Need for Strong and Large-Scale Southern Energy Corridor

The Business Year (TBY) representatives in Azerbaijan met with Dr. Natig Aliyev, Energy Minister of Azerbaijan, to discuss the latest developments in the sector in preparation for the 2014 edition of the yearly publication, The Business Year: Azerbaijan.

During the meeting, Dr. Aliyev highlighted the importance of the Shah Deniz II Final Investment Decision (FID) signed in December 2013. “To finally have a decision about the upstream portion of Shah Deniz II was very important for Azerbaijan because it requires a large investment of approximately $27 billion.” Furthermore, he mentioned that the agreement was the final fruit of years of negotiations with private companies and foreign governments to set the foundations of the Southern Energy Corridor, a strategic link that will offer Europe an alternative source of energy.

He added that “a memorandum of understanding was also signed between the ministers of energy in several Balkan countries, meaning that the Southern Gas Corridor does not just concern Italy, but also Georgia, Turkey, Greece, and Albania. Furthermore, we are considering expanding this corridor, which is why we involved several countries in the December signing. Our desire is to have a very strong, large-scale Southern Corridor.”

Accomplishing the feat of establishing an energy corridor that traverses six countries involves tremendous human, logistical and financial resources. In its first stage, the upstream portion of the project involves the drilling of 26 subsea wells in the Shah Deniz field. From the Shah Deniz field, the gas will be transported through a network of 500 kilometers of subsea pipelines first to the Sangachal terminal, which is also being expanded to reach a processing capacity of 1.2 million barrels per day of oil and 41.5 million cubic meters (mcm) of gas per day.

From Sangachal, Azerbaijani gas will be transported through the South Caucasus Pipeline (SCPX) to the border between Georgia and Turkey, through the Trans-Anatolian Pipeline (TANAP) across Turkey and through the Trans-Adriatic Pipeline (TAP) to Italy.

Minister Aliyev emphasized that the Azerbaijani government is focused on transparency and efficiency in the handling of the project. “Such a large investment must be handled responsibly, which is why our President established a state committee on the monitoring of all these projects and to support the companies that will implement this project in Azerbaijan and the region.”

Furthermore, Minister Aliyev sees the Shah Deniz II project as the first step in what could be a much larger regional energy network, in which Turkmenistan and Kazakhstan, and even Iran and Iraq, could participate. “I think this is just the beginning because a lot of resources will be added to existing production. In the past, we were very interested in Kazakhstani oil coming across the Caspian Sea to Azerbaijan and being delivered to the Mediterranean. We very much believe that when the Kashagan field in Kazakhstan is fully implemented, production levels will be very high. We are glad because Kazakhstan promised that in the first stage it would produce 23 million tons per year and would grow in the second stage to upward of 50 million tons. In that case, some portion of this crude oil will be exported through Azerbaijan to markets in the west. Turkmenistan has tremendous gas reserves, as Yolotan is the biggest gas field in the world. There are talks about adding Iranian and Iraqi gas reserves to this corridor. ”

On the demand side, there is interest from various other European countries, such as Bulgaria, to be connected to the Southern Energy Corridor. Furthermore, the Nabucco West project, which aims to transport gas to Central Europe, has not been abandoned, but rather postponed for the moment.

When the Shah Deniz II project comes on stream in 2018, Azerbaijan is set to play a heightened role in ensuring Europe’s energy security by acting as a source and a transport link for regional gas reserves.

As Minister Aliyev himself states, an important first step was taken in the right direction, and there are numerous options to build on this foundation stone in the years to come.