The Trans Anatolian Natural Gas Pipeline (TANAP) is ready to deliver Azerbaijani gas to Europe via Turkey, creating a new alternative to Russian gas as European countries seek to diversify supplies and boost their energy security. 

The second phase of TANAP running to Turkey’s border with Greece was ready to start operations as of July 1. Next year, after the completion of the Trans-Adriatic Pipeline (TAP), which connects with TANAP at the Turkish-Greek border, Azerbaijan will start delivering gas to European markets from the giant offshore Shah Deniz field. 

Decades after the idea of building pipeline to deliver gas to Europe from the newly independent post-Soviet states of the Caspian region was first broached in the early 1990s, completion of the pipelines will finally make the Southern Gas Corridor a reality. 

The first phase of the route, already completed, is the South Caucasus Pipeline that carries gas from Azerbaijan via Georgia to Turkey. This links to TANAP, which in turn will link to TAP that will carry the gas on via Greece and Albania, then under the Adriatic Sea to Italy. 

TANAP — the central part of the chain — is the longest and widest natural gas pipeline in Turkey, Middle East and Europe, said Azerbaijan’s state oil company Socar, one of TANAP’s stakeholders, along with the Azerbaijani government, Turkey’s Botas, international oil and gas major BP and SOCAR Turkey Energy. 

It’s five and a half years since the final investment decision for TANAP was taken in December 2013, with construction work beginning two years later. The first phase of TANAP from the Turkish-Georgian border to Eskisehir was completed in June 2018, and the first commercial gas reached Turkey later the same month. 

“Today TANAP is ready to supply natural gas to Europe and we are expecting the work on TAP pipeline to be completed,” commented Rovnag Abdullayev, president of Socar, in a July 1 statement. 

Abdullayev also stressed the cost savings during the major construction project: in contrast to the cost-overruns at many major infrastructure projects, the initial estimated cost of $11.7bn was later revised down to under $7bn. 

“Azerbaijan has demonstrated to the world that we are more than capable of delivering complex transnational projects both at home and abroad in a timely fashion with high efficiency. During the implementation of TANAP, SOCAR and its partners saved about $5 billion, reducing the overall cost of the project by 40%. This is a great achievement of the Azerbaijani and Turkish people,” Abdullayev said according to a press release from Socar. 

Decades in the making 

A primary goal of the Southern Gas Corridor is to reduce Europe’s dependence on gas imports from Russia, so parts of the continent would no longer be vulnerable to Moscow’s “energy diplomacy”. This became more urgent with the “gas wars” of the mid 2000s, when Gazprom sporadically turned off the taps, mainly to punish Ukraine. Russia’s annexation of Crimea in 2014 cemented the antagonistic relationship between Russia and Ukraine, and led to tit-for-tat sanctions imposed by Russia and western nations. 

It was actually Turkmenistan, the desert Central Asian nation estimated to have the world’s fourth largest gas reserves, that was initially seen as the main supplier of the Southern Gas Corridor when the concept was first sketched. 

Since then, however, China has moved into Central Asia in a big way, building a huge network of pipelines spanning the region. Turkmenistan is also in talks with Russia’s Gazprom on a possible medium-term gas supply deal, while Ashgabat is pursuing the longer-range goal of building the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline. In the meantime, plans for a subsea pipeline across the Caspian Sea from Turkmenistan to Azerbaijan have been bogged down in the failure so far to share out influence in the Caspian among the five littoral states.

Instead, Azerbaijan is set to start exporting to Europe within the next year, once TAP is completed. The gas will come from the second phase of the giant offshore Shah Deniz field being developed by an international consortium led by BP. 

“The completion of #TANAP serves as an important component of the southern gas corridor, which aims to transport energy supplies from #Azerbaijan to Europe via #Turkey, circumventing #Russia," commented Stratfor analyst Eugene Chausovsky in a tweet. 

Diversifying supplies 

The Southern Gas Corridor is not the only project being pursued by European states keen to wean themselves off Russian gas. EU member Romania is developing its offshore oil and gas resources in the Black Sea, prompting investments into pipeline infrastructure, including to neighbouring Moldova, which until the opening of the Iasi-Ungheni pipeline was wholly dependent on Russian gas. 

Further north, Poland and Denmark made a final decision in November 2018 to carry out the construction of Baltic Pipe, a key energy infrastructure project that is set to reduce Poland’s dependence on Russian gas imports.

Other countries in Central and Southeast Europe are building LNG infrastructure as they look to another alternative to increase their energy security. Bulgaria, for example, recently purchased its first US LNG, and there is strong interest among Central European states such as Hungary in Croatia’s planned LNG terminal on the island of Krk. 

Meanwhile, Russia is building its own pipeline infrastructure to Europe, which remains heavily dependent on Russia gas. New pipelines such as Nord Stream 2 and the Turkish Stream (aka TurkStream) extension will allow Russia to serve European markets without transiting Ukraine. 

Gazprom is rushing to complete the Nord Stream 2 pipeline that will run to Germany via the Baltic Sea before the start of 2020 prior to the expiry of the gas transit agreement with Ukraine, though it is unclear whether this deadline can be met. As of May 2019, Gazprom had already secured €6bn in financing out of the previously estimated cost of €9.5bn, and received all permissions for construction besides that of Denmark, the territorial waters of, which the company said it was ready to bypass.

Russia is also investing into the Turkish Stream natural gas pipeline, with a total annual capacity of 31.5bcm. The first line will carry half that amount to Turkish consumers. The second line is expected to carry the second half to consumers in Europe. Gazprom has determined the itinerary of the second line of the Turkish Stream pipeline will span Bulgaria and Serbia starting from 2020, then go through Hungary and Slovakia starting from 2021 and the second half of 2022, respectively. It will therefore serve many countries that lost out when the earlier South Stream project was scrapped. 

Still a big deal? 

Azerbaijan will certainly benefit from the opening up of the Southern Gas Corridor, which as Socar noted in its press release, will add to the country’s income as well as contributing to Europe’s energy security. 

According to local newswire Trend, Azerbaijan had already exported 1.9bcm of gas to Turkey via TANAP as of the end of May since gas began to flow through the pipeline to Turkey last June. This contributed to an increase in the country’s gas exports in the first five months of 2019 to 4.9bcm, 1.8 times highest than in the same period of last year, according to Azerbaijani State Customs Committee data quoted by Trend. 

The ability to boost its gas exports is expected to provide a fillip to the Azerbaijani economy, which is currently emerging from a contraction in 2016 brought on by low gas prices. Baku has focussed on diversifying its economy away from dependence on hydrocarbons, as well as building new export infrastructure.

The international is also expected to create opportunities for the countries along its route, not least Albania, one of Europe’s smallest economies. Xheni Kakariqi, senior manager at Deloitte Albania, wrote in the consultancy’s July global newsletter that TAP “is expected to play a major role in developing Albania’s energy market and facilitating the country’s objective of becoming a gas hub in the Western Balkans”, as well as being one of the largest-ever direct investments in the Balkan country. 

Yet the project has not been without controversy. Funding from European institutions for the Southern Gas Corridor has been criticised by NGOs, notably Bankwatch, both because of the investment into fossil fuels and because of the cooperation with Azerbaijan, whose poor human rights record and high levels of corruption are perennial concerns. Nonetheless, this has failed to deter the European Investment Bank and European Bank for Reconstruction and Development from entering into a €3.9bn financing agreement with TAP announced this January to advance European energy security. Gas is also viewed as a cleaner alternative to coal, which still dominates the energy mix in much of Southeast Europe.

Moreover, despite the fanfare about the completion of TANAP, a report from The Oxford Institute for Energy Studies argues that “up to 2030, the [Southern Gas] corridor will most likely remain an insubstantial contributor to Europe’s gas balance.”

In the 2018 report, titled “Let’s not exaggerate: Southern Gas Corridor prospects to 2030”, the think tank points to factors such as the failure to secure supplies from Turkmenistan, the decline in Europe’s demand for gas during the international economic crisis of the late 2000s and the arrival of cheaper Russian gas fro the Yamal peninsula.  

“While political leaders continue to paint the corridor’s prospects after 2021-22 in very bright colours, the market dynamics – in the Caspian region itself, in the Caucasus and Turkey, and in Europe – are less promising. The commercial conditions for the southern corridor’s success have deteriorated as political support for it has grown,” the paper says.

“The outcome of all these changes is that the southern corridor is being initiated in a far more modest form than anticipated, aiming to provide about 2% of European gas demand in 2020, rather than the 10-20% originally envisaged.”