Practical access to Central Asian gas, which would arrive via the twin projects of the White Stream and the Trans-Caspian Pipeline, is finally coming at just the right time to complete the Southern Gas Corridor, writes Robert M. Cutler.
Robert M. Cutler is a Senior Researcher at the Centre for European, Russian and Eurasian Studies, Carleton University. He is also a Fellow at the Canadian Energy Research Institute.
It took the EU several years to move in a Central Asian direction for energy security after the US-sponsored project for a Trans-Caspian Pipeline (TCP) for natural gas fell apart in the late 1990s. Nevertheless, first through the 2004 Baku Initiative and then with the 2007 Strategy for a New Partnership with Central Asia, it began to take those steps.
The EU followed through with practical effect in 2011 when it initiated negotiations with Turkmenistan and Azerbaijan on TCP construction. Last June the Council of the European Union, evaluating the first decade of the EU Strategy for Central Asia, concluded that “the EU will continue to seek to extend the Southern Gas Corridor to Central Asia, and to further promote the EU’s multilateral and bilateral energy cooperation” with the countries involved.
Key in this policy are not only the TCP but also the White Stream pipeline, planned to transport Turkmenistan’s gas from the South Caucasus directly to EU territory, from Georgia under the Black Sea to Romania. The gas would then flow through existing infrastructure in Ukraine, Slovakia and Czechia to Germany and neighbouring countries. It can also feed new infrastructure being created, such as the Bulgaria-Romania-Hungary-Austria pipeline (BRUA).
Recent developments accelerate
Events since spring 2017 have greatly accelerated this development. In April 2017, the Georgian Oil and Gas Corporation acquired 10% of the two different White Stream and TCP promoter companies. In May Georgia’s prime minister Giorgi Kvirikashvili explained that his country was “working intensively on the project of transporting gas from Turkmenistan to Europe, the White Stream project, which brings new opportunities for the diversification of Europe’s energy supply.”
Days later Kvirikashvili’s advisor Giorgi Vashakmadze declared that the EU “has a special interest in the projects of the Trans-Caspian Gas Pipeline and the White Stream”, and in June the Council of the European Union reaffirmed the goal of extending the Southern Gas Corridor into Central Asia. Later that month Maroš Šefčovič, Vice-President of the European Commission welcomed Georgia’s accession to the Energy Community and singled out its role in extending the Southern Gas Corridor to additional supply countries.
These developments set the stage for further events in the region itself. In August the leaders of Azerbaijan and Turkmenistan signed for the first time an agreement to bring Caspian energy resources to Europe. In December, Russian foreign minister Sergei Lavrov sensationally announced agreement among the five littoral states over the text of a Convention establishing a Caspian Sea legal regime.
Azerbaijani deputy foreign minister Khalaf Khalafov specifically clarified that “rights for laying pipelines are foreseen in the draft Convention” and that “those countries through whose sectors [the pipelines] will run” are the ones that “will coordinate the issue.” The final excuse hindering TCP construction has thus disappeared.
Just last month Šefčovič reaffirmed “the Trans-Caspian Pipeline [as] an important, complementary element of the Southern Gas Corridor in order to connect the significant gas reserves of Central Asia to the European markets.” The TCP is on the EU’s List of Projects of Common Interest, qualifying it for preferential financial regulatory treatment by European institutions. Gas from the TCP’s first string looks like reaching Greece and possibly Italy for European distribution in 2020. Gas transiting the second string would arrive in Romania as early as 2022.
For this to happen, necessary steps must be taken expeditiously. Georgia’s energy ministry detailed such a step-by-step road-map late last year to the Energy Community (PowerPoint here). According to it, an adequate solution is found to problems of Turkmenistan’s policy of selling gas at its border and banning production sharing agreements.
In this road-map, the Government of Georgia will provide early-stage financial investment usually made by oil and gas majors relying on production sharing agreements. It will enable the project promoter companies to conduct engineering and other studies necessary for obtaining a construction permit. They will identify all capital and operational costs, enabling the promoter, in possession of the construction permits, to announce transportation tariffs for gas delivery to be levied on (presumably European) shippers. On that basis, the shippers can then negotiate sale-purchase agreements with Turkmenistan.
How Turkmenistan’s gas will come to Europe
The idea that gas from Europe’s east should have two entry-points to Europe arose during competition between the Nabucco and South Stream projects. The European Coordinator’s 2009 report on implementing the Caspian Development Corporation also adopted this idea. (He even suggested continuing the White Stream pipeline to Trieste, in order to secure different markets for White Stream and Nabucco.) The TCP follows this idea by aiming at two entry-points for Turkmen gas to Europe, one for each of the pipeline’s two strings.
The TCP’s first string, carrying 16 billion cubic metres per annum (bcma), would pass from Azerbaijan through the South Caucasus Pipeline (now being expanded from SCP to SCPx), then via Turkey’s east-west Trans-Anatolian Gas Pipeline (TANAP) to Greece, whence to Italy by way of the Trans-Adriatic Pipeline (TAP). With comparatively modest incremental outlay, yielding excellent cost/benefit ratios, this system can handle gas from the TCP, significantly enhancing the EU’s advantages from the SGC.
The TCP’s second string, also for 16 bcma, runs across the Black Sea. It costs less than the Turkish route and targets a different market, satisfying the increasing import needs of Germany and its neighbours. Gas from the TCP’s second string, instead of entering Turkey and Greece, would transit Georgia, landing in Romania. The White Stream pipeline would be laid under the Black Sea, using economical and widely available ultra-deep-sea technology. From there, Turkmen gas would reach Central Europe by two routes.
The first route for gas from TCP’s second string, once landed in EU territory (Constanța, Romania), may utilise capacity from the Bulgaria-Romania-Hungary-Austria pipeline (BRUA) pipeline now under construction. Another intra-European route from Constanța will have larger capacity. This second route would go north by reverse-flow through the Trans-Balkan Pipeline, after Gazprom’s contracts with Romania and Ukraine expire in 2019, then through Ukraine’s gas transmission system for subsequent distribution to Poland, Austria and, by the Bratstvo pipeline, to Slovakia, Czechia and Germany.
Central Asian Gas Brings More Than Just Gas to Europe
Turkmenistan has always sought to export larger volumes, in search of higher revenues through economies of scale. That is why the country constructed at its own expense the domestic East-West Pipeline (EWP), which transmits the gas up to Turkmenistan’s coast on the Caspian Sea. Finished in 2015, the EWP is now capped and filled with gas awaiting further westward transmision.
The East-West Pipeline was designed and built to carry 30-40 bcma. Together with offshore production, that is the quantity Turkmenistan seeks to export. So it is very likely that prospects for TCP’s second string will need to be made clear before Turkmenistan commits quantities for the first string. The Georgian ministry’s road-map provides a way to accomplish this.
Together with the TANAP/TAP system, the TCP and White Stream projects meet criteria of competition, market integration, security of supply and diversification, required for designation as Projects of Common Interest. They will increase transit capacity of Eastern Partnership countries Azerbaijan, Georgia and Ukraine. They will likewise increase competition and security of supply, and significantly stimulate economic growth, in Georgia and Ukraine.
White Stream and TCP complement the Southern Gas Corridor. They will increase volumes of gas that can be transited to Europe. White Stream especially will create new ways for gas to reach Central and Eastern Europe via Romania. It will support new European infrastructure such as the Bulgaria-Romania-Hungary-Austria pipeline (BRUA) and the utilisation of Ukraine’s gas storage facilities to Europe’s benefit.