Changing state of play: Part 1

For a long time, Europe and the Mediterranean region have been a major arena for pipeline activities. As a result of global industrial and commercial developments, Europe’s increasing energy demand required new pipelines and/or expansion of the existing ones, especially in the second half of the last century. As for the Mediterranean region, the North African Arab states (Egypt, Libya and Algeria) have been large suppliers of oil and gas. The bulk of this gas has been exported via pipeline to Europe, leaving a relatively small share for LNG exports. Gas exports have necessitated pipeline activities. In the late 1990s however, Europe and the Mediterranean region gradually began to lose their pre-eminent pipeline status to Asia, which is now the world’s largest energy consumer.

Internal and external developments have prompted such a decline in Europe and the Mediterranean region. Europe’s energy requirements have been diminished by its decreasing economic activities. In comparison, Asia’s energy requirements have been increasing due to the opposite reasons, by and large.

Europe’s efforts to reduce its carbon footprint have created a need for more pipeline activities than those that could be justified by Europe’s overall energy consumption. However, despite their significance, the new, proposed and under-construction gas pipelines have not been able to restore Europe’s ex-preeminent pipeline status.

As a footnote to these projects, there are doubts about the ability of some of them (aimed at importing non-Russian oil and gas to decrease the EU’s heavy dependency on Russia) to meet the EU expectations as Russia seems to be the only practical large-scale oil/gas supplier to Europe for certain reasons. The alternative suppliers are out of the question for political reasons (Iran) and security reasons (Nigeria, Sudan and South Sudan). In addition, Egypt and Libya are facing instability, making the sustainability of their exports questionable, and Azerbaijan’s limited reserves and production capacity make it no substitute for Russia. Despite ongoing EU-Russia disputes over Ukraine the existence of the Nord Stream, along with attempts to commence construction of another Russian project (South Stream), indicate the EU’s lack of real alternative to Russia.

In the Mediterranean region, the vast gas reserves should have been translated into major pipeline projects to its natural market on the northern shore of the Mediterranean Sea, Europe. However, as a result of Europe’s decline and instability in its major energy exporters since 2010, many of the proposed projects have been shelved/slowed down. Egypt’s gas pipeline to Israel (the Arish-Ashkelon pipeline) was repeatedly sabotaged by armed extremist groups and, in 2012, the pipeline was finally shut down due to its unreliable operation and pricing disagreements.

Being a piped-gas supplier to Europe, Algeria has so far been spared by this wave. However, growing armed insurgency in Egypt and Libya, and in non-armed form in Tunisia, added to intra-armed conflicts in Sudan and South Sudan, suggest the possibility of the Arab Spring’s expansion to Algeria. Moreover, such expansion, and the distinct possibility of the deepening of the Arab Spring to have a more destructive impact on the Egyptian and Libyan oil and gas industries, will further diminish the prospect for significant pipeline projects in the Mediterranean region in the foreseeable future.

The following major pipeline developments in Europe and the Mediterranean region reflect the mentioned trend.

Europe

TAP and theNabucco-West

The Trans-Adriatic pipeline (TAP) is the most important project in Europe, aiming to decrease EU dependency on Russia by importing gas from Azerbaijan. The pipeline also reveals economic considerations, namely efforts to increase competition over the EU market among its gas suppliers and enable the EU countries to secure deals at lower prices.

Originally, the TAP was designed to transport Iranian and Caspian (Azeri and eventually Turkmen) gas via Greece, Albania and the Adriatic Sea to Italy and Switzerland and ultimately to other European countries. However, worsening Iranian-EU ties led to Iran’s exclusion from the project. As a result, Azerbaijan became the project’s gas supplier to Europe from its Shah Deniz Phase 2.

Although the TAP was initially meant to be one of the two pipelines for importing gas from the Caspian region, it became a rival to the Nabucco and its revised shorter version, the Nabucco West. Simply, the EU gas requirements, the limited export capacity of Azerbaijan, the impracticality of connecting Turkmenistan’s gas fields to the TAP via the Caspian Sea for political reasons and Iran’s exclusion of the project did not justify two pipelines. Consequently, last year the Shah Deniz consortium favoured the TAP to carry Azeri gas to Europe and end the Nabucco project. The TAP is expected to commence selling gas to Georgia and Turkey in 2018 and to European customers in 2019.

Estimated at US$ 1.5 billion, the 870 km pipeline will connect to the Trans-Anatolian pipeline near the Turkish-Greek border at Kaposi to cross Greece, Albania and the Adriatic Sea and come ashore in Italy near Brindisi. The 115 km, 42 in. offshore section is to be laid at a maximum depth of 820 m. The TAP’s 48 in. dia. onshore segment is shared by Greece (186 km), Albania (200 km) and Italy (19 km), added to a Turkish segment.

As the stakeholders, the Italian and Greek parliaments ratified the required law for the TAP in December 2013, followed by the singing of a MoU between Trans Adriatic Pipeline Company and Interconnector Greece-Bulgaria. They will work on the possible inter connection point in Greece aimed at enabling gas supplies to flow through the Bulgarian gas network and further into South-Eastern Europe.

Written by Dr. Hooman Peimani and edited by Hannah Priestley-Eaton

This is an abridged version of the full article from Dr. Hooman Peimani, published in the August 2014 issue off World Pipelines, available for subscribers to download now.

Read the article online at: https://www.hydrocarbonengineering.com/special-reports/18082014/changing-state-of-play-part-1/