According to Wood Mackenzie, the ground-breaking ceremony for the Trans-Anatolian Pipeline (TANAP) that took place in Kars in eastern Turkey yesterday marks a critical step in the 15 year process to bring Caspian gas to central and western Europe – providing an alternative to a reliance on Russia gas supplies.
However, Wood Mackenzie also cautions a number of challenges could impact future expansion plans which are key to the pipeline's commercial attractiveness.
Mr Samuel Lussac, Caspian Upstream Research Manager at Wood Mackenzie says: the “ceremony confirms the Southern Gas Corridor is on schedule. The TANAP pipeline provides Europe with a new supply option from 2019. It also opens new markets, beyond Turkey, for Azerbaijan and operators in the Caspian Sea. However, future supply beyond Shah Deniz will take time to develop and the project will have to face up to Gazprom's clear intent to retain its market share in Europe through the Turkish Stream project."
Wood Mackenzie notes the following key facts on the pipeline:
- TANAP is a strategic project for Azerbaijan, as it intends to become a key gas supplier to Europe. SOCAR plans to increase the pipeline's capacity from 16 billion m3 to 31 billion m3 by 2026.
- Wood Mackenzie cautions that a number of challenges could impact future expansion plans for TANAP. For instance, offshore gas fields in Azerbaijan are complex and expensive to develop, and exploration and appraisal in the landlocked Caspian Sea is also hampered by limited rig availability.
- In addition Gazprom's recently announced Turkish Stream project poses further risks to TANAP expansion. Both pipelines will be ending at Ipsala, where the Trans-Adriatic Pipeline (TAP) starts. TAP's initial capacity is exempt from third party access (TPA) for the next 25 years. But the European Commission has already ruled out TPA exemption for future TAP expansion. This means that any upstream project willing to capitalise on TANAP expansion is therefore likely to compete with Russian gas to access infrastructure west of Turkey.
- According to Wood Mackenzie the cost of TANAP's construction will be significant - at around US$12 billion – meaning its commercial attractiveness also relies upon future expansion.
- TANAP will transport 16 billion m3 of Shah Deniz Phase Two gas from 2019. Six billion m3 is destined for Turkey and 10 billion m3 will go further west via TAP, 8 billion m3 will go to Italy and the remainder to Greece and Bulgaria.
- The TANAP ground-breaking ceremony follows the completion of BP and BOTAS’ entry into the project on 13 March 2015. SOCAR now holds a 58% operating stake, with BP and BOTAS owning 12% and 30% respectively.