shale and Hodder shale (in the north of England) held 1328 trillion ft
3
in place. The EIA has estimated that 26 trillion ft
3
are technically
recoverable. Industry analysis suggests shale in Lancashire alone
could deliver £6 billion of gas a year for the next three decades.
According to the EIA, the Ukraine contains 42 trillion ft
3
of shale gas.
Shale gas development in Europe faces several hurdles,
however. In the UK, the government is generally favourable to the
unconventional resource, but environmentalists and local residents
are concerned about development. Various moratoria, blockades,
occupations and demonstrations have hindered exploration
programmes. The Ukraine has seen exploration agreements fall by
the wayside as fighting drags on. Other barriers, including the lack
of a continent-wide pipeline network and jurisdictional agreements,
pushes out its arrival to market by at least a decade.
The most efficient and economical vehicle for supplying
Europe’s long-term need for natural gas rests with tapping into
large conventional fields and delivering that gas by large-diameter
pipeline. “For years, there has been interest in a southern corridor
that would avoid the Ukraine and deliver non-Russian gas to
Europe,” says Boersma.
Several front-runners have emerged (see proposed
Mediterranean region pipelines sidebar) and Azerbaijan is the most
viable gas source. The Shah Deniz gas field sits offshore in the
Caspian Sea about 70 km southeast of Baku. Discovered in 1999, the
field is estimated to hold up to 40 trillion ft
3
of gas. Operated by BP,
the field produces almost 1 billion ft
3
/d. The gas is shipped along
the 692 km South Caucasus Pipeline, supplying Azerbaijan, Georgia
and Turkey.
Phase 2 of the Shah Deniz gas field is currently underway. When
completed in 2018, the US$28 billion project will add an additional
16 billion m
3
/yr of gas to current production. Of that, 6 billion
m
3
/yr will go to Turkey, and 10 billion m
3
/yr to Europe via TANAP
through Turkey, which is currently being upgraded and extended at
a cost of approximately US$17 billion.
Economics vs politics
In Europe, pipelines and politics are inextricably intertwined; the
economic rationale for a project is frequently suborned to political
considerations.
While Greece stands to benefit from TAP as both a secure
source of gas and a multibillion source of jobs, its parlous state of
finances means it is in divestiture, rather than investment, mode.
SOCAR, Azerbaijan’s state oil company, recently purchased a 66%
stake in DESFA, the Greek gas transmission network operator,
for US$609 million. According to reports, approximately half
the proceeds have been earmarked to aid Greece’s sclerotic
economy.
On the plus side, Greece can always count on Russia to muddy
its relationship with the US and EU. One of the aspects that may
have scuppered South Stream is the EU ‘Third Energy Package’
policy that prohibits one company from both owning the pipeline
and its contents. Russia has been recently touting Turk Stream,
which would run under the Black Sea to the Turkey-Greece border,
circumventing the EU policy. According to reports, Russia has
been wooing Greece’s support for the project with a US$5 billion
incentive.
Italy has benefited tremendously from African gas. It is one
of the EU’s largest consumers (almost 7 billion ft
3
/d) and collects
healthy tariffs for transmission to jurisdictions further north. As a
stable member of the EU with an established gas line network, it
also stands to benefit from further projects, such as TAP.
Italy’s gas sector has been under a cloud lately due to
allegations of bribery. Eni, Italy’s largest energy company, and
Sonatrach, Algeria’s leading energy firm, are under investigation
by prosecutors in Milan. Italy, which relies on Algeria for about
one-third of its gas needs, and Algeria, which relies on oil and gas
exports for one-third of its GDP, are worried that revelations might
sour their vital relationship.
Turkey sees itself as an energy hub in the Middle East. It already
hosts the BTC (Baku Tbilisi Ceyhan) oil line, the Trans Caucasus
line that runs from Azerbaijan, and the 1.4 billion ft
3
/d Blue Stream
line that runs from under the Black Sea to Turkey. It is also greatly
expanding its TANAP network. In addition, it rests astride European
onshore access for potential supplies from Iran, Kurdistan and other
Middle Eastern producers.
Although it is a member of NATO, Turkey maintains friendly
relations with Russia. In December, 2014, it hosted a state visit from
President Putin where it underscored its pragmatic approach to
geopolitics. While Russia’s incursion into Crimea has high political
ramifications with NATO, Turkey’s concerns are focused more to
the south, where ISIL is overrunning Iraq, Syria is convulsed with an
extended civil war, and an independent Kurdistan acts as a beacon
for Turkish Kurds. Energy projects with Russia, such as expanding
the Blue Stream line or building the Turk Stream line, are strictly
business. “Turkey and Russia are increasing cooperation in order to
stimulate economic growth and supply affordable energy,” says
Boersma.
Bulgaria consumes approximately 250 million ft
3
/d of natural
gas, 95% of which comes from Russia. Bulgaria began seeking to
diversify supply sources after suffering a two-week cessation of
deliveries in 2009 during a dispute between the Ukraine and Russia.
The cancellation of the South Stream project, which would have
crossed the Black Sea and made land-fall in Bulgaria, eliminated a
non-Ukraine route.
Bulgaria is thus keen to construct the Interconnector Greece-
Bulgaria (IGB). The IGB is a proposed 182 km, 32 in. OD spur line
with a capacity of 300 million ft
3
/d that will run from the partially
completed Interconnector Turkey Greece Italy (ITGI) pipeline
system that is designed to carry gas from Turkey to Greece and,
eventually, under the Adriatic to Italy. Bulgaria already has an
agreement with Azerbaijan to purchase up to 100 million ft
3
/d,
and is looking to add to its commitments from Phase 2 of the Shah
Deniz field. Talks are also underway to further distribute IGB gas to
Romania; the IGB spur line capacity has the potential to be bumped
to 500 million ft
3
/d.
On the downside, Bulgaria is a corruption-riddled country.
According to the European Anti-Fraud Office (OLAF), more than
one-third of all probes into alleged corruption involving EU cash
occurred in Romania, Hungary and Bulgaria (the money is mostly
related to structural funding). While the issue, per se, does not
affect delivery of gas to the rest of Europe, if payment problems
and opaque contracts take hold within Bulgaria’s borders, then
financial complications may ensue.
Problems
Wider political and economic issues complicate development
of new gas sources and pipelines to serve Europe. The war in the
Ukraine, largely instigated by Putin and stoked by ethnic-heritage
14
World Pipelines
/
AUGUST 2015
