Albania as a counterweight to Gazprom

BORUT GRGIC

Albania has never been much of a Balkan power player, not least in the field of energy. But with the Trans-Adriatic Pipeline (TAP) now a reality, Albania has the opportunity to reverse its fortunes and become a regional gas hub. 

Today, the Balkan energy future is compromised in many ways. The infrastructure is for the most part old and in need of an upgrade. Old coal power plants are still in operation and to meet EU environmental regulations, these will have to be shut down. Nuclear power is coming offline, and microclimates have made hydropower extremely unpredictable, and in the case of Albania, altogether unviable. New sources of energy are necessary for long-term regional economic vitality. 

Natural gas is available, reliable and price-competitive, but diverse access points must be ensured. It is not in anybody’s interest for the regional energy gap to be filled exclusively by Russia. Already in control of the natural gas market in Serbia, Gazprom is pursuing an aggressive regional expansion strategy backed up by the South Stream project. The South Stream pipeline is earmarked to cross the entire Balkan region, from Bulgaria through Slovenia to Italy, and will flood the Balkan market with Russian gas. 

The Ukraine-Russia gas wars are a good example of what it means to do long-term gas business with the Russian state monopoly: eventually there is a political price to pay, or else, gas prices are renegotiated unilaterally, or gas is shut off altogether. This is a bad prospect for the Balkan consumers and industry, which in order to develop and compete globally, not only need steady and reliable energy, but also energy priced according to the market. The efforts being made by the Balkan governments to provide tax incentives in order to attract European industry to the region are all for nothing if the supply of energy is uncertain and the price is politically fixed. The fact is that Russian gas is three times as expensive today as U.S. shale gas. The world market price for natural gas has been falling over the years, while electricity prices in countries relying exclusively on imported Russian gas have not changed much. That’s because it costs more to extract, pump and deliver Russian gas than the alternatives. For one, Russian technology is outdated, and second, easy-to-access gas in Russia is mostly gone. 

The Balkan region needs an alternative to Gazprom, and developing Albania into a stable regional gas hub is a strategic objective that should be supported by the European Union. This is good for long-term energy price competition in the Balkans. For the Albanian gas hub to work, it needs access to the global LNG market and Caspian gas. This means that over time, Albania will have to construct an LNG terminal, a sizable gas storage facility, a pipeline that will deliver Caspian gas to Albania, and pipeline interconnectors that then link Albania with the rest of the region – Macedonia, Kosovo, Montenegro and Croatia. In addition, the plan should foresee the construction of gas-fired power plants in Albania and DC lines (dedicated electricity super-highways) built to carry electricity under the Adriatic Sea to Italy, and from Albania overland toward Croatia, Slovenia and Austria. 

The recent TAP pipeline deal that will begin carrying Azeri gas through the region toward Italy has the potential for an upgrade from 10 to 20 bcm. An off-take deal can be negotiated between Azerbaijan and Albania on the second 10bcm once the TAP line starts operating. Alternatively, the Azerbaijani National Oil Company (SOCAR) in cooperation with the Albanian Government and the European Union can build a dedicated pipeline for Albania connecting it to TANAP (an Azeri-Turkish pipeline currently being built to carry gas from the Caspian Sea across Turkey to Europe). 

The blueprint for the creation of the Albanian gas hub is here, and Europe should capitalize on the new regional energy developments and help Albania become a counterweight in the Balkans to Russia’s Gazprom. This is in line with Europe’s overall energy objectives, and would help prevent the region falling victim to energy price-fixing and political dominance from Moscow.

Borut Grgic is the director of the transCaspian project.