Approaching Homestretch In Race For Caspian Gas

July 2013, Vol. 240 No. 7

Kjetil Tungland, Managing Director, Trans Adriatic Pipeline

The world of energy is changing at an unprecedented pace. As we look ahead, that change appears to be both fundamental and inexorable. Many governments in Europe have stepped back from previous commitments to nuclear energy and realized that immediate prospects for renewables appear less encouraging.

By contrast, the outlook for the global gas industry in the long term is quite positive. The shale gas boom in the United States has brought down the price of energy for the first time in years, helping to stimulate economic recovery. While shale may not have the same game-changing impact in Europe, the continent is now closer than ever to diversifying its own sources of gas supply.

The development of the Southern Gas Corridor will be the key to this transformation, delivering natural gas from the Caspian basin to western markets. Recent months have seen huge progress for the Southern Gas Corridor as a whole and for the Trans Adriatic Pipeline (TAP) in particular.

Looking back over the past year, there have been many highlights:

–We were the first pipeline to be pre-selected by the Shah Deniz Consortium and entered into exclusive negotiations for the ‘southern’ route, to transport gas to Italy.

–Azerbaijan and Turkey signed the necessary Intergovernmental Agreement and Host Government Agreement to implement the Trans Anatolian Pipeline (TANAP), which will create a stable and secure transportation infrastructure for gas across Turkey to the border with Greece. TAP has been designed to interconnect seamlessly with TANAP.

–Cooperation with the Shah Deniz Consortium has been excellent. Shah Deniz partners signed a Cooperation Agreement with TAP, followed by a Funding and Option agreement to finance part of TAP and potentially to take up to a 50% equity stake in the project. In November TAP shareholders and the Shah Deniz partners SOCAR, BP and Total concluded the Shareholder Agreement defining how the TAP Joint Venture would be governed with members of the Shah Deniz Consortium, if TAP is selected by Shah Deniz this year.

–The governments of Italy, Greece and Albania confirmed their political support for the project by signing a Memorandum of Understanding (MoU) in New York.

–Albania granted TAP the status of a project of ‘national importance’.

While 2012 was a big year for TAP, 2013 should prove to be even more momentous. We had a great start to the year marked by the initialing of the Host Government Agreement with Albania. In addition, we are continuing to progress a Host Government Agreement with Greece and hope to have this signed soon.

In the meantime, another imminent milestone is for the three governments – Italy, Albania and Greece – to sign a fully-fledged Intergovernmental Agreement. This will provide a formal foundation for the cooperation between our host countries. A great deal of effort has already gone into securing this agreement and we are confident that it will be finalized shortly.

Since submitting our “Decision Support Package” in March we await the Shah Deniz Consortium’s decision over which pipeline will win the right to transport the gas in the Southern Gas Corridor in June. Assuming that TAP is the chosen pipeline project that wins the bid to transport Shah Deniz gas to Europe, more important milestones lay ahead, including TAP’s Resolution to Construct, which will be made in September 2013 – one month before Shah Deniz take their Final Investment Decision.

I am confident we will be chosen as their preferred and final pipeline option. And my reasons remain the same: the unmatched technical and commercial expertise of our shareholders; our position as the only pipeline that is not dependent on public money; the political support we enjoy; the early stage at which we have completed our agreements with the Shah Deniz consortium; the fact that our route is the shortest, most economical and most direct to the largest European markets; and the steady progress that we have continued to make over the last year.

In addition, the TAP pipeline is now the largest and most strategic of the two proposed pipelines bringing Shah Deniz gas from TANAP to European markets. Nevertheless, until selection is made, we will continue to work closely together, and put all our energy and effort into providing the necessary input that will become the deciding factors for success.

TAP is a pioneering project, technically and economically robust, agile and adaptable, more than ready to meet the challenges of our past-paced and ever-changing energy world. When the first Shah Deniz gas becomes available in 2018, we will be ready to receive it.

(It was reported on June 26 that BP, Azeri state oil company SOCAR and France’s Total were the winners to carry Azerbaijan’s gas via Greece and Albania and across the Adriatic Sea to the south of Italy through TAP. The European Union, which is trying to reduce its dependence on Russia for gas and diversify its supply sources, is supporting both TAP and Nabucco West as the two projects compete for 10 billion cubic meters of Azerbaijan’s gas as part of the Southern Gas Corridor.)

For continued updates visit www.tap-ag.com.

Author:

Kjetil Tungland was appointed managing director for the Trans Adriatic Pipeline project, a joint venture project with Axpo, Statoil, and E.ON Ruhrgas in April 2010. He is based in Baar, Switzerland, at the company’s headquarters.
From 2005-2007, Tungland was Statoil’s country manager for business development in Iraq, living and working in Amman, Jordan. He was then posted to Singapore and was responsible for developing StatoilHydro’s natural gas business in the Asian region where he spent the last couple of years. In 2003, Tungland was posted to Istanbul working as task force manager responsible for preparations of natural gas marketing in Turkey in partnership with Koç Holding and later became Statoil’s country manager for Turkey.
From 1999-2003, Tungland held the position of senior vice president responsible for natural gas contract negotiations, marketing, and development of Statoil’s natural gas business in the South and Western European Continent. In 1990, he joined Statoil’s Natural Gas Business and became manager of the market analysis department in 1993. He joined Statoil in 1986, as macro economic analyst. Tungland graduated from the Institute of Economics at the University of Oslo in 1985.

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