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Approaching the homestretch in the race for Caspian gas, Kjetil Tungland

04 February 2013

The world of energy is changing at an unprecedented pace.  As we look ahead to 2013, that change appears to be both fundamental and inexorable. Many governments in Europe have stepped back from previous commitments to nuclear and realized that immediate prospects for renewables appear less encouraging. By contrast, the outlook for the global gas industry in the long term is quite positive. 

The shale gas boom in the US has brought down the price of energy for the first time in years, helping to stimulate economic recovery.  While shale may not have the same ‘game-changing’ impact in Europe, the continent is now closer than ever to diversifying its own sources of gas supply.

The development of the Southern Gas Corridor will be key to this transformation, delivering natural gas from the Caspian basin to western markets.  2012 has seen huge progress for the Southern Gas Corridor as a whole and for the Trans Adriatic Pipeline in particular.

Looking back over the past year, there have been many highlights:

  • In February, we were the first pipeline to be pre-selected by the Shah Deniz Consortium and entered into exclusive negotiations for the ‘southern’ route, to transport gas to Italy.
  • Later that year in June, Azerbaijan and Turkey signed the necessary Intergovernmental Agreement and Host Government Agreement to implement the Trans Anatolian Pipeline (TANAP), which will create a stable and secure transportation infrastructure for gas across Turkey to the border with Greece.  TAP has been designed to interconnect seamlessly with TANAP.
  • Cooperation with the Shah Deniz Consortium has been excellent.  In June, Shah Deniz partners signed a Cooperation Agreement with TAP, followed in August by a Funding and Option agreement to finance part of TAP and potentially to take up to a 50% equity stake in the project. Finally, in November last year TAP shareholders and the Shah Deniz partners SOCAR, BP and Total concluded the Shareholder Agreement defining how the TAP Joint Venture would be governed with members of the Shah Deniz Consortium, if TAP is selected by Shah Deniz this year.
  • In September 2012, the Governments of Italy, Greece and Albania confirmed their political support for the project by signing a Memorandum of Understanding (MoU) in New York.
  • Finally, in December 2012, Albania granted TAP the status of a project of ‘national importance’.

If 2012 was a big year for TAP, I am certain that 2013 will prove to be even more momentous. We had a great start to the year marked by the initialling of the Host Government Agreement with Albania. In addition, we are continuing to progress a Host Government Agreement with Greece and hope to have this signed soon. In the meantime, another imminent milestone is for the three governments - Italy, Albania and Greece - to sign a fully-fledged Intergovernmental Agreement. This will provide a formal foundation for the co-operation between our host countries. A great deal of effort has already gone into securing this agreement and we are confident that it will be finalised shortly.

After we submit our “Decision Support Package” on the 31st of March 2013, we will await the Shah Deniz Consortium’s decision over which pipeline will win the right to transport the gas in the Southern Gas Corridor in June. Assuming that TAP is the chosen pipeline project that wins the bid to transport Shah Deniz gas to Europe, more important milestones lay ahead, including TAP’s Resolution to Construct, which will be made in September 2013 - one month, before Shah Deniz take their Final Investment Decision.

I am confident that TAP will submit a compelling bid to the Shah Deniz Consortium in March and that, as a result, we will be chosen as their preferred and final pipeline option. And my reasons remain the same: the unmatched technical and commercial expertise of our shareholders; our position as the only pipeline that is not dependent on public money; the political support we enjoy; the early stage at which we have completed our agreements with the Shah Deniz consortium; the fact that our route is the shortest, most economical and most direct to the largest European markets; and the steady progress that we have continued to make over the last year.  Besides this, the TAP pipeline is now the largest and most strategic of the two proposed pipelines bringing Shah Deniz gas from TANAP to European markets.

Nevertheless, until June, when selection is made, we will continue to work closely together, and put all our energy and effort into providing the necessary input that will become the deciding factors for success!  TAP is a pioneering project, technically and economically robust, agile and adaptable, more than ready to meet the challenges of our past-paced and ever-changing energy world.  When the first Shah Deniz gas becomes available in 2018, we will be ready to receive it.

Kjetil Tungland