Turkish Stream: A Threat or a Challenge to the Southern Gas

Corridor?

John Roberts Energy Security Specialist, Methinks Ltd.

TUROGE 2015Ankara

19 March, 2015

What Do We Know?

Turkish Stream

• A plan that embraces existing contracts.

SGC:

• A contracted set of projects.

SGC Costs

Initial costings:

Total: $45 bn. (BP, various).

• SD2: $22.5bn

• SCP-X $5.4bn

• TANAP $10 bn, $11bn, $12.8bn, $13.9 bn, $16.bn?

• TAP c. $4bn - 5bn.

Rovnag Abdullayev: $48bn total (8 Dec 2014)

• Implementation under way: c. $10bn of contracts issued (early 2015).

SGC: Gas Sales Agreements

Shah Deniz Field

South Caucasus Pipeline Expansion (SCPX)

Trans Anatolian Pipeline (TANAP)

Trans Adriatic Pipeline (TAP)

Gas sales volumes (bcma)

ACQ: Annual Contract Quantity

Gas sales volumes (bcma)

Gas sales to BOTASStage 2 sales signed in 2011

(First Gas in 2018)Complementing current Stage 1

sales

Gas sales to EU buyers signed in 2013:Axpo, GDF Suez, Gas Natural, E.ON,

ShellHera, ENEL, Bulgargaz, DEPA

Gas to Europe to start ~1 yr later than 1st gas

ACQ: Annual Contract Quantity

South Stream: Route Options 2009-2011

Source: Gazprom

South Stream: The November 2012 Choice

Source: Gazprom

Turkish Stream & South Stream

South Stream – Jan 2014 - A Declaration

• “The European Commission has been pretending for quite a while that it has heard nothing about South Stream. Then, at some stage, receiving from the related countries copies of these agreements, the European Commission stated that all of them failed to comply with the EU Third Energy Package norms, that is, they should be denounced or revised.

• “In the end, these six countries collectively asked the European Commission to undertake negotiations with Russia, to which European Energy Commissioner Gunther Oettinger agreed.”

Vladimir Chizhov, Russian Ambassador to the EU. 22 Jan 2014.

Russia - November 2014:Southern Costs and Eastern Challenges

• $22.5bn for Russia’s Southern Corridor.

• $22.5bn for South Stream offshore and onshore (€16-17bn I 2013).

• $55bn for development of the 4,000-km Power of Siberia gasline and upstream costs of the Vostok project, notably the Chayanda gasfield in Yakutia (albeit, with a $25bn upfront Chinese loan).

• $18.5bn for the Altai Pipeline

South Stream & Russia’s Southern Corridor

The Southern Corridor:

2506 kms; 10 compressor stations

Ready by 2018.• Western Route: 880.6 kims, including Kubanskaya CS and the Korenovskaya CS interconnector; compressor stations’ capacity, 574 MW.• Eastern Route: 1,625.6 kms; compressor stations’ capacity, 942 MW.

Map source: Gazprom 2011

South Stream: July 2014

Source: Gazprom

South Stream & Turkish Stream: December 2014

Putin’s Ankara declaration (1 December 2014):• “Taking account of the fact that until now we have not received permission from Bulgaria, we believe that in the current conditions Russia cannot continue with the realisation of this project.” (Source: BBC)

Accord signed by Gazprom Chairman Alexei Miller and Botas Dep. Ch. Mehmet Konuk for:• A new 63 bcm/y system to Turkey• A 50 bcm/y distribution centre on the Turkey-Greece border. • New company called Gazprom Russkaya to build line. • QUESTIONS:• Who knew of this plan?• What destination?• How many strings?• EU negotiations?• Turkey: The residual market?

Turkish Stream – February 2015Source: Gazprom

South Stream/ Turkish Stream: Actual Contracts

• January 2014: First String physical pipe contracts €1bn• Mid-March 2014: Saipem (Italy) gets contract for

Saipem 7000 to lay first string (scheduled start: 4Q 2014) €2 bn• Late March 2014: Second String physical pipe contracts €0.8bn • 30 April: 2014: Allseas (Switzerland) gets unspecified value contract for Pieter

Schelte (Pioneering Spirit) to lay 900 kms of second string and Saipem gets contract for engineering, tie-ins to landfall, storage and ancillary services (scheduled start: mid-2015). ALLSEAS CONTRACT REPORTED CANCELLED – 3 Dec 2014. Est.€1.2-1.5bn

Turkish Stream: Prospective Development

• 1. The Saipem 7000 and the Castoro Sei are already in the Black Sea ready for pipe laying. 

• 2. The July 2014 South Stream route was c. 230 kms in Russian waters and EEZ; 470 kms in Turkish EEZ; and 230 kms in Bulgarian EEZ and waters.

• The planned landfall at Kiyikoy in Turkish Thrace adds c. 50 – 70 kms to an offshore pipeline compared to the South Stream landfall near Varna. But roughly three-quarters of planned South Stream route will be utilised.

• Required: A new 180-km pipeline across Turkish Thrace from Kiyikoy to the proposed distribution hub at Ipsala on the Turkey-Greece border. The border between Ipsala and Kipoi in Greece is to be the junction for the SGC’s TANAP and TAP pipelines.

• Question: An LNG liquefaction plant on the Saronic Gulf?

•TIMETABLE: Immediate or, as per Taner Yildiz (11 Dec 2014), completion in 2019?

Turkish Stream: Who Will Pay For It?

• September 16, 2011: OAO Gazprom, Eni S.p.A., EdF and Wintershall Holding GmbH (BASF Group) sign the shareholder agreement for South Stream Transport in Sochi, Russia.

• 14 November 2012, Amsterdam: “South Stream Transport is honoured to announce that a Final Investment Decision (FID) has been taken for the South Stream Offshore Pipeline in accordance with the Shareholders Agreement. The FID was made today in a Shareholders’ meeting subsequent to the meeting of the Board of Directors of South Stream Transport. The minority Shareholders maintain the right to leave the Project in case certain conditions will not be satisfied in the future.”

• 31 December 2014: Gazprom purchases the 50% stake in South Stream Transport held by Eni, EdF and Wintershall.

SGC & Turkish Stream: Comparative Capacities

SGC: • Azerbaijan-Georgia (c. 450 km); (8-9 SCP and 30-33 SCP-X) c. 40 bcm/y• Georgia-Turkey (c. 240 km); (SCP-X, using compression only): 24 bcm/y • TANAP Turkish Border with Georgia to Eskisehir (c. 1400 km): 33 bcm/y• TANAP Eskisehir to Kipoi (c. 450 km): 20-24 bcm/y• TAP Kipoi to Lecce (870 km): 20-24 bcm/y

Turkish Stream: • String One, 15.75 bcm/y: Essentially replaces existing Western route to Turkey & Greece• String Two, 15.75 bcm/y: Additional supply to Turkey and European markets accessible via Turkey using existing infrastructure or infrastructure currently under development. • String Three, 15.75 bcm/y: Additional supply to Turkey and European markets accessible via Turkey, BUT REQUIRES NEW INFRASTRUCTURE TO CARRY GAS BEYOND TURKEY• String Four, 15.75 bcm/y: Additional supply to Turkey and European markets accessible via Turkey, BUT REQUIRES NEW INFRASTRUCTURE TO CARRY GAS BEYOND TURKEY.

Blue Stream: • Can be expanded from 16 to 19 bcm using additional compression. An additional string would be required

for any subsequent expansion. Currently envisaged: a 1.0 bcm/y capacity increase.

SGC & Turkish Stream: The Legal & Political Overlap

Two Key Questions:1.Is there anything to prevent Gazprom from booking capacity in TAP to take advantage of its second phase expansion to c. 23-24 bcm/y?2.What are the implications of ‘Turkish Stream’ for the longer-term development of the Southern Gas Corridor?

Southern Corridor Source Fields

• Field Country Estimated Reserves Output & Production Timing

• Shah Deniz Phases I and II Azerbaijan 1.2 tcm 25 bcm/y by 2018-2019

• Shah Deniz Phase III Azerbaijan c. 500 bcm ?

• ACG Deep Level Azerbaija 300-500 bcm 10 bcm/y by 2023

• Umid, Babek, Nakhchivan,

Apsheron, Zefer-Meshel,

Araz-Alov-Sharq, Asiman-Shafaq Azerbaijan 2.7 tcm Post-2023

• Kurdistan Iraq ? 5-10+ bcm/y near to medium-term

• Akkas Iraq 59.4 bcm (GOI) 5-10 bcm/y long-term

• Galkynysh Turkmenistan Up to 26.2 tcm (gas in place) 10-30 bcm/y by 2016-2025

• Dauletabad Turkmenistan 1 tcm 30 bcm/y with E-W pipeline

• Offshore Block 1 Turkmenistan 180 bcm 10 bcm/y by 2017-18

• Source: Methinks Ltd

TANAP – A Line Half Full?

• If there is no capacity in TAP for post-SD2 gas, then does this mean TANAP will only be half-full?

• One sign of confidence: BP formally taking a 12% stake in TANAP on 13 March 2015.

• THE BIG HYPOTHETICAL: If the SGC is to grow, and Russian gas from Turkish Stream secures TAP’s expanded capacity, then what alternatives are there for post-SD2 gas to access European markets?

Nabucco West (2012) & Eastring (2015)

The SEEP Concept: 2010/11 and also 2015?

In 2010, BP came up with a concept known as the South East European Pipeline (SEEP). This was predicated on the possibility of using 10 ten bcm of the gas to be produced by the second stage of Azerbaijan’s giant Shah Deniz gas project to supply markets in the Balkans, without necessarily having to make its way all the way to Italy or Austria.

Although commonly portrayed as if it were a detailed project, it was essentially a concept.

At the time, (see subsequent slides) there was a case for saying that regional demand might well be able to use this gas. However, subsequently, it seems reasonable to revise Balkan demand estimates downwards because the region’s two biggest consumers, Greece and Romania, may now require much less gas than previously expected. This is because Greece is suffering from recession and persistent financial crisis while a major gas discovery in the Black Sea off Romania in March 2012 has the potential to end Romania’s need to import gas. • The SEEP concept envisaged a melange of existing pipelines, upgraded pipelines, new interconnectors and some wholly new mainstream pipeline coming together to constitute a coherent system for supply to prospective customers in the Balkans.

It might be worth talking a look at some of the SEEP ideas to see how relevant they are in 2015.

The SEEP Concept: 2010/11 - and 2020?Source: GDF Suez, Dec 2012.

TANAP(Trans Anatolian Pipeline)

TAP

Nabucco west(regular route to Baumgarten)

Nabucco west(RWE’s route)

SCP(South Caucasian

Pipeline)

SEEPSE Europe Pipeline

16bcm

10bcm

10bcm

Shah Deniz II

(Absheron)

East Mediterranean

Pipeline

Existing

South Stream

63bcm

8-16bcm

6bcm for local consumption10bcm

BOTAS network upgrade

South East Europe and Turkey: Additional Gas Needs

242015 2020

2025 2030

< 2 bcm

2 bcm < X < 5 bcm

5 bcm < X < 10 bcm

10 bcm < X < 20 bcm

No need

24

Total: 10 bcm Total: 26 bcm

Total: 62 bcmTotal: 46 bcm

12

2434

2 5

8 10.5

0.9 1.5

2 2.6

2 2.6

4.8 5.3

0.9 1.8

1.2 1.2

0.5 3.4

5.9 8.3

3.3

20 bcm < X

Source:GDF Dec 2012

South East European Gas Demand: A 2010 Overview

The SEEP Rationale:

Demand 1990 2008 2009 2015 2020 2025 2030 2035

SE Europe 59.1 40.8 35.2 45.2 49.4 52.7 57.1 60.0

Turkey 3.2 36.9 35.1 45.0 51.1 61.6 72.1 85.1

Total w/Turkey 62.3 77.7 70.3 90.2 100.5 114.3 129.2 145.1

SE Europe total comprises:

Romania, Bulgaria, Greece, Hungary, Slovenia, Croatia, Serbia, Montenegro, Bosnia & Herzegovina, Macedonia, Albania.

Source: IHS CERA, c. 2010

Conclusions

• Look for a two-string Turkish Stream;

• View Turkish Stream as a challenge, not a threat;

• There is a need to re-assess prospects for interconnectors in the Balkans.

Questions?

• John Roberts

• Energy Security Specialist

• Methinks Ltd

• New Mill House

• Jedburgh TD8 6TH

• Scotland UK

• Email: john.roberts@methinks.org.uk

• Tel: +44-1835-863725 (home) +44-7966-290354 (mobile)