Gas marketing options of the Trans-Adriatic Pipeline (TAP) project consortium may look either flexible or vague at this point. Azerbaijan’s State Oil Company (SOCAR) seems the only reassuring exception in this regard among the Shah Deniz gas producers. SOCAR had indicated all along that gas markets in the Balkans were among its priorities. This continues to be the case in the wake of the Shah Deniz consortium’s—including SOCAR’s—selection of the TAP route (Greece-Italy) as against the Nabucco route (Bulgaria-Romania-Hungary-Austria) (see EDM, June 25, 27, 28).
The Nabucco route had earlier answered to SOCAR’s Balkan priorities well; and it presented the additional strong attraction of running to the Baumgaren continental hub near Vienna. In the run-up to the Shah Deniz consortium’s selection decision, however, Baumgarten lost its lure as a result of German RWE’s withdrawal from the Nabucco consortium, and German Bayern Gas’s withdrawal from negotiations with the Nabucco consortium about gas purchases. These moves seemed to leave no customer northward of Baumgarten for Nabucco gas. This situation may have been a temporary one, and subject to changes later, but the time for the Shah Deniz consortium’s selection decision was now.
The selection of TAP became a foregone conclusion when SOCAR won the tender for acquisition of DESFA, Greece’s gas transmission and distribution system, on June 11, announced ten days later (see EDM, June 25). This should enable SOCAR to focus on Balkan gas markets in Greece (with direct access to consumers through DESFA pipelines), in Bulgaria (through the planned Interconnector Greece-Bulgaria, on which SOCAR is now a stakeholder via DESFA), and in Albania (where no gas is used and no pipeline grid exists, but SOCAR appears prepared to change that situation).
TAP pipeline shareholders (Norwegian Statoil, Swiss AXPO, and German E.ON Ruhrgas, soon to be joined by Belgian-based Fluxys), however, seem increasingly oriented toward Western and even northwestern Europe. The TAP consortium had insisted for years that it was mainly targeting the Italian market. TAP was supposed to drop 1 or 2 billion cubic meters (bcm) per year in Greece and perhaps Albania (possibly putting a storage site in non-gasified Albania) while reserving the bulk of TAP’s planned 10 bcm per year after 2020 (with another 10 bcm possible later) to supply Italy.
That was shown to make little sense (see EDM, June 13, 2011; February 3, March 28, April 9, 2012; March 26–27, April 26, 2013) because the Italian gas market was and remains fully saturated and well-diversified with pipeline-delivered and liquefied gas from North Africa, Russia, and the Middle East. Supply disruptions on one occasion from Russia and on another occasion from Libya were offset with extra volumes from the other directions. Moreover, Italy is building new liquefied natural gas (LNG) reception capacity while preparing to receive TAP’s gas on top of all that. Intentions became apparent to turn Italy into a gas transit country, capitalizing on the country’s favorable geography to transmit those gas supplies from the peninsula to continental Europe.
The TAP consortium’s strategy would seem to fit in well with that vision. In recent months, the consortium’s public talking points have clearly indicated that TAP gas would go via Italy to Switzerland, Germany, France, Belgium and even Great Britain (see EDM, March 26). But this might change again, and more than once until 2019 when the first gas is expected to flow through the TAP pipeline from Shah Deniz.
Meanwhile, Italy’s gas transmission grid, operated by Snam Rete, does not offer sufficient spare capacity. TAP would be using it in the reverse mode, south-north. According to TAP’s Managing Director, Kjetil Tugland, “expansion of Italy’s transmission network requires a lot of investment, which would in turn make the country into a gas hub” (Trend, June 28).
TAP has advertised a further marketing option, which would branch out of Albania to supply Montenegro, Kosovo, Bosnia-Herzegovina and Croatia with gas. This option would involve building a 400-kilometer backbone pipeline, dubbed the Ionian-Adriatic Pipeline (IAP), from Fier in Albania to Split in Croatia, with proposed branchoffs into Kosovo and Bosnia.
The TAP consortium has signed memorandums of understanding (MOUs) with the governments of Albania and Montenegro and with the Croatian and Bosnian pipeline companies, Plinacro and BH Gas, respectively, about their possible participation in IAP. Montenegro and Kosovo, just like Albania, are not connected to a grid for natural gas. Of these countries, only Croatia is being eyed by Gazprom’s South Stream, and only for a hypothetical branchoff (not a transit line). Conversely, TAP is not proposing IAP to the Serb Republic (Republika Srpska, a federal entity of Bosnia-Hercegovina) and Macedonia, both of which are enlisted in Gazprom’s South Stream. The IAP proposal has not been developed in any respect (sourcing, supply volumes, costs, capital investment) thus far.
From Azerbaijan’s perspective, gas markets located closer to the production site are preferable due to lower transportation costs, which can in turn increase the netback to the gas producer. Accordingly, SOCAR can probably be expected to focus on Greece, Bulgaria and perhaps Albania.