29/09/2011
Europe’s reliance on Russian gas imports has been a growing concern for policymakers ever since a conflict between Gazprom in Moscow and the government of Ukraine interrupted supplies in the winter of 2006.
To ensure security of supply and diversify its gas sources, the European Union has been pushing for the “Southern Gas Corridor”, an energy infrastructure initiative consisting of a number of pipelines to transport gas to Europe from the Caspian and Middle East regions.
Southern Gas Corridor plans now include three strategic projects: the Nabucco pipeline which is the flagship project supported by the EU Commission, the Trans Adriatic Pipeline (TAP), and the ITGI pipeline between Turkey, Greece and Italy. The different pipeline projects compete with each other for supplies and transits from the gas exporting countries and energy hubs in the region, namely Azerbaijan and Turkmenistan, Iran, Turkey and Iraq among others. The situation has recently been made even more complicated with BP’s announcement that it will develop a 1300km south-east Europe pipeline from western Turkey to Bulgaria and Romania, ending at Hungary’s eastern frontier.
Russia and Gazprom as its main gas company are trying to counter the EU strategy by promising to develop a rival pipeline called South Stream.
A dangerous cocktail of political and business interests makes this Southern Gas Corridor initiative one of the most challenging for European policymakers. The questions that need to be answered to evaluate which of the projects should get political support are:
First, where will all the gas for the Southern Corridor come from, and how much will be available? Up to now only one stream of about 10bcm (billion cubic meters) is secured. This will come from the second stage of development of the Azeri Shah Deniz field, one of the largest gas reserves in the world. By the end of 2011, the consortium owning Shah Deniz will decide which pipelines will be used to transport the gas to Europe from 2017.
Much energy diplomacy is taking place in the meantime with Turkmenistan to sell more to Europe, but with several issues still to be resolved before there can be agreement on the construction of a trans-Caspian pipeline. The Nabucco project is very dependent on this extra Turkmenistan gas. It has a capacity of 30bcm and would lose a lot of its attraction if it can only fill a third of its potential. Other smaller projects are suited and one of them (TAP) can be scaled up if more gas becomes available.
Another key concern is investment costs. Nabucco has already seen serious costs overruns with the original cost estimate of €8bn reckoned by some to reach €20bn before long. The other projects would cost less, and some would be fully financed by the private backers.
Last but not least, and more important than either short-term geopolitical or business interests are three questions that have been insufficiently featured so far. Are huge gas infrastructure projects really in line with the EU’s broad strategy to decarbonise its economy by 2050 and become more energy-independent? Will these gas projects not lock us into a fossil-fuel future when it is already becoming doubtful whether the world will be able to stick to its 2°C climate change target? And how will the new “Golden Age of Gas” spurred on by shale gas and the freed-up LNG gas market affect these EU-Caspian pipelines? Is there a danger that the glorious pipeline dreams could turn into a nightmare?
By Willy De Backer
Head of the Greening Europe Forum