Tuesday, July 10, 2012

TANAP Signed Amid Russian Threats

On June 27, 2012, Turkey's Prime Minister Recep Tayyip Erdogan and Azerbaijan's President Ilham Aliyev signed the long-awaited agreement to construct the TANAP pipeline.  This 2,000 kilometer natural gas pipeline will link the Shah Deniz 2 gas field in the Caspian with Turkey's western border.  The original design is for the pipeline to carry 16 bcm of gas annually, of which 6 bcm is for the Turkish domestic market.  SOCAR (State Oil Company of Azerbaijan) will own 80% of the pipeline, with the remaining 20% divided between the Turkish pipeline companies BOTAS (Turkish Petroleum Pipeline Corporation) and TPAO  (Turkish Petroleum Corporation.)  The project is estimated to cost approximately $7 billion, and is scheduled for completion in 2018.

The two signators called the intergovernmental agreement "historic."  Other observers were equally impressed.  Mahmut Mucahit Findikli, head of the Turkish parliament's energy committee, told SE Times, "This is not only a very optimal way to meet European gas diversification needs, but also very important for our country as it increases Turkey's role as a transit country."  Charles University's Caspian energy expert Jan Sir noted the project "Keeps alive the stategic rationale" for a southern energy corridor to provide Europe with non-Russian gas.  "For Azerbaijan, it opens new export opportunities and provides the desired diversification of external relations and stable income...With the opening of the Caspian to the West, Turkey's Caucasus connection would become stronger and Russia would lose much of its influence over the post-Soviet region."  World Energy Council's Hilal Pataci issued a warning, however, that the agreement could turn into a "problem in Russia-Turkey relations in the upcoming years."

Pataci's warning has been echoed by Gazprom, the Russian government-owned gas company.  In response to a Turkish request for additional Russian gas (because of an explosion halting imports on the Iran-Turkey pipeline), Gazprom graciously agreed and noted the company has been a dependable supplier.  It warned, however, that if TANAP were completed in 2018, "Turkey could then apply for help to Baku."

One has to wonder, however, how much impact a mere 10 bcm per year of natural gas will have on Gazprom's European monopoly.  The amount represents only about 2% of European gas consumption.