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August 4, 2016

by AEA

GETTING GAS OUT OF IRAN – NEW TRADING PATTERNS

Iran’s gas plans for Caucasus

Iran says it is preparing to triple gas exports to Armenia, start exports to Georgia and store its gas in Azerbaijan’s underground facilities.

For now, Iran barters about 1mn m³/d of gas with Armenian power at 1 m³ per 3kWh. Iran said this week that the volume of the gas-to-power deal would reach 3mn m³/d by late 2018 at the improved rate of 1m³ per 3.2kWh.

On the other hand, the managing director of the National Iranian Gas Company (NIGC) Ali Reza Kameli said August 1 that Iran has signed a deal with the Georgian International Energy Corporation to export 40mn m³ over a four-month period to test the feasibility of sealing a long term gas export agreement.

He added that that the deal becomes operational once Armenia has issued the needed permissions by late 2016.

Georgia’s deputy energy minister Mariam Valishvili told Trend that the ministry has no information on the conclusion of contracts for the import of Iranian gas to the country. Valishvili added that the Georgian government has not concluded the contracts for such gas supply. “Theoretically, private companies can sign a contract like that,” she said.

For now, Georgia receives more than 87% of its 2.5bn m³/yr demands from Azerbaijan (1.36bn m³/yr as commercial imports plus 5% of Azerbaijani gas transit to Turkey as fee) and takes 10% of Russian gas deliveries to Armenia as fee.

Iran also announced August 2 that it is willing to store its gas in Azerbaijan’s underground gas facilities. Azerbaijan has two gas storage facilities that can hold 5bn m³, of which a third is idle.

For now, two countries swap about 1mn m³/d of gas, while Iran has a 10% share in Azerbaijan’s Shah Deniz gas field.

Iran’s sole commercial buyer is Turkey. According to official statistics, Iran increased deliveries to Turkey in five months of 2016, while Azerbaijan and Russia cut gas deliveries to this country.

Iran aims to export 68bn m³/yr of gas by 2021 and is preparing to announce a joint tender with Oman for choosing a contractor to build a $1.5bn pipeline project in the Gulf of Oman, aimed to transit 10bn m³/yr of Iranian gas to Oman. Some of that gas could be liquefied as the Oman LNG terminal is not fully used.

Kameli said August 2 that “activities related to the gas pipeline project are being carried out rapidly as the marine survey has been completed and evaluation of the obtained information is being undertaken. After receiving the results of studies, we will decide with the Omani side who will be the contractor for the 200-km undersea pipeline.”

Iran is also preparing to start a restricted amount of gas supply to Baghdad this month at 5-7mn m³/d. This figure is to reach 25mn m³/d, based on agreements, in the coming years.

Iran has two agreements with Iraq to export 50mn m³/d of gas to Baghdad and Basra in total.

Iran also has a 22mn m³/d gas export agreement with Pakistan, projected to become operational in early 2015, but the pipelines are not completed in either country yet.

Iran is also looking for a contractor to resume building the Iran LNG project, which was half complete when it was hit by western sanctions. Gazprom is one of the companies to express an interest in taking part but it said August 2 that Iran hadn’t responded to its request yet.

Tehran has invested $2.5bn in this project which is hoped will produce 10.4mn mt/yr of LNG by late 2018.

Gazprom does not need extra gas but the Russian company most likely would like to suspend the growth of Iran’s gas exports,” said Mikhail Korchemkin, head of East European Gas Analysis. There is a threat of competition facing Iranian LNG projects, not from Russia but other players in the gas market although Iran’s LNG would have one of the world’s lowest feedstock prices.

Iran and Turkmenistan have also expanded their gas deals. Last year, Turkmenistan doubled deliveries to Iran to above 9bn m³/yr. Iran said June 27 that it will import gas worth $30bn from Turkmenistan over the next ten years and export engineering goods and services to Turkmenistan to an equivalent value.

TAP in progress

Turkmen gas is recognized as a potential source for feeding the Southern Gas Corridor (SGC), aimed to deliver 16bn m³/d of Azerbaijani gas to Turkey and EU by 2021. The volume would increase to 25bn m³/yr by 2025 and 31bn m³/yr in early 2030s.

The part from Azerbaijan to west Turkey is being built, while the European part of the SGC, Trans Adriatic Pipelinem (TAP), is being progressed. TAP said July 29 that 14,000 pipes have already been delivered to Greece and Albania for it. This amount accounts for about 30% of all pipes that will be used for the pipeline.

The 870-km TAP will be connected to the Trans Anatolian Pipeline (Tanap) on the Turkish-Greek border, run through Greece, Albania and the Adriatic Sea, before coming ashore in southern Italy. The Initial capacity will be 10bn m³/yr in 2021. The European Bank for Reconstruction and Development (EBRD) confirmed earlier that it started talks to provide direct financing of €500mn and attract €1bn from banks.

The current cost of the SGC from the Shah Deniz 2 reservoir to landfall in southern Italy, is now estimated at around $40bn, comprising $9.3bn for Tanap, $6bn for TAP and $23.8bn for developing SD2 as well as the expansion of the South Caucasus line (SCPX).

August 3, 2016

by AEA

Greece, Bulgaria ink IGB gas pipeline, LNG terminal agreements

Athens is turning to Sofia in an attempt to re-establish its position in the region, top policy expert tells New Europe.

Greece and Bulgaria agreed to boost energy security in the Balkans in the framework of the European Union, during Greek Prime Minister Alexis Tsipras’ visit to Sofia on August 1.

Tsipras met with his Bulgarian counterpart Boiko Borisov and President Rosen Plevnelev. Within the context of the third high-level cooperation council between

Greece and Bulgaria, they signed a series of bilateral agreements, including the construction of the Interconnector Greece-Bulgaria (IGB) gas pipeline and the creation of a liquefied natural gas (LNG) terminal near the northern Greek city of Alexandroupolis.

“Bulgaria is probably Greece’s closest partner in the Balkans, but more by reflection and less as a result of a strategic plan. There is potential in bilateral relations, especially given the ‘energy connection’, but till nowadays we haven’t seen anything substantive,” Constantinos Filis, director of research at Institute of International Relations, told New Europe on August 2.

“But given the difficulties with Albania, FYROM and the problematic environment with other Balkan states of the Balkan corridor – as they agreed to isolate Athens in cooperation with Vienna – Athens is turning to Sofia in an attempt to re-establish its position in the region. But the Bulgarian government due to its bureaucracy and corrupted mechanisms cannot be trusted in full,” Filis said, adding that in the past, decisions have been overturned without any justification and consultations are usually complicated.

Meanwhile, following the rapprochement between Russia and Turkish, the Turkish Stream gas pipeline, which would transport gas from Russia to Turkey and Greece via the Black Sea, could be revived. Asked if Turkish Stream, which is also now called South European Pipeline, would have a landfall in Bulgaria, Filis told New Europe that Bulgaria is very much attached to the West and especially the United States and therefore it will be Russia’s last resort if the latter chooses to proceed with this project.

“In the case of Turkey, it seems that both states attempt a restoration of ties, which is a positive sign for energy cooperation. But again, SEP’s fate will be defined by other factors like: securing markets, funding and EU’s political consent and making sure that Russian economy can cope with it,” Filis said.

In addition to energy, Tsipras and Borisov also stressed the need to accelerate construction of a railway link from Alexandroupolis to the Black Sea resort of Burgas as a way to boost trade between the two EU member states.

Tsipras said relations between Athens and Sofia are “a model of constructive cooperation for the promotion of peace and stability in the broader region”.

The Greek premier also said that the two Balkan countries remain pillars of security and stability despite the challenges facing the two countries on the EU’s external border.

August 3, 2016

by AEA

Turkey’s energy role to continue after coup attempt

Turkey’s role as a key strategic energy actor in its region is expected to continue without much negative impact from July 15 failed coup, experts told Anadolu Agency Wednesday.

“Turkey’s regional energy role remains a key element of Turkey’s economic dynamism,” said David Merkel, a senior fellow at Dinu Patriciu Eurasia Center of the Washington-based Atlantic Council.

“If Turkey returns to stability and has competent officials in energy-related agencies and ministries, I suspect the impact [of the coup attempt] will be minor,” he added.

The coup attempt on July 15 has brought questions to ongoing energy projects in the country which acts as a strategic bridge between the gas-rich Caucasus and energy-hungry Europe.

Experts said that Turkey’s key position in between these two regions will not be affected by the failed coup attempt.

“Turkey’s importance for European energy security will not be significantly reduced,” Merkel said.

“I think Turkey is too critical to European energy security, especially in efforts to reduce dependency on Russia for Europe,” he added.

Around 30 percent of Europe’s annual natural gas consumption is dependent on Russian supplies. Europe has been trying to lower that dependency through diversification, and Azerbaijan’s gas resources in the Shah Deniz field as a major supply source have contributed to this aim.

Turkey’s Trans Anatolian Natural Gas Pipeline Project (TANAP) is an integral part of the Southern Gas Corridor that plans to carry Azeri gas via Georgia, Turkey, Greece, and Albania through to Italy. TANAP is planned to become operational in 2018 with an initial capacity to carry 16 billion cubic meters (bcm) of gas. Total capacity is planned to increase to 23 bcm by 2023 and to 31 bcm by 2026.

Volkan Ozdemir, head of the Institute for Energy Markets and Policies (EPPEN) said TANAP will continue as planned, and added that most of its investment comes from Azerbaijan.

“Investments in Turkey’s energy sector have not come from Europe in recent years. It is mostly foreign investors outside Europe that finance it,” he said.

Rapprochement with Russia

Although Merkel said Turkey’s key regional position would help European energy security by lowering its dependence on Russian gas, Ozdemir highlighted the fact that Turkey and Russia’s recent attempt at reconciliation after relations soured last November, could indirectly affect Europe.

“If the Turkish Stream gas pipeline project comes back on the agenda, this could have an indirect impact on Europe,” Ozdemir said.

He added that there are two conditions for the Turkish Stream project being taken off the shelf — the rapprochement between Turkey and Russia, and the impact of the Nord Stream II pipeline project coming online.

The Nord Stream II project plans to deliver 55 bcm of Russian gas under the Baltic Sea to Germany, and further into France, the U.K., the Netherlands and Denmark.

The Turkish Stream, which was initially planned to carry 63 bcm of gas to Europe via Turkey, had its project capacity trimmed down to 31 bcm later on. However, the project was shelved after Russia and Turkey failed to agree on the existing gas price discount which Russia was due to apply on Turkey’s gas imports. Turkey’s downing of the Russian jet last November, worsened bilateral relations leaving a stalemate in talks on the project between both sides.

“If a decision to build the Nord Stream II is taken, Russia will scrap the Turkish Stream,” Ozdemir warned, adding that “relations between Russia and Europe remain uncertain.”

“I believe, Turkey and Russia will get closer again after the failed coup attempt. And if the two countries can agree on building the Turkish Stream, Russia will be able to have another gas route to Europe through a southern corridor. That is something Europe would not want,” he explained.

Ozdemir asserted that relations between Turkey and Europe are uneasy. He added that with a potential Ankara Moscow reconciliation on the agenda, the realization of the Turkish Stream project is more likely than the Nord Stream II.

“I think a period has begun that will benefit Turkey, but will be unfavorable for Europe,” he concluded.

By Ovunc Kutlu and Ebru Sengul

August 1, 2016

by AEA

TAP criticises recent report and announces pipeline delivery

On 29 July, the Trans Adriatic pipeline (TAP) consortium announced that 14 000 pipes have already been delivered to Greece and Albania for the construction of the Trans Adriatic gas pipeline.

This figure amounts to approximately 30% of all of the pipes that will be used on the construction project.

However, according to UPI, a recent report from Re: Common and Counter Balance has “called on European financial organisations to avoid writing blank checks to the companies working on the TAP project.”

“There is a worrying overlap between the public and private interests involved in the pipeline,” Elena Gerebizza of Re:Common said.

In contrast, a report from the Organisation of Economic Cooperation and Development has found that Albania is ‘largely compliant’ with international financial standards.

The TAP consortium has criticised the report from Re: Common and Counter Balance, pointing to shoddy reporting and ‘several inaccuracies.’

TAP spokesperson Lisa Givert responded: “To begin with, TAP is a highly strategic project for Europe and for its host countries in particular.” The TAP consortium has stated that over 900 Albanians are working on pipeline construction. The pipeline could position the country as a regional gas hub, while also adding diversity to the energy sector.

The 870 km TAP will be connected to the Trans Anatolian Pipeline (TANAP) on the Turkish-Greek border. It is planned to run through Greece, Albania and the Adriatic Sea, before coming ashore in Italy. The TAP will begin delivering gas from the Shah Deniz gas project off the coast of Azerbaijan to European consumers in 2019.

July 26, 2016

by AEA

New Power Line to Link Albania to Macedonia

A German bank loan of 50 million euros opens the way for the construction of 126km high voltage 400kV line from Elbasan in Albania to Bitola in Macedonia, designed to integrate the energy trade in the region.

Albania’s government on Tuesday will sign an agreement for a loan of 50 million euros with the German state-owned development bank KfW, that will open the way for the construction of a high-voltage 400kV interconnection line with Macedonia.

The project that in Albania will start in Elbasan and will end in Bitola in Macedonia has been mulled for a long time between the two governments.

The total cost is estimated at 70 million euros. Besides the loan from KfW, funds will come from the Albanian Transmission System Operator, OST, and from the EU.

Once financial cover for the project is arranged, work in the field is expected to start at the beginning of 2017 and finish in 2018.

The new energy line with Macedonia comes after Kosovo and Albanbia finished another high-voltage 400kV power line that will enable higher levels of energy exchange between mostly lignite-powered generation capacities in Kosovo and the hydro-generation capacities of Albania.

Pajtim Bello, chairman of the Supervisory Board of OST, told BIRN that the construction of the line with Macedonia will complete Albania’s plan to connect itself with its neighbours by land.

“After the high inter-connection voltage lines that we built with Montenegro, Greece, and Kosovo, Macedonia is the last one. After that, Albania will finally able to transmit and receive energy from all over the region,” he stated.

Bello said the the project was important in terms of integrating regional systems of electricity, increasing energy security and enabling Albania and Macedonia to develop an energy market.

The project also creates new energy opportunities for the south of Albania. “We aim to stimulate the Fieri region – a big local energy consuming area – to returning to an energy production region. The interconnection line will enable access for energy production through gas, wind, and sun,” he said.

In December 2015, when the project was first floated at a roundtable of officials of the two countries, the Albanian Energy Minister, Damian Gjiknuri, said the high-voltage line with Macedonia would not only connect up the regional energy market but create opportunities for energy transmission to Italy as well.

“The line will open up an opportunity for a connection by an underwater cable with Italy and the European Union,” he stated.

July 26, 2016

by AEA

Socar is running into problems concerning Desfa

Azerbaijan’s state energy company Socar is running into problems concerning its stake in Greece’s natural gas grid operator, Desfa, with the Greek parliament expected to vote imminently for a crucial change concerning the value of Desfa.

As a result, Socar is expected to send a delegation of senior officials to hold talks in Athens this week. They will address two main problems. The first concerns the size of Socar’s stake in Desfa. The second – which is both far more important and far more complex – concerns the methodology of accounting within Desfa.

The first point is relatively straightforward. When Socar won the tender to acquire a 66% stake in Desfa for €400mn in June 2013, purchasing a 35% stake from Hellenic Petroleum and a 31% stake from Greek government, it had strong EU backing, not least because the leading alternative bidder was a Russian company, Sintez. At the time, the EU was also worried that Gazprom would seek to purchase Desfa’s parent company, Depa, the Greek natural gas supply company. In the event, however, nobody bid for Depa and only Socar bid for Desfa.

But in late 2013, Socar was a party to the final investment decisions which secured the development of the cluster of projects known as the Southern Gas Corridor, which included development of the giant Shah Deniz Phase Two project and the associated Trans-Adriatic Pipeline. This potentially put Socar in conflict with EU regulations since Socar would be a shareholder in TAP – it subsequently took a 20% stake in the pipeline – and because the line would be used to carry SD2 gas that was partially owned by Socar to market in Greece, Albania and Italy – and probably Bulgaria as well.

Socar therefore agreed to reduce its stake in Desfa to 49%. A senior Socar official, contacted by NGE in Baku recently, said that Italy’s Snam-Rete has agreed to take up part of this 17% and that discussions are continuing with other prospective buyers. Socar’s president Rovnag Abdullayev has previously mentioned Spain’s Enagas as a possible buyer. This issue may take time to solve but, the official said, the company is confident that it will be resolved satisfactorily.

It is the second issue that is truly troublesome. Greek energy minister Panos Skourletis recently submitted an amendment current regulations intended to reduce Desfa’s regulatory asset base, apparently from around the €1bn figure assumed by Socar to around €800mn. This would be accomplished by taking out some €200mn in government funds that Desfa had included in the regulated asset base in the initial three-year period. The ministry is asserting that this €200mn should not have been included in the original methodology.

However, a €200mn reduction would radically change the basis on which Socar would be able to secure a return on its initial investment. According to Greek regulations, Desfa is guaranteed to secure an 11.5% return upon its regulatory asset base. And if it does not get the money in the first three years, the guarantee is that it will be able to make up the difference in the second three-year period. This would be achieved by increasing tariffs.

The problem is that if the value of the regulated asset base is reduced in the manner proposed by Skourletis, tariffs would have to be increased by around 80% in order to ensure Socar received a full 11.5% return over both the initial three-year period from 2013-16 and the following three-year period from 2016-19.

And such an increase would be intolerable for Greece’s gas consumers at a time of continued severe economic constraint. Moreover, reducing the value of the regulated asset base could reduce the prospect that Snam-Rete and other companies might be willing to invest in Desfa.

From Socar’s perspective, there are two main problems in this dispute. The first is one of perception, that there has been a lack of government communication with Socar about the issue. What’s happening, one senior Socar executive commented privately, is “government by press release.”

The more substantive problem is how to square the dilemma that Socar should receive its promised internal rate of return without Greek natural gas customers having to pay far more than they can afford.

One possible solution is that the shortfall in payments from the first three-year period may be amortised. But other alternatives are also being explored. At this stage, no-one is sure just how the situation will develop.