, which is way too late.

Now, if these two incoming pipelines actually joined in Turkey and merged 'ungeographic label' gas went up into the EU through the eastern Balkans, that need the money as much as Italy and Greece, that could be a politically OK solution on the right timescale.

In reply to by quasi_verbatim

HenryHall JohninMK Mon, 06/25/2018 - 09:15 Permalink

>> Yes, there is one there already, TurkStream from Russia, and it has been pumping away quite happily for years.

You mean Blue Stream (Siniy Potok) perhaps? Beregovaya to Durushu, since circa 2004.

As to additional infrastructure, there is an existing gas pipeline that supplies gas from Bulgaria to Western Turkey. That can be re-purposed to send gas in the opposite direction.

In reply to by JohninMK

WTFUD Mon, 06/25/2018 - 06:49 Permalink

Stick a Pipe or a Cork in It, that'll do the trick. Plug that Gap!

My Pipeline's dick is bigger than yours and it's still suffering growing pains, balls/storage at straining point. Something's gotta give!

Trump can negotiate for some nice Russian Oil & Gas assets, a stake in the Nord/Turk Streams & some nice Real Estate along the Silk Road.

Quando Quando Quando, Quando,

Quando Quando Quando, Quando.

 

HenryHall Mon, 06/25/2018 - 08:38 Permalink

>> Ukraine intends to diversify away from and ultimately stop buying gas from Russia. The Southern Gas Corridor, therefore, is a highly anticipated alternative.

Azerbaijan barely has enough gas to meet domestic needs. It has arranged to buy gas from Russia to make up any shortfall.

Thus even if part of the gas exported via TANAP is mined in Azerbaijan, it is in effect Russian gas shipped via a roundabout route. Because Az sold its own gas and replaced it with gas purchased from Russia.

The Southern Gas Corridor, therefore, is thus no more than an alternative route for Russian pipeline gas, Until/unless a trans-Caspian pipeline from Turkmenistan is built - but that would require permission and participation from both Russia and Iran because of the Caspian Sea treaties.

 

Oh, and Ukraine will indeed stop buying gas from Russia. On 1 January 2020 to be precise, which is when the exiting  contract expires.