Determination in sooner implementation of Southern Corridor projects with the purpose to deliver strategic volumes of Azerbaijani gas to the world markets was expressed at the meeting of President of Azerbaijan Ilham Aliyev and Prime Minister of Turkey Recep Tayyip Erdogan. The leaders of Azerbaijan and Turkey dispersed all doubts about the energy cooperation and construction of the Trans Anatolian Natural Gas Pipeline (TANAP), assuring that the project would be commissioned in 2018. 

Strategic investments 

The Trans Anatolian Pipeline is planned to be built from the eastern to the western borders of Turkey. The gas pipeline is a part of the Southern Gas Corridor aimed at transportation of Azerbaijani gas to Europe. During the negotiations held on April 4 in Baku, President of Azerbaijan Ilham Aliyev and Prime Minister of Turkey Recep Tayyip Erdogan declared that TANAP would have been built by 2018 which is the year when production of gas within the framework of Stage II of development of the gas condensate field Shah Deniz, located in the Azeri sector of the Caspian sea and possessing reserves reaching 1.2 trn cubic meters, starts.  Implementation of Shah Deniz Stage II will increase production on the field by 16 bcm  up to 25 bcm per year. 

“We are implementing major projects in the economic sphere. The issues of mutual investments are solved successfully. Azerbaijani investments are flowing to Turkey and the Turkish investments to Azerbaijan”, President Ilham Aliyev said at the joint press conference with Prime Minister of Turkey Recep Tayyip Erdogan. 

According to him, this process continues successfully. In the next 7-8 years, about $20 billion of Azerbaijani investments will be made in the Turkish economy. This is the largest investment we have made abroad,” President of Azerbaijan emphasized.

The Head of Azerbaijan State noted: “There are energy projects that connect us. We are implementing them together”. “Turkey and Azerbaijan are demonstrating their leading role in implementation of these projects. These projects have already gone beyond the regional framework and become global-scale projects. The Baku-Tbilisi-Ceyhan, Baku-Tbilisi-Erzurum and TANAP projects have changed the world’s energy map”, President Ilham Aliyev said. 

He emphasized the joint activity carried out in other spheres. “Transport and energy corridors connecting us will insure benefit for our peoples and neighbors”, President Ilham Aliyev said. 

Energy relationship also influenced the rate of goods turnover of the two countries. “As the result of very meaningful discussions, the foundation, that the future outlooks of the two countries are based on, is strengthening day by day. The external trade turnover of the countries is reaching $15 bln”, Turkish Prime Minister Recep Tayyip Erdogan said. 

According to the Head of the Turkish Government, the objectives of the Azerbaijani investments made in Turkey are big indeed. “The TANAP project is certainly the most significant among them. The Cabinet of Ministers made a decision due to the work commenced on registration of this project. Steps will Inshallah be taken in coming years, and I believe, when we reach the goals concerning TANAP in 2018, this international project will strengthen our brotherhood broadly”, Prime Minister Recep Tayyip Erdogan said. 

Along with it, he said, the Baku-Tbilisi-Ceyhan oil pipeline, Baku-Tbilisi-Kars railroad, Shah Deniz project are indeed the most important investments demonstrating how strong the ties uniting Azerbaijan and Turkey are.

The work on implementation of the TANAP project has already been commenced - the process of registration of the TANAP pipeline project was started upon the decision of the Cabinet of Ministers. “If we manage to complete this process, we will be able to lay the foundation of the pipeline by the end of the year. We do not worry about this issue”, the Prime Minister of Turkey said. 

The task is to have practical construction works commenced. “Our main goal is that bulldozers shall begin working soon and TANAP route shall be laid in a short term. Of course, all this is described in the form of project and plans. But as soon as the pipe laying process starts, the whole world will be observing it”, he resumed. 

The initial capacity of TANAP (on the border with the EU) is estimated at 10 bcm per year. But this volume can be increased up to 50 bcm in future. Tenders for supply of different diameter pipes have been announced for the time being. 

Southern corridor – profitable project

President of Azerbaijan Ilham Aliyev has changed the system of financing of gas projects. Signing a corresponding order on February 25, President of Azerbaijan Ilham Aliyev created a new company (CJSC) for efficient management of the projects on the Shah Deniz Stage II, expansion of the Southern Caucasus Pipeline Expansion Project, construction of the Trans Anatolian and Trans Adriatic gas pipelines. 

According to the order, the State Oil Company of  Azerbaijan has been assigned to establish a closed joint stock company (51% state owned, 49% SOCAR owned) with $100 mln in equity capital, secure efficient management of projects and transfer the CJSC share interests in projects. 

Apart from this, the State Oil Fund of the Republic of Azerbaijan was assigned to secure financing of CJSC’s shares, owned by the state, and long-term investing into CJSC under condition of return of funds required for financing of project interests transferred to the company. 

Besides, the income gained from all projects will be transferred to the State Oil Fund of the Republic of Azerbaijan until full return of funds invested into the CJSC. 

Later, the President of Azerbaijan signed one more Executive Order to cut expenditures of the State Oil Fund of Azerbaijan (SOFAZ) by AZN 759.9 mln (about $969 mln). The changes concern expenditures on funding the share of Azerbaijan in the Trans Anatolian Pipeline project. Originally, there was intention to extend AZN 800 mln ($1.02bn) to fund this share. Now it was substituted for funding “state-owned shares of the closed joint-stock company established to manage Shah Deniz Stage 2, Southern Caucasus Pipeline Expansion Project, Trans Anatolian Pipeline and Trans Adriatic Pipeline projects”. Scheduled spending for these purposes comprises AZN 40.1 mln ($51.1 mln).

Thus, SOFAZ told Caspian Energy, a new company to be named Southern Gas Corridor would itself fund gas projects, drawing investments from the State Oil Fund of Azerbaijan. In turn, SOFAZ will not take part in gas projects through SOCAR, but invest into a new company. In this way, SOCAR will be free from a debt burden in its assets. 

Over the next 5 years the State Oil Fund of the Republic of Azerbaijan (SOFAZ) will invest $2-2.5 bn to the company established as a management company for Shah Deniz 2, Southern Caucasus Pipeline, Trans Anatolian Natural Gas Pipeline (TANAP) and Trans Adriatic Pipeline (TAP) projects. Earlier SOFAZ Executive Director Shakhmar Movsumov said this to journalists during the Azerbaijan Investment Summit.

He said those funds would be used to finance the operation of the company. “$51 mln will be contributed on these purposes this year”, S.Movsumov said.

SOFAZ President thinks finances, which will be channelled to fund the operation of the management company, should not be viewed as expenditures. “These are investments that will be returned as soon as the Southern Gas Corridor starts bringing profits. We expect these funds to be paid back to the SOFAZ by 2023-2024”, S. Movsumov said.

Open project 

The gas export infrastructure of Azerbaijan is drawing attention of not only future buyers, but also sellers. The possibility for Iraq to join the Trans Anatolian Pipeline (TANAP) is being considered at the moment, and a final list of project partners is being composed now. Thus, Azerbaijan has proposed access for Iraq to the Southern Gas Corridor that connects the Caspian Sea with the European Union to help Iraq with gas supply to Europe.

Agence France Presse quoted the Foreign Minister of Azerbaijan, Elmar Mammadyarov as saying this at the press conference in Baghdad.

Minister Mammadyarov said official Baghdad had already expressed interest in joining this project.

“Any other countries, which have already showed interest, including Iraq, also are welcomed to join the Southern Gas Corridor, and we are ready to start negotiations”, Minister Mammadyarov said. 

As to project shareholders, Turkey can raise its stake in the Trans Anatolian Pipeline project. Turkish companies TPAO and BOTAS have applied to SOCAR with the proposal to raise their shares in the TANAP project from 20 to 30%. Minister Mammadyarov said the share of Turkish companies can be increased at the cost of the stake of Statoil and, perhaps, at the cost of Total’s stake. These companies refused from participation in the TANAP project, though earlier they had intended to buy 5% and 12% in the TANAP project. 

The agreement on TANAP was signed on June 26, 2012 in Istanbul. The gas pipeline is to transport Azerbaijan natural gas from the Georgian-Turkish border to the western frontiers of Turkey.

The throughput capacity can be expanded in the future. The project shareholding is comprised in the following way: Azerbaijan holds 80%, and Turkey owns 20%. SOCAR intended to keep a 51% stake. As soon as BP finalises the process of acquisition of a 12% stake in the project, SOCAR will hold 68%, BOTAS - 20%, ВР - 12%. 

TAP 

Azerbaijan gas will flow to Europe via the Trans Adriatic Pipeline (ТАР). In early April the Trans Adriatic Pipeline (TAP) Consortium was given the green light for construction of the Albanian section of the gas pipeline. The Compound Development Permit was approved by the Albanian National Territorial Council (KKT), chaired by Prime Minister, Edi Rama, states the release placed on TAP’s official website. “It is one of the most important permits granted to TAP AG by the Albanian authorities. It represents the permit which will authorise TAP AG to start its construction activities in Albania”, the release runs.

According to the press release, the construction activities will start with the upgrade and construction of access roads and bridges in Albania in 2015 and this will be followed by the pipeline laying and construction of other facilities associated with this gas transportation infrastructure.

TAP will transport natural gas from the giant Shah Deniz II field in Azerbaijan to Europe. The approximately 870 km long pipeline will connect with the Trans Anatolian Pipeline (TANAP) near the Turkish-Greek border, cross Greece and Albania and the Adriatic Sea, before coming ashore in Southern Italy. 

TAP’s routing can facilitate gas supply to several South Eastern European countries, including Bulgaria, Albania, Bosnia and Herzegovina, Montenegro, Croatia and others. TAP’s landfall in Italy provides multiple opportunities for further transport of Caspian natural gas to some of the largest European markets such as Germany, France, the UK, Switzerland and Austria.

TAP will promote the economic development and job creation along the pipeline route; it will be a major source of foreign direct investment and it is not dependent on grants or subsidies. With first gas sales to Georgia and Turkey targeted for late 2018, first deliveries to Europe will follow approximately a year later, in 2019.

TAP’s shareholding is comprised of Swiss AXPO (5%), Norwegian Statoil (20%) and German E.ON Ruhrgas (9%), BP (20%), SOCAR (20%), Fluxys (16%) and Total (10%).

Partners to the Shah Deniz Production Sharing Agreement are BP (25.5%), Statoil (25.5%), SOCAR (10%), LUKOIL (10%), NICO (10%), Total (10%) and TPAO (9%). The share of Statoil will be redistributed between SOCAR (6.7%) and BP (3.3%). Total also expressed a wish to sell its stake, and the talks on this issue are still in process.