proxies in the regions bordering Russia, is likely to drag on for the
foreseeable future. Although sanctions have bitten deeply into Russia’s
economy, Putin has shown little inclination to back down, and continues
to posture aggressively toward other EU border nations. Until a political
deal is brokered, the situation has the potential to evolve in ways that
have impact on the gas supply in Europe.
An important consequence may have already transpired. In early
2015, the EU’s competition commissioner, Margrethe Vestager, issued a
‘statement of objections’ to Gazprom. According to the EU, Gazprom is
‘pursuing an overall strategy to partition central and eastern European
gas markets.’ The EU asserts that Gazprom curbs customers’ ability
to resell gas, which allows it to charge ‘unfair prices’ in five countries:
Bulgaria, Poland and the Baltic states of Estonia, Latvia and Lithuania.
In addition, the EU alleges that Gazprom used its market position to
leverage control of the Yamal pipeline in Poland, and to arm-twist
Bulgaria into supporting South Stream. Many of the charges stem from
the launch of the EU’s Third Energy Package.
Gazprom, which has denied any wrongdoing, has several options,
ranging from reaching a settlement to ignoring the EU’s authority. The
latter would be an unwise move, as the EU competition commissioner
possesses the authority to issue multibillion fines up to 10% of its
US$40 billion annual turnover. Although the charges were compiled
prior to the seizure of Crimea, President Putin has vilified the move
as a western plot aimed solely at Russia. The EU has countered that a
similar statement of objections has also been laid by the competition
commissioner against Google (which did not invade anyone). Expect
much posturing and manoeuvring in the coming months; regardless of
the outcome, the gas giant will be on its heels in its major export market
for some time to come.
On the economic front, over the last several years, LNG imports
into Europe have been falling as Asian demand drove prices up. But the
recent decline in oil prices and lower demand in China have seen prices
drop by 50%, to the point where LNG imports are once again increasing.
As long as these two market trends remain in place, LNG will have a
dampening effect on proposed pipeline projects.
The future
While no one can ever imagine a Europe free of geopolitical ruckus,
economic considerations do occasionally reign. The Southern Corridor
expansion and extension currently underway promises the imminent
arrival of gas from Azerbaijan’s Shah Deniz field. Depending on various
price and demand scenarios, it is not unreasonable to assume that some
of the other proposals will reach fruition, as well.
But even if all the proposed pipelines were built (a tremendously big
if), their combined capacity would only dent the amount of gas that is
currently imported from Russia. While it might be politically expedient
to talk up pipeline alternatives, in reality, any comprehensive move to
replace 15 billion ft
3
/d would require immense investments and decades
of work.
Rather, it would seem, other market forces may already be solving
some of the problem. Since 2009, the EU has been working to mitigate
supply disruptions through integration of its energy network. Better
infrastructure connections and new LNG terminals (such as the one
that recently opened in Lithuania) mean fewer countries are vulnerable
to point-source disruptions. Gazprom can no longer offer preferential
rates to one country and not others; even if they tried, EU members can
pass their savings on. While new supply sources are always welcome,
sometimes, simply pulling together is the best way to avoid being pulled
apart.
Proposed Mediterranean region
pipelines
A mix of economic and geopolitical factors are driving a
host of gas pipeline proposals in the Mediterranean region.
South Stream Transport
)
South Stream Transport was proposed by Gazprom
and OMV of Austria as a route that would effectively
bypass the Ukraine. The project envisioned four
parallel lines that would have a total of over
5 billion ft
3
/d capacity when ultimately completed
in 2017. The network was to run 910 km across the
Black Sea from Russia to Bulgaria. In early 2014, South
Stream issued pipe procurements and contracted to
lay the first line. In late 2014, however, President Putin
announced the cancellation of the project while on a
state visit to Turkey.
Turkish Stream
)
The Turkish Stream project was announced by
President Putin during his state visit to Turkey in
December, the same time that the South Stream
project was cancelled. The route is similar to the
South Stream path across the Black Sea, only it lands
further south, in Turkey, and would connect to the
TANAP network. Turkish Stream is envisioned to
deliver 1.4 billion ft
3
/d to the Turkish market, and
5 billion ft
3
/d onward to Europe. The project does an
end-run around the Ukraine and the EU’s Third Energy
Package. Tentative start-up has been pegged at 2020.
Trans Adriatic Pipeline (TAP)
)
Backed by BP, Statoil, SOCAR and Total, the TAP line
has been selected by the Shah Denis Consortium
(SDC) to transport gas to Europe. The line will have
a capacity of approximately 2 billion ft
3
/yr. It will
deliver supplies to Bulgaria, Albania, the former
Yugoslavia, Italy and possibly Germany, France, and
Austria. The project is in the advanced engineering
and procurement stage, with ball valves and other
major components under order.
Galsi
)
The Galsi project is a 700 million ft
3
/d line that
would run from Algeria through Sardinia to northern
Italy. Environmentalists have objected to the impact
the multi-billion line would have on Sardinia’s
ecology. Backers in Algeria are concerned that
competition from other lines might undermine
the economics, and are waiting to see what might
transpire with competitors.
East Mediterranean
)
Recent discoveries of over 30 trillion ft
3
of gas in
offshore regions controlled by Israel and Cyprus,
have given rise to various monetisation schemes. The
East Mediterranean pipeline is a proposal to connect
the fields to Italy through an offshore pipeline that
passes through Greek Waters. Although the EC has
expressed interest, the 675 km line would cost in
excess of US$20 billion, making it economically
unviable.
16
World Pipelines
/
AUGUST 2015
