Southern Corridor gas pipeline is on schedule, BP official says

This story was updated Sept. 23.

The Southern Corridor natural gas pipeline system, which aims to transport gas 2,175 miles from the Caspian Sea to southern Europe, is on schedule and expected to come in under budget, a BP PLC official told an Atlantic Council forum on Sept. 21.

“There still are potential technical delays that remain for this project,” said Joe Murphy, Southern Corridor vice-president for BP’s Azerbaijan-Georgia-Turkey operations. “This economic environment is different from when the partners signed the contracts, but if we can continue meeting deadlines on time, the project will be economic.”

Its three main challenges are getting regional permits in Italy, acquiring land in Greece and Albania, and potential technical delays, he said during a discussion of the project which actually involves three pipelines:

• The existing South Caucasus Pipeline (SCP), which will be expanded with a parallel pipeline across Azerbaijan and Georgia.

• The Trans Anatolian Pipeline (Tanap), which will transport gas from BP’s Shah Deniz field in Azerbaijan across Turkey.

• The Trans Adriatic Pipeline (TAP), which will transport gas across the Adriatic Sea gas through Greece and Albania into Italy.

Initial shipments to Georgia and Turkey are targeted for second-half 2018, with deliveries to Europe expected just over a year after the first gas is produced offshore Azerbaijan, BP said. The first Shah Deniz 2 platform jacket was sent offshore on Sept. 1, it said.

Shah Deniz 2 will be 80% completed by yearend, Murphy said. TAP construction began in Albania and Greece during August and is scheduled to start soon in Italy, where “the key will be on-time, timely approval of permits,” he said.

Twenty-five year contracts with companies for Southern Corridor gas give it one advantage over competing projects, Murphy said. Another is its scalability because it permits putting more gas on the market, he told reporters in a post-discussion briefing. “As far as we’re concerned, gas supplies are complementary. The more gas we can bring into Europe, the better,” he said.

“[State Oil Co. of the Azerbaijan Republic] and Azerbaijan’s government have done a fantastic job bringing this public to life, and we really should concentrate on their resources first,” Murphy said. “All the others are long-term possibilities—but they’re possibilities.”

But other participants in the Atlantic Council discussion said that competing projects, emerging alliances, and other potential resources could geopolitically affect the Southern Corridor project.

Big changes since 2011

“[Its] geopolitical significance has changed in the last 5 years as gas prices dropped, the US became a major producer, and more European connections were made,” noted Agnia Grigas, a nonresident senior fellow at the council’s Dinu Patriciu Eurasia Center. “Particularly, relations between Russia and the West have deteriorated significantly.”

While the Southern Corridor project falls within Europe’s supply diversification goals, Russia and Gazprom, its gas sales company, want to maintain their markets in southeastern Europe and will continue to fight for them, she said. It’s too soon to tell if recent Russian-Turkish rapprochement will mean anything, but initiation of the Turkish Stream project “was a win for Russia,” Grigas said.

The US began to support building an East-West energy corridor in the 1990s to make more Caspian Gas available to Europe, said Daniel Stein, a former senior advisor to the Special Envoy for Eurasian Energy at the US Department of State. The Shah Deniz offshore gas discovery changed Azerbaijan’s status from a gas transit to producing country in the early 2000s, he said.

“By 2006, Europe began to recognize the need to diversify as more gas became available,” Stein said. “If connectors are added, gas will begin to reach countries that now depend on a single supplier. The underlying goal of linking these countries remains.”

Murphy said BP feels confident about TAP’s technical deliverability, but is more concerned about its getting the necessary permits, particularly in Italy. There’s still time to solve that problem before the first deliveries are scheduled to begin there in 2020, he said at the briefing.

Contact Nick Snow at [email protected].