By Costis Stambolis
The successful conclusion of the 14 year old saga with the signing in Athens on March 15 of the final intergovernmental agreement for the construction of the Bosporus oil pipeline bypass has reinforced the government’s aspirations for a broader role in the strategic energy sector in South East Europe. These aspirations are further enhanced by the creation of the EU sponsored ‘Energy Community’ for SE Europe, which aims towards the integration of energy networks and the building of oil, gas and electricity interconnectors right across the region.
EU’s long term aim in funding the setting up and organization of the Energy Community is to introduce the same market principles which are currently being enforced in Europe and which will enable market competition among utilities and energy companies in general. For this to become possible the linking of each country’s energy infrastructure is considered a top priority by Brussels and hence its decision to provide part of the required funding which will help speed up the construction of the required new oil and gas pipelines and electricity transmission lines.
Greece has played a lead role in coordinating the contacts and negotiations between the various countries in SE Europe which enabled the preparation of the treaty for the creation of the Energy Community, and its signing in Athens in October 2005 between the EU and the group of countries participating in the Energy Community. Now the Greek government in the aftermath of the Burgas-Alexandroupolis pipeline agreement, construction of which is scheduled to start by mid 2008, is keen to take advantage of the country’s leading role in the Energy Community and its strategic position in the Balkan peninsula by promoting the construction of a major gas pipeline in northern Greece which will transport natural gas from supplier countries in the east to the hungry west European markets.
Later this year, before the end of the summer, a new gas interconnector pipeline, currently under construction, between Greece and Turkey will become operational. The 280 km and 36 inch pipeline, linking the Turkish town of Karacebey to the Greek city of Alexandroupolis, will bring gas to Greece from Turkey. Later this month Turkey’s first offshore gas field in the Black Sea will come on stream. Gas will be bought by the Greek state controlled gas utility DEPA from the Turkish corresponding company BOTAS. Initially DEPA has contracted small quantities of gas, some 0.75 billion cubic metres(bcm’s) per year which will supplement gas now imported from Russia’s Gazprom and also from Algeria in liquefied form, known as LNG. Greece currently consumes some 3.2 bcm’s of gas per year with projections for some 5.5 bcm’s for 2010.
Currently the Turkish gas network is oversupplied thanks to large gas inflows from Russia, through the major Black Sea underwater pipeline known as the ‘Blue Stream’, but also from Iran, through the Tabriz-Erzerum pipeline. Another pipeline brings in Russian gas from the Turkish-Bulgarian border while LNG is being supplied by Nigeria through the Marmaras LNG terminal. Because of over optimistic projections for largely increased gas needs Turkey has contracted a lot more gas than it needs to cover its present needs. Hence the agreement with Greece to sell some of its surplus gas. However, Turkey’s real importance lies with its key geographical position and its extended gas transmission system which is essential if any serious gas quantities are to be transported to Europe from the Caspian region, Iran but also from Russia, via the Blue Stream.
The New South Route
Following a visit to Greece in late November by Italy’s prime minister Romano Prodi it was decided that plans should be speeded up for the construction of a previously agreed gas pipeline, known as IGI, which will link the Turkish gas network, via Greece, to Italy. The aim of this project, also known as the South European Gas Route (there are already three north European gas routes) is to transport some 8.0 to 12.0 bcm’s per year to the Italian market from Asian producers such as Azerbaijan and Turkmenistan. The length of the 1.2 billion euro pipeline, which will run from the Greek town of Alexandroupolis, in northern Greece, to the south Italian town of Otranto, will reach 804 kms of which some 217 kms will be underwater in the Adriatic Sea. The IGI pipeline project, which is backed by the Italian energy company Edison and the Greek gas utility DEPA, is under discussion for more than four years.
Although an intergovernmental agreement was signed between the two countries in November 2005 there has been considerable delay in its commencement. According to market sources a detailed engineering study has yet to be undertaken nor have any gas supply contracts been signed between Edison, which is the final user, and the prospective Asian suppliers. According to an announcement by the Minister of Development, Mr. Dimitris Sioufas, last January construction of this pipeline will start in 2008 with foreseen completion in 2011. However, market sources point out that with the lack so far of secure gas supplies Edison and DEPA will have great difficulty in raising the necessary project finance.
Meanwhile a rival project was recently announced by Swiss energy company EGL which has been quietly working on a different gas pipeline project, known as TAP (for Transadriatic Pipeline) whose aim is also to bring gas from Asian producers to the Italian market.
The 0.9 billion euro TAP pipeline, which runs a shorter route by some 140 kms, will link Alexandroupolis with the Italian port of Brindisi. The underwater section of the TAP pipeline through the Adriatic is also much shorter by 100 kms making the project less expensive and easier to built. Unlike IGI, the route to be followed by TAP runs through Albania, adding one more gas consumer along the line. According to an EGL announcement last month the pipeline’s basic engineering design has already been completed while negotiations are in advanced stage with additional partners who will participate in the project company. Construction of TAP is also scheduled to start in 2008 with the aim of getting the pipeline on stream in 2010.
Unlike IGI the TAP project appears to have secured both customers and suppliers. EGL is currently constructing six large combined cycle power generating stations in Italy of 3,400 MW total generating capacity. The gas consumption of these stations will provide the bulk of the gas demand load which will make the TAP project cost effective. In addition EGL has a number of commercial clients in Italy and Switzerland which will absorb the rest of the gas quantities. The TAP team also appear to have secured gas supplies from both Gazprom, via the Blue Stream pipeline and also from the Shah Deniz gas field in Azerbaijan.
The EU in view of a foreseeable tight gas supply in most European countries over the next few years, as a result of fast rising demand, is keen to develop alternative gas routes. In this context it is funding the studies of several potentially competitive pipelines as it wants to provide incentives for the realization of actual projects. As a result all major gas pipeline projects currently under development, including TAP, IGI and Nabucco, are recipients of EU funding under the priority project programme, known as TEN-E.
“The expanded Trans Adriatic Pipeline is a logical element in the value chain, connecting Italy with existing and planned natural gas transport grids in South-East Europe. The pipeline will therefore give the whole of Western Europe better access to the major natural gas reserves located in the Caspian region, Russia and the Middle East. It will also play an important part in securing natural gas supplies to Italy, where a tight situation has emerged” notes EGL in a recent announcement. On the other hand Edison-DEPA appear also to have, more or less, the same orientation in their approach to building the IGI pipeline. The question therefore is which of the two pipelines will be build since according to well placed market sources gas supplies in 2010-2011 will be sufficient for only one pipeline of this capacity. (i.e in the range of 8.0 to 12.0 bcm’s)
The gas supply constraint appears to be a serious limiting factor not only for the IGI or TAP projects but also for other much larger gas pipeline projects in the region presently under development including the well- advertised Nabucco which will be looking for much larger gas quantities in the region of 30 bcm’s ( This is a completely separate pipeline which will transport gas from Turkey, via Bulgaria, Romania, Hungary to Austria) As the Shah Deniz field in the Caspian is not expected to produce any vast quantities of gas before completion of its second phase sometime in 2015 and since Iran has not yet developed the equally huge South Pars field the question which arises is from where the much needed gas is going to come from.
According published sources the only available gas in the near future can only come from Russia, mainly through the Blue Stream pipeline in Turkey. Hence, Turkey’s role is crucial in undertaking the gas transportation through its system. Equally important, if not more, is Gazprom’s position since it controls the gas flows to Europe. Although the American government is pressing hard the Italian and the Greek governments to seek gas supplies from other sources, notably Azerbaijan, there do not appear to be any serious alternatives at present other than Gazprom.
Over the last few months the USA , mainly through a diplomatic initiative headed by Matthew Braiza, US State Department’deputy assistant secretary, is busy trying to curtail Gazprom’s ties with the European gas market as this is part of an overall policy to reduce European dependence on Russian energy exports.
However, judging from the personal interest shown by Russia’s president Vladimir Putin, hence his visit to Athens last month to oversee the signing of the Alexandroupolis-Burgas pipeline agreement, the stakes are going to be high as the Kremlin’s strong man is keen to reinforce further his country’s energy ties with Europe now cemented by the above agreement.