Turkey-Azerbaijan sign gas pipeline MOU

Turkey and Azerbaijan on Monday signed a memorandum of understanding
concerning the construction of the Trans Anatolian Gas Pipeline (TANAP) to
export Azerigas to European markets through Turkey, a spokesman for Turkey’s
energy ministry confirmed to Platts.

The memorandum was signed by Turkish energy minister Taner Yildiz and
Azeri Industry and Energy minister Natig Aliyev and follows from the wide
ranging inter-governmental gas transit agreement signed by the two countries
on October 25. That included a commitment from the countries to transport 10
Bcm to 16 Bcm of gas annually from the second development phase of
Azerbaijan’s Shah Deniz gas field to Europe through Turkey, the spokesman
said.

He said the MOU allows for the construction of a new pipeline with an
annual throughput capacity of at least 16 Bcm to carry gas from Shah Deniz II
across Turkey as far as the Bulgarian border.

More specifically, the projected annual gas flow through the line would
include 10 Bcm of Azeri gas earmarked under the October agreement for export
to Europe, together with a further 6 Bcm of Shah Deniz gas which Azerbaijan
plans to sell to Turkey’s state gas importer Botas, and for which Botas holds
re-export rights.

“Currently it looks like that 6 Bcm/year will be needed for domestic
demand but if not it can be re-exported to Europe,” the spokesman said.

Stressing that the MOU covered only gas from Azerbaijan’s Shah Deniz
field, he said the line’s capacity could later be increased as needed to
accommodate gas from other fields in Azerbaijan or countries such as Iraq or
Turkmenistan that might at some point wish to develop gas exports to Turkey
and Europe.

The MOU envisages the creation of a consortium of Azeri state upstream
operator SOCAR, Botas and Turkish state upstream operator TPAO, which would
be open to membership by other national or international oil companies he
said.

A BP-led consortium operates the Shah Deniz field. In October, the group
collected proposals from three pipeline projects competing to carry the gas
from the second phase of field development to European markets:
- the 31 Bcm/year EU-backed Nabucco project sponsored by a consortium of
OMV, MOL, Transgaz, Bulgargaz, RWE and Turkey’s state gas importer Botas;
- the 20 Bcm/year Trans Adriatic Pipeline (TAP) which plans to carry
Azeri gas through Greece and Albania and across the Adriatic to Italy, and is
sponsored by a consortium of EGL, Statoil and E.ON;
- and the 8 Bcf/year ITGI pipeline project which plans to carry Azeri
gas through Greece and across the Adriatic to Italy, and is sponsored by a
consortium of DEPA and Edison.

The Shah Deniz consortium, which includes Botas and Socar, had been
expected to announce which project would be awarded the gas by early next
year. However, the selection procedure was complicated first by BP announcing
its own “concept” – the South East Europe Pipeline (SEEP) to carry the gas by
Turkey’s existing transmission infrastructure as far as Bulgaria – then by
proposals to use networks of existing and new lines to increase the
flexibility of gas deliveries to various regional markets, and finally by the
late November announcement of TANAP.

The ministry spokesman said TANAP’s advantage over the rival proposals
was that Turkey and Azerbaijan would commit to building the pipeline whether
or not buyers first came forward with commitments to buy the gas.

“The other projects are dependent on commitments to buying the gas before
construction. We’re guaranteeing to build the line up to the Bulgarian
border. After that, whoever is interested can buy it,” he said.

If the Shah Deniz consortium opts to award its gas to TANAP, this would
finish off the long-mooted EU-backed Nabucco project, which has faced a
procession of problems in sourcing sufficient gas to make the project
economic, the spokesman predicted. Some gas could still be awarded to either
ITGI or TAP, he said.

“Gas could also be exported through Greece, but that depends on the
outcome of future talks,” the spokesman said.

Turkey currently exports up to 800 Mcm/year of gas from the first
phase of Shah Deniz to Greece under a 2001 agreement with DEPA, via the 11
Bcm/yr capacity Turkey-Greece pipeline, which has ample spare capacity.

The line is targeted for use by both the ITGI and TAP projects.

–David O’Byrne, newsdesk@platts.com

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