Ionian-Adriatic Pipeline: A Priority Gas Transit Project for Azerbaijan and the Western Balkans

The Azerbaijani State Oil Company (SOCAR) announced, on July 27, the formation of a new corporate entity that will oversee the future development of the Ionian-Adriatic Pipeline (IAP) project. The proposed pipeline is designed to deliver Azerbaijani natural gas to Europe—namely to the Balkan region. According to Murad Heydarov, the head of the subsidiary SOCAR Balkan, the announced firm will be set up by the end of this year (AzerNews, Trend, July 27). Although, SOCAR is not a stakeholder in the IAP project, it acts as a technical consultant and manages the future design of the pipeline between the Albanian cities of Fier and Vlora. This project will represent the first time that SOCAR will undertake engineering services in the Western Balkans.

Two years earlier, in August 2016, Croatia, Albania, Bosnia-Herzegovina and Montenegro signed a Memorandum of Understanding (MoU) with Azerbaijan’s SOCAR during a meeting of the Dubrovnik Forum. The 516-kilometer north-south IAP will connect to the east-west Trans Adriatic Pipeline (TAP) in Fier, Albania. TAP is the westernmost key link in the Southern Gas Corridor, meant to deliver Caspian-basin energy to the European Union via the South Caucasus and Anatolia. The IAP will transit through Albania, Montenegro, Bosnia-Herzegovina and end in Split, Croatia, where it will connect to that country’s existing gas distribution system. From Croatia, it will be possible to ship the gas further, to Hungary and other countries of Central and Western Europe. The capacity of the IAP will be five billion cubic meters (bcm) per year. Moreover, from a regional energy resilience perspective, the pipeline will importantly be capable of carrying supplies in reverse—southward from Central Europe (AzerNews, August 26, 2016). The Croatian gas system operator Plinacro, Bosnian gas company BH-Gas, Slovenian Geoplin Plinovodi, and the energy ministries of Albania and Montenegro are working with the TAP consortium on the interconnection and alignment of the two projects (Tap-ag.com, accessed August 7).

SOCAR’s involvement brings with it alternative gasification options for Montenegro, Bosnia, Croatia and the rest of the Balkan region, helping Southeastern Europe avoid becoming locked into a Russian monopoly. Moscow is seeking to boost its gas sales to these regional customers by constructing a more direct transit route to the Balkans via Turkey and Bulgaria—the offshore/onshore TurkStream Pipeline, which will entirely bypass the current route through Ukraine (see EDM, April 11, June 1, July 12). Particularly if completed early, TurkStream threatens to crowd out other gas supply options to Southeastern Europe, including the Southern Gas Corridor or the future potential for liquefied natural gas (LNG) shipments to the region (see Jamestown.org, November 15, 2017).

In 2017, Albanian Energy Minister Damian Gjiknuri stated that the IAP is an ambitious project and therefore needs strong support both from the European Union and the United States (Trend, September 9, 2017). Earlier that year, the EU’s Western Balkan Investment Framework (WBIF) provided both Montenegro and Albania with a joint grant amounting to €2.5 million ($2.9 million) to finance the conceptual design of the IAP project (New Europe, February 23, 2017). Indeed, the promotion of various interregional and international energy projects that foster diversified supplies and transit routes is a key objective of the EU’s European Energy Security Strategy (Europa.eu, May 28, 2014). Hence by connecting the Balkan region to the wider European gas network, the Southern Gas Corridor project (of which, TAP is a key link and IAP a strategically important extension) seeks to prevent the region from falling under undue Russian influence.

Albania, Montenegro and Bosnia-Herzegovina all currently suffer from a lack of domestic energy resources, relying highly on imports to satisfy demand. Natural gas makes up a limited or nearly nonexistent proportion of their energy consumption mixes at present. However, purchase of gas is set to grow as the Southern Gas Corridor comes online (Balkaneconomicforum.org, accessed August 8). In light of this, the completion of the IAP project will be fundamental to meeting this objective and ensuring a diversification of supply away from Russian-owned Gazprom. In addition, the future injection of Caspian-basin gas to Southeastern Europe may contribute to the creation of an important Balkan natural gas hub as well as logistic hub.

Still, the full and successful implementation of the IAP project will require upgrading existing regional pipeline infrastructure as well as constructing terminals on the Adriatic coast. This will be a complicated endeavor and will not come cheap. According to the latest estimate by the Montenegrin Ministry of the Economy, the pipeline will cost €120 million ($139 million) overall (Energjia.al, July 30; Energy-community.org, February 2018).

Montenegro’s Energy Minister Dragica Sekulic noted earlier this year, following long multilateral negotiations and feasibility studies, that her government had designated the Ionian-Adriatic Pipeline a vital project that must be completed (Day.az, February 27). The full implementation of both the IAP and TAP projects promises a number of dividends to all involved parties, including not only increased energy security for the region but also new foreign investors (in particular, Azerbaijan) and additional funding support from the EU. Thanks in part to SOCAR’s strategic economic vision, the Balkan region is shaping up to become a key energy transit link between Europe and the Caspian basin. However, formally, the role of the Azerbaijani oil and gas giant in the IAP project has still not been precisely defined. The main questions regarding the announced formation of the IAP project company remain unanswered for now. SOCAR might be expected to maintain the role of observer in this project after all formalities are completed. Nevertheless, Azerbaijan’s growing presence in the Balkans will now be difficult to reverse.