Turkey set to become major energy hub in 10 to 15 years

ISTANBUL - Hürriyet Daily News

Southern corridor is strategically critical, says Hoffmann adding, ‘That’s why you see a lot of emphasis on this corridor from the European Commission, from the United States; and obviously here in Turkey.’ DAILY NEWS photos, Emrah GÜREL

Turkey has been a key actor in the realization of the Southern corridor, which will carry Caspian gas to Europe, Michael Hoffmann, the external affairs director of the Trans-Adriatic Pipeline (TAP), told the Hürriyet Daily News in a recent interview.

TAP was chosen last June by the Shah Deniz II Consortium as the continuation of the Trans-Anatolian pipeline (TANAP) to carry Azeri gas from the Turkish border to Europe via Greece, Albania and Italy.
“One can see within 10 to 15 years Turkey really being a central energy hub in the region with all of these big flows coming through. From that point of view, making sure [that TAP and TANAP] are realized is critical,” said Hoffmann.

Where do you place the Trans-Adriatic Pipeline (TAP) project in terms of world energy?

TAP is part of a very historic project. It is part of the whole concept of the southern gas corridor, which is a brand-new corridor bringing a new supply source from the Caspian, Azerbaijan, all the way to Europe. There is one supply source from Russia and one supply from the North Sea; another supply source comes from North Africa, so this is sometimes referred to as the fourth corridor.

From a strategic point of view, it is critical. These are probably the biggest energy projects worldwide. [The project] expands from Baku all the way to Italy; it is probably going to cost between 40 billion and 50 billion dollars. The quantity of gas – the 10 billion cubic meters sold – would have a value in excess of of $100 billion over a lifetime of 25 years; it will create 30,000 jobs. When you think of all the countries involved, it is very strategic and huge.

That’s why you see a lot of emphasis on this corridor from the European Commission, from the United States; and obviously here in Turkey.

Why do you think TAP was chosen over the other two competing projects?

We have always remained very committed to emphasizing the commercial and technical value of the project. A project is made out of three criteria, the economics of it; the technical aspect – can you built the thing – and then the politics – do you have the support of the governments [involved in the] project? If you consider those three elements, our strategy from the beginning was to make sure that, technically, could we actually build the pipeline and, commercially, did it provide an attractive transit option? Could we offer an attractive tariff and transportation cost of the gas to market? We spent a lot of time [ironing] out the technical details of the engineering of the project, so we were very strong on that, which in turn meant that we were able to offer very compelling commercial arguments. Plus, we were the shortest route.

Also, if you look at the market, you can’t build a pipeline unless you have demand on the other side, so in this case, Shah Deniz gas had a lot of demand in Italy, and the companies that wanted to buy gas were prepared to pay a good price for that gas.

What have you been doing since the decision was taken last June?

One month afterward, we secured four new shareholders. BP, SOCAR and TOTAL joined, and we also secured Belgium’s Fluxys. Now we have a nice mix of upstream and midstream companies in the shareholder structure.

What happened in September was another milestone as the Shah Deniz consortium selected the buyers. Some of the gas was bought by Greece and Bulgaria. This is also important in terms of the European objective of trying to ensure some of Southeastern Europe remains part of this grand project.

TAP initially goes until Italy; will it expand to other destinations?

We don’t dictate where the gas goes. The question about where the gas ends up is who is prepared to buy it and what are they prepared to pay for it. TAP is a project that is fully flexible. It is expandable, it can go from 10 bcm to 20 bcm. If more gas is produced from Azerbaijan [it could be added to the pipeline, or] perhaps some gas will come from northern Iraq through Turkey into the system, which means countries along the route could take more gas. Also we have agreements with some of the other pipelines; the Ionian Adriatic pipeline which [is slated] to connect TAP in Albania. It goes from Albania through Montenegro to Bosnia-Herzegovina, Slovenia, Croatia and then you can enter Hungary.

There are some missing links in the system in Southern Europe. What needs to happen now is for the European Commission and the energy community to try and make sure that there is good level of interconnection between the various different countries.

What’s next?

Now, it is a matter of taking the final investment decision (FID) for Shah Deniz and TAP. All of our decisions are intertwined and interlinked with the Shah Deniz decision. We need to make sure Shah Deniz takes their decision by the end of this year. We are looking forward to that. Any agreements we have are very much conditioned on that. We will take our decision before they will take their decision, but we are dependent on their decision, of course.

How do you see Turkey’s position in this whole endeavor?

Turkey is at a very strategic point; geographically and historically. There are so many opportunities; we have not only the Azerbaijani gas coming through, there is a lot of potential for northern Iraqi gas in Kurdistan coming through. Then we have all of the eastern Mediterranean gas looking for potential ways of export. One can see within 10 to 15 years Turkey really being a central energy hub in the region with all of these big flows coming through. From that point of view, making sure [that TAP and TANAP] are realized is critical. It then allows Turkey to actually develop this very important role.

What do you expect of Turkey as of now?

Turkey is committed to TANAP; BOTAŞ will be a shareholder. They have already signed intergovernmental agreements, host government agreements. Turkey has fulfilled much of its mandate in this respect. Still, Turkey has a key role from now on in making sure that the projects continues, making sure that TANAP happens.

Turkey has been a key actor. The Southern Gas Corridor will not be successful without Turkey’s involvement.

Russia’s South Stream project is going ahead as well, and it targets the same market as the Southern Corridor. Could that curb the Southern Corridor’s potential of transporting more gas?

South Stream is coming into Bulgaria, then it flows north to Serbia. It does not go through many of the countries we are passing through. Also, there is nothing wrong with competition; European consumers want competition. What is important is buyers have a choice. They are not dependent on simply one supply.

So you believe there will be much more gas passing through TAP beyond the initial 10 bcm. 

We have been clear that we see TAP as the first phase, as merely being the start. We have to have the first piece of the Southern Corridor developed; once it is in place, you will get more and more passing through. We are fairly optimistic.

How will you ensure that the project is environmentally friendly?

We have gone beyond national legislation requirements in Greece and Albania. We have adhered to European Bank for Reconstruction and Development (EBRD) standards. That is our commitment to deliver the highest possible standards in terms of the environment and social impact assessments.