January 2012, Vol. 239 No. 1


Shah Deniz Consortium Evaluates Transportation Options For Azeri Gas

The Shah Deniz consortium is considering the expansion of gas transport infrastructure to deliver Azeri gas from Stage-2 of the Shah Deniz project to Western Europe.

Shah Deniz Stage 2 is a giant project that is expected to add a further 16 Bcm/a of gas production to the approximately 9 Bcm/a from Shah Deniz Stage 1. Plans for the Stage 2 project include two bridge-linked offshore platforms; 26 subsea wells;400- km of subsea pipelines; and expansion of the Sangachal Terminal.

Four proposals for the transportation of gas from the Caspian Sea to Europe are now being evaluated by the Shah Deniz consortium with an award expected shortly.
One of the pipelines under review to transport Azeri gas is the Trans Adriatic Pipeline or TAP. As proposed, the TAP will transport gas from the Shah Deniz field via Greece and Albania and across the Adriatic Sea to southern Italy and further to Western Europe, opening up a new Southern Gas Corridor to Europe and market outlet for natural gas from the Caspian Sea region.

To understand the views of TAP Country Managers in Albania, Greece and Italy on how the project is developing and the different challenges and benefits it will deliver, Lisa Givert, TAP’s Head of Communications, spoke with Country Managers Per Lindberg, for Albania, Rikard Scoufias, for Greece and Paul Pasteris, for Italy.

Here’s what they had to say in response to her questions:

Lisa Givert (LG): To start, how much awareness is there of the Southern Gas Corridor in your respective countries?

Per Lindberg (PL), Country Manager for Albania: I think there’s quite a bit of awareness in Albania, in particular of course among government officials, but also in the media and among the general public, at least as far as Tirana is concerned. They understand that this is a chance to put Albania on the European gas map.

Rikard Scoufias (RS), Country Manager for Greece:
I second that for Greece. Making Greece part of the broader European energy picture has been a national objective for a long time. That has not changed despite different governments since 2000. So, there is absolute awareness of the Southern Gas Corridor and of the role Greece could play.

Paul Pasteris (PP), Country Manager for Italy: Obviously, the Southern Gas Corridor is very important in Italy and the country has been involved in supporting projects that are a part of it. Italy, right now, receives gas from Russia, the North Sea and from North Africa, so they consider this to be the missing link to new energy reserves. There is also an ambition to become a Mediterranean hub, so for them it’s very important to access gas from the Caspian.

PL: As far as Albania is concerned, there is an awareness that this is a competition between three alternative pipelines (TAP, Nabucco and the Interconnector Turkey Greece Italy (ITGI), so to them it’s important to be on the winning side.

Indeed. From a Greek and Italian perspective, there is also that element where they are supporting projects that will bring gas to their country, versus a Nabucco-style pipeline that will bypass the south.

Can you give a brief summary of the TAP route in each of your respective countries?

Let’s start where it starts, at the Greek/Turkish border. Initially it was envisaged that we would connect to the national gas system starting at Thessaloniki, which is more or less in the middle of Greece, and then construct an independent natural gas system (INGS) that would take the gas up to the Albanian border.

The recent decision by the TAP’s Board of Directors extends the route 300-km from Thessaloniki to the west near Komotini. This means that TAP will take the gas into an independent pipeline at the border, giving us full control over the whole transit route. That’s been very favorably received, not least by BP, which is the operator of the Shah Deniz gas field in Azerbaijan. That said, in line with our overall position in relation to the Greek government, we remain clear that we are willing to explore all solutions acceptable and favorable to both TAP and the Greek authorities.

PL: Once the pipeline reaches Albania, it has a 200-km route across the country. Because the east has a very mountainous terrain it’s quite tough to access in some parts. This has caused us to reroute the pipeline around the Morava Mountains, that were going to be too difficult to negotiate, and we’re also constructing a tunnel through another mountainous area in the east. Finally at the end of the Albanian section, there are more gentle plains, passing into the sea north of a place call Fier, where the gas compressor station will be built.

It is important to mention that a lot of work has been done to avoid protected areas. We investigated six alternative routes before finally selecting the best one. This is partially to facilitate engineering, access and construction, but also to avoid impacting cultural heritage sites and other sensitive areas like the Hotova National Park.

Finally, in Italy we have about 22 km of the offshore section approaching the coast, before the pipeline comes ashore. We were initially looking at a landing near Brindisi, but because of a number of technical and environmental factors have instead chosen landfall north of the town San Foca. Because of various geographical and morphological attributes of the area we will reach landfall using a 700-meter micro-tunnel underneath the coast, surfacing 400-metres inland and avoiding the need for any trenches. It’s pretty challenging technically, but it will have zero impact on the coastal landscape

The pipeline will stretch about 4 km onshore to the gas reception terminal, from where we connect to the national gas grid. The terminal will control all the compressor stations and all of the isolation valves throughout the pipeline. It will be a sophisticated control center and will create around 25 permanent, highly skilled jobs – a fact the local mayors are delighted about.

It is worth noting that the offshore section is an important justification for the decision to go through Albania, enabling TAP to have the shortest route in the Southern Gas Corridor. Overall, the shore slopes are less steep and water depth more shallow (than IGI Poseidon) and these factors minimize the technical challenges of laying the pipeline in deep waters and reduce cost. Importantly, it also allows you to lay a larger diameter pipeline offshore, allowing more capacity should you eventually need it.

I also would like to highlight something in Greece. I’m really pleased to say that environmental awareness has increased significantly over the last couple of years, to the extent it was a major factor in the latest elections. Environmental and social-economic concerns are also highly important for the TAP team and our shareholders. They are reflected in our route selection process and in the way that we have engaged with local communities – all of which has been in line with the highest guidelines of the European Bank for Reconstruction and Development. That is something that has been very well received by our stakeholders in Greece, who haven’t always been supportive of other large infrastructure projects.

We touched on this at the start, but can you go into more detail about the main benefits of TAP for your respective countries?

Obviously, it will bring a lot of temporary construction work, and, as mentioned previously, the receiving terminal will also provide permanent jobs for the lifecycle of the pipeline. The other benefit is that TAP will contribute about 10-12% of the national gas consumption, so we’re going to be increasing competition and the number of suppliers and that should have a positive impact on the cost of energy for consumers.

In Albania, TAP will be the largest direct foreign investment, the biggest that they’ve ever had in fact. Like Italy, it will also create temporary and permanent jobs, but perhaps most importantly, it will put the country on the natural gas map of Europe as an important transit country; not only can Albania receive gas from TAP, it could also become a hub for the Balkans through the Ionian Adriatic spur-line. Finally, there is potential to develop storage facilities near Dumre, which we may look into later.

RS: In Greece it comes down to two major benefits. In the medium to long term TAP would allow the government to realize one of its strategic objectives of becoming an energy highway and key player in the European energy scene. In the immediate term TAP would be a major channel of investment and creator of jobs. And of course, TAP’s investment will constitute a very important signal of investor confidence in Greece at a time of extremely difficult economic conditions.

What have been the main challenges that TAP has faced so far?

RS: I can start in Greece where the government has a vested interest in one of TAP’s competitors, the ITGI project. Unsurprisingly, this creates a complex political environment, but over the last couple of months we have seen significant changes. The worst scenario for Greece is that she is excluded from playing a role in the Southern Gas Corridor. That would be the case if Nabucco or the South East Europe Pipeline (SEEP) were selected. Consequently, many Greek opinion formers, journalists and thought leaders are increasingly calling on the government to not put all their efforts at supporting the ITGI project, but to equally strongly support the TAP project since both will include a Greek route.

The main challenge in Albania would be that this is such a big cross-border project and legislation is not yet complete for every element of a project of this magnitude. Unlike in Italy and in Greece, there is no precedent for developing natural gas pipeline projects like ours. There is widespread support for TAP, but it’s also a question of adapting permitting, legal and fiscal terms to meet the overall project schedule and financing requirements.

In Italy there have been several challenges, but the major one was in finding the best route. We’ve looked at a huge number of options and the balancing act has been between minimizing the environmental impact – although it’s usually fairly small – and controlling the project cost. For example, we spent a year working with engineers analyzing a possible landfall near Brindisi, looking at all feasible solutions. We eventually found the least invasive one, with smallest environmental impact near the town of San Foca.

I’m really proud of what has been done, and, in fact, we’ve received endorsements from the Minister of the Environment on our approach. On our stakeholder engagement, we took a bit longer at the beginning, but it paid off once we started submitting applications as people understood the project and its impacts on their territory. Now that we’ve submitted most of the applications it should make for a smooth transition to the next phase.

LG: We’ve talked a bit about some of the permanent jobs, how about some of the opportunities during construction process?

PL: It will definitely be a major undertaking in Albania, one that will require a lot of manpower. Building roads and access routes, bringing in machinery, digging trenches for the pipe, all in quite difficult terrain, will require a lot of local contractors as well as international companies. And all of this will continue for some time. The schedule is for three years of construction, but it will extend beyond that because we will have a preparatory phase as well as post construction work, both of which will require lots of manpower.

It’s the same story for Greece. The oil and gas sector is not typically labor intensive, it is technology intensive. With that said, during the construction phase there will be quite a significant numbers of jobs created as well as a positive knock-on effect, especially in Northern Greece, which has been particularly hard hit by unemployment.

PP: In Italy we’ve taken an interesting approach. What we’re trying to do is to maximize the local benefit during the construction phase, so we’re been investigating which companies can actually play a part in the project. We want to provide tangible benefits to the local community, rather than to those based in other parts of Italy.

LG: Is energy a big issue in your countries?

It’s very important. Everyone is exposed through their electricity bills, so there is a lot of public discussion. It’s particularly critical because Albania is almost entirely dependent on domestic hydropower and imports of electricity. Bringing gas through the country and developing gas-fired power generation would be an obvious advantage in terms reducing imports and improving security and diversity of energy supply. The other aspect is becoming a transit country. If Albania can become a hub for supplies to the Balkans region and possibly house a storage facility that will have a major positive impact.

Energy is a driver and a prerequisite for competitiveness. As such, it is critical for any member state, as well as for the EU as a whole. And the European diversification and security of supply strategy plays directly into this.

Looking at gas specifically, I believe that demand in Europe will increase, because it is an important bridging fuel as we move toward renewables and a low carbon future.

Until recently Italy was considering nuclear power. The referendum killed that option, so in the future gas will have to play a bigger role. The second point though is security of supply, and recent events in North Africa have made this a top priority. Libya provided about 12 Bcm/a of gas to Italy, but suddenly that supply became unavailable. Over 90% of Italy’s energy is imported from external sources, so like Albania, it’s about diversifying supply to improve security.

If you only had 30 seconds to describe TAP and its importance to your country, what would you say?

That this is a unique opportunity for Albania to become a player in European energy, and subsequently to be able to get gas into its own domestic market. It would be an important steppingstone for Albania towards joining the European Union.

PP: TAP will help Italy to become a Mediterranean hub. It is the missing link connecting Italy to enormous resources of gas in the Caspian and it will provide Italy with the potential to reduce energy prices. So, it’s great news for domestic consumers and also for industrial users trying to stay competitive. For 26 km of pipeline it will deliver a huge benefit for the country.

RS: TAP is an opportunity for the Greek government to realize a critical strategic energy objective, as well as to deliver significant inward investment and job creation, both at a critical time for the country. TAP’s approach has been very constructive and conscientious of the positive environmental and socio-economic impacts we can realize, and I want to feel confident that the government will seize on these opportunities and lend their full support to any and all projects that realize the Greek route of the Southern Gas Corridor.

Editor’s Note: Other competing pipelines being evaluated to transport Azeri gas include the EU-backed Nabucco and the Interconnector Turkey-Greece-Italy (ITGI), backed by Italy’s Edison SpA and Greek gas monopoly DEPA. There is also BP’s 800-mile South East Europe Pipeline (SEEP) proposal that would link Azerbaijan’s Shah Deniz gas field to a hub in Austria running from western Turkey across Bulgaria and Romania to Hungary’s border.


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