Turkey and Azerbaijan sign off on TANAP

By bne IntelliNews June 27, 2012

bne -

Turkey and Azerbaijan signed an inter-governmental agreement on June 26 on the $7bn Trans-Anatolian pipeline (TANAP), which is planned to carry gas from the Azeri Shah Deniz II gas field across Turkey.

Turkish Prime Minister Tayyip Erdogan and Azeri President Ilham Aliyev signed the deal at an Istanbul ceremony, reports Reuters. The project, which more than any other sounded the death knell for the EU-backed Nabucco pipeline, is set to be completed in six years, and will pipe 16bn cubic metres (bn cm) of gas a year towards Europe.

"Today's signing is the most important step in completing the legal framework for this project," Erdogan said. "This project won't just deepen ties between our countries, it will create an organic tie between Azerbaijan and Europe via Turkey."

TANAP cut the ground from under Nabucco, which also planned to carry gas from Shah Deniz II across Turkey, before heading to Austria, but was struggling to convince the operators of the field of its viability. Estimated costs had risen to €12bn-15bn, and the failure to secure the extra gas from Central Asia and the Middle East needed to fill its 31bn cm/y capacity provoked unrest from members of the consortium trying to build the route.

Yet TANAP, which will cost just $5bn-7bn and will be 80% owned by Azeri state firm Socar (a member of the Shah Deniz consortium) and 20% by Turkey's Botas, gets round this problem by limiting its capacity to 16bn cm/y, of which Turkey will take 6bn cm whilst the remainder is shipped to Europe through a connecting project. A scaled down "Nabucco West," the Trans-Adriatic Pipeline (TAP) and South East Europe Pipeline (SEEP) are competing for that role, with the Shah Deniz consortium yet to make a decision on its eventual European route.

Construction on TANAP is expected to start at the end of 2013 or in early 2014, with the first phase planned to go into operation by 2018, in time for the launch of commercial production at the $25bn second phase development of Shah-Deniz. The pipeline is designed to be expandable to 30bn cm, and ultimately 60bn cm. Erdogan said that following the first phase of TANAP, the pipeline will go on to carry gas from other Azeri sources, and then possibly from Central Asia.

"Additionally, gas from the other side of the Caspian could be directed to the TANAP pipe, transiting via Azerbaijan," the Turkish PM claimed. Despite those larger ambitions for TANAP, and the scaled down plans for the EU-backed pipeline, Turkish officials have also said that the country will continue to be a part of Nabucco. That may offer the project some much-needed impetus for its bid to connect to TANAP, given the disadvantages that appear to be mounting.

In an interview with Bulgarian National Radio on June 26, Christian Dolezal, a spokesperson for Nabucco GmbH, claimed that the signing of the Turkish/Azeri deal will not harm Nabucco. "TANAP won't stop the construction of Nabucco. TANAP is an additional opportunity, and it could be linked to Nabucco and feed natural gas into it," he said according to Novinite.

TAP, being built by a consortium of Statoil, E.On and EGL, will require the shortest pipeline to be built - a 520km section with 10bn cm/y capacity that will transport gas via Greece and Albania and across the Adriatic Sea to Italy's southern Puglia region. The cost of the project is approximately $2bn.

Until recently, TAP was the only project competing to serve the Azeri field that has one of the members of the Shah Deniz consortium in its shareholder structure: Statoil with a 42.5% stake. However, BP, which is the lead operator of the Shah Deniz consortium, has entered the fray by unveiling SEEP in September. That pipeline would run from eastern Turkey to the Baumgarten hub in Austria. "BP's SEEP proposal has gone from dark horse to frontrunner in the past three and a half months since it was first mooted," says Andrew Neff of IHS Global Insight.

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