Europe and the Mediterranean region have many differences in terms of their economic development and political situation, but they have had a commonality since 2010: a decline in their energy consumption, although for different reasons.
Europe’s decreasing energy consumption has happened for both long- and short-term reasons. As for the former, it has long lost its status as the world’s largest energy consumer to Asia, a continent consistently on the rise. This is a reflection of a shift in continental economic weight, which happened in the last decade of the 20th Century and became an undeniable reality in the second decade of the 21st Century. The expanding share of the global markets of the emerging economies in other parts of the world, especially in Latin America, has further contributed to Europe’s economic decline. Apart from lowering economic activities, Europe’s declining and ageing population has been a major contributing factor to this phenomenon.
The economic crisis of 2007 - 2010 further deteriorated the European economy. Officially, the crisis ended around two years ago, but, in reality, it has continued to this date in different forms in just about all of the European countries. While a growing number of them are in recession (e.g. Greece, Ireland, Italy, Portugal and Spain), other countries are facing major economic challenges and registering only very low GDP growth rates. The latter includes the EU heavyweights (Britain, France and Germany) accounting for the bulk of the European economy, whose economies are performing slightly better than others with no certainty of such performance’s sustainability. The best-performing European economy is Poland with a GDP growth rate of approximately 2.5% (2011), but the country’s economy is too small to change Europe’s overall poor economic performance. The increasing cost of imported fuels, particularly oil, despite its short-lived periods of lowering prices, has acted as a major external factor to sustain or worsen the continental economic problems.
The Mediterranean region has its own reasons for its declining energy consumption. Similar to just about all other regions, the mentioned economic crisis has affected the regional countries to a varying extent to decrease their energy requirements. Yet, the single major factor responsible for such decrease has been the ‘Arab Spring’, which started in late 2010 in Tunisia only to expand to many other regional Arab countries. Change of guards in Tunisia and Egypt without a civil war has been followed by bloody conflicts in Libya and Syria. The continuity of political uncertainty in these countries and its expansion to a varying extent to other countries such as Algeria have discouraged economic activities to a differing degree in the regional Arab countries.
In short, the Mediterranean region has also experienced a lowering demand in energy consumption whose extent varies from one country to another. The predictable continuation of political uncertainty in the regional Arab countries in the foreseeable future discouraging or limiting economic activities will be a major factor in stagnating or lowering energy demands in the region as a whole, added to the negative impacts of the European economic downturn. What makes Europe distinct from the Mediterranean region is its lowering importance as an energy market, which will last even after it has gained recovery. On the contrary, the Mediterranean region with its growing population and a potential and need for economic development will experience a significant increase in its energy consumption once its political house is in order.
Within this context, Europe has been a main scene for pipeline projects the overwhelming majority of which are gas pipelines. In absence of a major demand for more energy, the main objective of these projects has been to supply Europe with gas as an alternative to oil being cleaner environmentally, cheaper and easier to access. It is also meant to increase the European energy security by decreasing its reliance on imported oil from the politically unstable Arab countries with their resulting uncertain reliability as suppliers.
Hence the growing consumption and demand for gas will be at the expense of oil and also coal, whose share of the continental energy mix has been decreasing. Yet, the increasing reliance on gas is creating an over-reliance on Russia, the single largest oil and gas supplier to Europe, particularly to the EU members. Given the ongoing Azeri gas exports to Europe via the Baku-Tbilisi-Erzurum Pipeline, if its major respective project (Nabucco) is realised, Azerbaijan will also emerge as a significant gas supplier to Europe (although not en par with Russia) to make Eurasia, including Russia, the largest suppliers of gas to Europe.
The limited Mediterranean pipeline projects (both conceived and in progress) are mainly geared to the regions’ gas exports to Europe. A summary of the main projects in Europe and the Mediterranean region follows.
There are many small ongoing, planned or envisaged pipeline projects in Europe. Among the larger ones, a few are especially important due to the magnitude of the undertakings and/or their political or strategic importance of which the following are worth mentioning.
The completion of the second line of the Nord Stream (NS) in April 2012 concluded the construction of the North European Pipeline (NEP) consisting of offshore and onshore segments. The NS has two identical and parallel undersea pipelines (1224 km; 48 in.; 27.5 billion m3) connecting, via the Baltic Sea, the Russian onshore feeding pipeline near Vyborg to the German onshore pipeline in Lubmin near Greifswald. The first line went online in November 2011 to supply gas to Germany. The completion of the second line ahead of its scheduled date of late 2012 will provide for the subsequent delivery of gas to Belgium, the UK, Denmark, the Netherlands, France, and the Czech Republic through the European gas transportation systems. Fully operational, the NS onshore segment in Russia (917 km; 56 in.) connects the Gryazovets (Vologda Oblast) to the Baltic Sea’s coastal compressor station in Vyborg.
The NS, whose construction started in April 2010, will reach its full capacity of 55 billion m3 by the end of the year. Apart from its gas delivery significance, the pipeline system serves a major strategic interest of Moscow by providing for the direct export of Russian gas to Germany and the other mentioned EU consumers while bypassing Ukraine, Poland and Belarus. Moscow has had financial disputes (gas pricing and transit fee) with these countries, added to political disputes over their West-leaning orientation. This has been the case particularly with Poland, but prior to 2010 also with Ukraine when its pro-West President Victor Yushchenko was in power.
The proposed Nabucco pipeline connecting Turkey’s gas grid near Erzurum to Austria’s Baumgartner via Bulgaria, Romania and Hungary could become a reality in a modified form after around a decade of disagreements over its construction to meet part of the EU gas requirements, while decreasing its growing gas dependency on Russia.
After years of considering different proposed pipelines, the BP-led Shah Deniz consortium developing Azerbaijan’s Shah Deniz Gas Field Stage 2 opted for a shorter version of Nabucco in June 2012 for exporting its gas starting in 2017. Known as the Nabucco West, the 1300 km pipeline (48 in.) will run from the Bulgarian-Turkish border to Austria via Bulgaria, Romania and Hungary, the same geographical path as that of the Nabucco (3300 km; 56 in.; 31 billion m3) but through a much shorter route.
The selection of the Nabucco West (northern route option) as the only export pipeline for the Shah Deniz Gas Field Stage 2 is not yet final as in February of this year, the BP-led consortium also selected the Trans-Adriatic Pipeline as the potential route (southern route option) for export of gas to Italy. However, the first mentioned selection has certainly ended the life of the proposed South East Europe Pipeline project (10 billion m3) also passing through Bulgaria, Romania and Hungary, as stated by the consortium. Pending a final decision, the Nabucco West’s construction will begin in 2013 to be completed in 2017.
The Trans Adriatic Pipeline (TAP) is a project to transport Iranian and, eventually, Caspian gas via Greece, Albania and the Adriatic Sea to Italy and Switzerland and ultimately to other European countries. This gas will be fed to the pipeline through the existing Turkish-Greece gas pipeline; Turkey’s gas grid is already connected to the Iranian and the Azeri ones. As the joint venture of (Swiss) EGL (42.5%), Statoil (42.5%) and E. On Ruhrgas (15%), the TAP (e1.5 billion; 520 km; 10 billion m3) is considered to be the shortest route in the so-called Southern Gas Corridor, starting in Greece near Thessaloniki, crossing Albania and the Adriatic Sea and coming ashore in Italy near Brindisi. The length of its 42 in. offshore section is 115 km to be laid at a maximum depth of 820 m. With a 48 in. diameter, the TAP’s onshore segment is shared by Greece (186 km), Albania (200 km) and Italy (19 km).
The Shah Deniz consortium’s decision between the Nabucco West and the TAP will determine whether Azeri gas will be part of its envisaged supply. As for carrying Iranian gas, in March 2008 the EGL Group signed a 25 year agreement with the National Iranian Gas Export Company for 5.5 billion m3/yr of gas supplies. Reportedly, the consortium will make its decision and conclude the related gas sales agreements prior to mid-2013.
The Mediterranean region
Pipeline activities in the Mediterranean region are significantly smaller in number for the previously mentioned reasons. Apart from many small projects, a few projects are noteworthy because of their sheer scale or political/strategic significance.
Also known as the Trans-Anadolu, the Trans-Anatolian Pipeline (TANAP) is a major planned project in the region. Its Intergovernmental Agreement and Memorandum of Understanding were signed in July 2012 between Azerbaijan and Turkey. The 2000 km pipeline is envisaged to transport 16 billion m3 of gas from the Shah Deniz Gas Field Stage 2 to Europe, passing through Georgia and Turkey of which 6 billion m3 is meant for Turkey’s domestic use. Given the known final production capacity of the field is 16 billion m3/yr, it is unclear how this volume could be supplied to the pipeline when the Shah Deniz consortium has already committed 10 billion m3 of such product to either the TAP or the Nabucco West.
Being a joint venture of the State Oil Company of the Azerbaijan Republic (80%) and Turkey’s BOTAS (20%), the estimated US$ 7 billion project’s construction is scheduled to begin in 2013. Its first phase is planned for commission in 2016. Its second phase will be open to international participation.
Tamar Gas Pipeline
The Tamar Gas Pipeline (TGP) is significant not for its scale, but its importance for ending Israel’s dependency for around half of its gas requirements on foreign suppliers. This is especially critical now as pricing disputes between Israel and Egypt (the former’s main piped-gas supplier) led to the cancellation of their gas agreement and the closure of the Arish-Ashkelon pipeline (110 km; 9 billion m3).
The offshore Tamar Gas Field is located roughly 130 km west of Haifa in the Mediterranean Sea whose ongoing development cost is estimated at US$ 3.06 billion. It is expected to be operational in 2013 when the TPG (whose construction started in October 2011 and is undertaken by Germany’s A.S.M.-Allseas Marine GmbH & Co. KG) will be completed. The 150 km parallel pipelines (16 in.) have a 12 billion m3/yr capacity, connecting the Tamar Drilling Platform to the existing Yam Tethys Mari B Platform offshore from the Ashkelon Gas Field to a platform offshore of Ashdod. A second platform (US$ 800 million) will be constructed at Yam Tethys by Louisiana-based Kiewit Corporation.
A major inter-continental project to boost Algeria’s natural gas exports to Italy and to start direct gas exports to Spain, the fate of the US$ 2.5 billion Galsi Pipeline is still unknown.
With a subsea segment stretching 530 km, the 840 km pipeline is meant to export 8 billion m3/yr of Algerian gas to Italy via Sardinia. Its commissioning was pushed back from 2012 to 2014, only to be pushed back again in February 2012 to an unspecified date. Accordingly, Algeria’s Energy and Mines Minister Yousef Yousfi referred to pipeline partners as waiting for the right “technical and economic conditions” to secure Italy’s authorisation to go ahead with the project. These partners are Sonatas (41.6%), Edison (20.8%), Engel (15.6%), Sirs (11.6%) and Hera Trading (10.4%).
Finally, the future projects in Europe and the Mediterranean include the Interconnector Turkey-Greece-Italy Pipeline System proposed by IGI Poseidon SA (a joint venture between Edison and DEPA). Currently at the planning stage, it involves upgrading the Turkish gas grid and the construction of a 200 km offshore section across the Ionian Sea.
This is an abridged version of the full article from Dr. Hooman Peimani, which was published in the August 2012 issue of World Pipelines, available for subscribers to download now.