TAPI Support Slowly Growing

Turkmengaz, the Turkmenistan state-owned corporation responsible for building the TAPI (Turkmenistan-Afghanistan-Pakistan-India) natural gas pipeline, held a series of meetings in September 2012 with potential investors in Singapore, New York and London.  Sakhatmurad Mamedov, the company CEO, announced the project had been "successfully put forward."  At least one oil company, Shell, has begun to review the project, according to Indian sources.  Other companies who have attended the meetings includeCitigroup, Morgan Stanley, Deutsche Bank, Macquarie Bank, and the US Export Import Bank.

Mamedov believes that TAPI will lead to stability throughout Central Asia.  "The realization of the TAPI project will give an impulse to the development of the countries taking part in the project and will also strengthen stability in the region as well as creating new jobs," he said.

Mamedov's optimism is supported by the United States.  At a conference held in Ashgabat in November, Deputy Assistant Secretary of State for South and Central Asian Affairs, Lynne Tracy, stated Washington welcomed the progress made on the pipeline.  "The road ahead is long for this projects, but the benefits could be significant and are certainly worthy of the diligence demonstrated by these four countries so far," she said.

Such positive developments has convinced at least one additional country to express interest in joining TAPI, Bangladesh; but no official request has been made, according to Turkmenistan's acting Minister of Oil and Gas Industry and Mineral Resources, Kakageldy Abdullaev.  "There is a request from Bangladesh to join the project," he reported.  "We require official note, which will be considered by all four governments."

Beside the obvious security problem of running a pipeline through war-torn Afghanistan, however, the proposed pipeline continues to face difficulties.  According to an unnamed Indian oil ministry official, global pipeline companies do not want to invest in the project until Turkmenistan changes its rules and allows the companies to buy into the country's onshore oil and gas fields.  According to Pakistan's Minister of Petroleum and Natural Resources, Asim Hussain, Turkmenistan is meeting the demands.  "Turkmenistan has now agreed to have some form of agreement in the upstream side."  This observation was not confirmed, however, by Turkmenistan's Minister of Oil, Kakageldi Babdulayev, who confined his comments to describing discussions as an "ongoing process."

Another difficulty is that the regional energy superpower, Russia, does not support the construction of TAPI.  According to unnamed European diplomats, Russia cannot conceive of a project that lead to gas export to regions other than to its main market, Europe.  As a result, Moscow has not backed TAPI, which the Europeans characterized as a US proposal to check Russian intentions.

TANAP meets EU criteria

In November 2012, the State Oil Company of Azerbaijan (SOCAR) opened a representation office in Brussels.  EU Energy Commissioner Guenther Oettinger attended the event, and signaled his potential support for the Trans Anatolian Gas Pipeline (TANAP).  Oettinger said the European Commission continued to back the classic Nabucco pipeline through Turkey, but "the TANAP pipeline which SOCAR now promotes may also be able to satisfy the criteria of capacity requirements, dedicated infrastructure, transparency and scalability.  We are therefore eagerly waiting for the necessary agreements to be ratified by both Turkey and Azerbaijan."

The proposed pipeline has undergone several changes since it was originally proposed as a 16 billion cubic meter (bcm) gas pipeline owned 80% by SOCAR and 20% by Turkish operators.  The Azerbaijan state oil fund has agreed to co-finance the project, according to fund chief Shakhmar Movsumov.  Additional funds are being raised by diluting SOCAR's share of the project.  According to SOCAR chief Rovnag Abdullayev, BP and Statoil have each agreed to acquire a 12% share of the project, and Total will purchase 5%.  BP's involvement was confirmed by spokeswoman Tamam Bayatly.  "BP is working with other paraticipants of the project in order to speed up technical and commercial aspects of its implementation," she said.

The project will also have scalability.  According to Gulmira Rzayeva of the Azerbaijani Center for Strategic Studies, the pipeline will be built in three stages.  Each stage will increase the amount of gas that can be carried to European markets.  "It will start with 16 bcm, continue with 20 to 30 bcm and at the end reach 60 bcm.  This is a long-term perspective.  It will also allow for the connection to Central Asian gas."  Rzayeva added that TANAP's headquarters would be in the neutral location of the Netherlands.  This has the possibility of bringing the consortium under the control of the European Union, which would guarantee increased transparency of its operations.

South Stream: Plans Still Premature

Russian President Vladimir Putin travelled to the town of Anapa on the coast of the Black Sea, to participate in the inauguration of the South Stream pipeline.  On December 7, 2012, the first two sections of the long-awaited, multinational, natural gas pipeline were welded together under the gaze of various industry leaders and heads of state.  This fulfilled Putin's December/January directive to Gazprom leader Alexey Miller that the pipeline had to be launched by the end of 2012.  "Today we are attending a very important event, an event that is important not only for Russian energy but for European energy as well," said the Russian President.

Putin's congratulations may be a bit premature.  There are still a number of issues surrounding the proposed pipeline that have yet to be addressed.  The biggest issue, in the middle of the shale gas revolution, is that the pipeline has a capacity that dwarfs any projected European need for Russian gas.  Mikhail Korchemkin, founder and managing director of East European Gas Analysis, noted that once the annual 63 billion cubic meters of South Stream gas is added to Russian current capacity, Gazprom would have the ability to deliver 318 bcm to Europe, twice what the company has promised to Europe by 2020.  "Gazprom has abandoned its guiding principle--sell gas before building expensive infrastructure," he said.   These large infrastructure projects are beginning to pay a toll:  Nordstream is only transporting 30% of its capacity, and Blue Stream is only at 37% of capacity, according to members of the Bulgarian right-wing opposition.

Gazprom currently lacks the supplies to build the pipeline.  According to Jonathan Stern, head of the Natural Gas Research Program at the Oxford Institute for Energy Studies, Gazprom has not yet ordered pipe or organized barges for the pipeline.  He predicts that the offshore section of the pipeline cannot begin until at least 2014.

The gas is being shipped to the European Union, and so the project must meet the demands of the European Commission.  They have not done so, and European Union Energy Commissioner Guenther Oettinger did not attend the ceremony.  Oettinger had previously referred to the pipeline as a "phantom project."

The Commission has, of course, read in the press that South Stream will pass through the Turkish economic zone in the Black Sea, make landfall in Bulgaria, and then proceed though Serbia, Hungary, Slovenia, Austria and Italy.  The reaction from the EC has been telling.  Guenther Oettinger's press spokeswoman Marlena Holzner said, "For the moment we have not seen a plan for South Stream.  We take note of all the media reports but neither our experts nor Commissioner Oettinger have seen a plan where it says South Stream will start here, it will deliver gas to this entry point and it will go exactly following this route and it will deliver gas from Russia.  We have not seen this."  Holzner expanded her comments:  "To the European Commission, it has never been communicated that there is a final route...There is no environmental impact assessment for the whole route.  As far as we can see it, we don't regard this as a final investment decision."  

By 16 February 2013, Russia needs to submit to the EC copies of the intergovernmental agreements it has negotiated with the transit states, and the EC then has nine months to express its concerns.  In addition, before construction can truely get underway each country involved must submit both environmental impact studies, and social impact studies.  Bulgaria, in particular, must submit an environmental impact study on the pipeline's landfall. Countries who are not party to the agreements but who are adjacent to the route also need to weigh in on a transboundary assessment.   Russia appears to be aware of these issues, as the Russian-European Chamber of Commerce President Sergei Shuklin confirmed the 7 December ribbon cutting was only a signal of Russian seriousness about the project.  "Everything will be concluded (according to EU legislation), especially since Russia just became a member of the World Trade Organization."

As of this writing, South Stream consists of two pieces of pipe welded together on Russian soil, with no permission to extend that pipe into European territory.