Yves here. An interesting potential under-the-radar consequence of regime change in Italy.
By Vanand Meliksetian, an energy and utilities consultant who has worked with several major international energy companies. Originally published at OilPrice
No fewer than Turkish President Recep Tayyip Erdogan, Azerbaijani President Ilham Aliyev, Serbian President Aleksandar Vucic, Ukrainian President Petro Poroshenko and Turkish Cypriot President Mustafa Akinci attended a gathering in Central Turkey on 12 June. The amount and variety of attendees of this meeting reveal a common interest in one field of geopolitical developments: energy and more specifically natural gas.
The opening ceremony of the 1.850 kilometers long Trans Anatolian Pipeline, TANAP, starting at the Shah Deniz gas field in Azerbaijan and ending in Turkey, is the last step before connecting to the European grid in Greece and Italy. TANAP is part of the Southern Gas Corridor, which was the dream of many European leaders and officials to create an alternative to Russian gas.
The attendance of several high-level dignitaries shows the interest in the pipeline and the geopolitical developments of the region. More specifically, Russia’s dominant position in the natural gas market of southeast Europe has set leaders scrambling to find alternatives or at least competition of producers.
The fraught relations between Russia and Ukraine brought these countries on a collision course. However, due to historical reasons the energy industries of Moscow and Kiev have been closely intertwined. Russia has set itself an ambitious goal of circumventing Ukraine as its main transit country for gas exports. The Turk Stream and Nord Stream 2 pipelines, which are either planned or under construction, will carry much of the needed gas to Europe starting in 2019 when a new transit contract has to be signed with Kiev.
Ukraine intends to diversify away from and ultimately stop buying gas from Russia. The Southern Gas Corridor, therefore, is a highly anticipated alternative. The attending of Petro Poroshenko at the opening ceremony is a testament to this goal. Already Ukraine importing gas from neighbouring European countries with plans to increase domestic production of natural gas.
The election of a new government in Italy has brought change to the strategic energy map, which for a decade seemed to be fixed. The €40 billion Southern Gas Corridor pipeline bringing Azeri gas to Europe was intended to be linked to Italy’s by a yet-to-be-built Trans Adriatic Pipeline, TAP. However, the coalition government of the Five Star Movement and the League has created much uncertainty.
Environment Minister Sergio Costa has dubbed TAP as “pointless” and has ordered the launch of a formal review. The coalition partners have made fighting corruption one of their election promises. Furthermore, decreasing gas consumption is used as another argument not to construct an additional pipeline. Although demand has risen over the years, it is nowhere near the peak of a decade ago. Italy imports 90 percent of its needs from Russia, Libya, Algeria, and Holland while there is spare capacity.
Environmental reasons are also being used as the 5-Star Movement has a green political program. The new government’s minister for southern Italy, Barbara Lezzi, has said that the government believes that the pipeline presented an unnecessary environmental danger given Italy’s excess gas capacity. Although Puglia’s governor does not object to the construction of TAP, he has proposed redirecting it away from a tourist area.
The TAP consortium, which includes British oil group BP, Italy’s Snam and Spain’s Enagas, has said re-routing the pipeline away from Italy is not an option. Also, redirecting it inside Italy could delay the project by four to five years. However, analysts have predicted that there is an alternative: existing gas transit lines through the Balkans could be repurposed, and additional interconnectors could facilitate the transport of gas to Southeastern and Eastern Europe.
However, for now, this seems not as a reasonable alternative as it could take years of planning, securing new financing, and receiving political support in a fragmented region with diverging interests. What looked like a streamlined project (Southern Gas Corridor) with political and financial support both from Brussels and local players, has the potential of becoming a crisis. The European strategic energy map has been plunged into uncertainty due to recent developments as several major pipelines are planned, under construction or face uncertain futures.